By the time that you read this you will probably have been inundated by bulletins, articles and “reaction” to the publication of the draft regulations on the 12th October for the reform of the CAP post 2013. I had thought that this article would go into some detail about the proposals but I am sure that by now you will have grasped the issues about the:
There are 7 draft regulations and over 1500 pages of text that will be pored over, debated and amended over the next 18 months (or longer). Already what is clear is that there are a number of issues that have the potential to trip-up people over the coming months and the likes of the NFU are suggesting that in certain circumstances you should seek legal advice.
I have identified immediately two areas where I believe that care needs to be exercised. The first is on sale or leasing of land and the second on business restructuring. There will be others!
There is a provision in the draft regulations that states that there will be a fresh allocation of entitlements in 2014. Furthermore in order to seek allocation in 2014 a farmer must have activated at least one entitlement in 2011 (i.e. the claim year just gone). It is thought that this is to prevent a repeat of what happened in 2005 when there was the raft of pony-paddock owners who wanted a cut of the SPS.
At draft article 21 3 there is a provision that “in case of sale or lease of their holding, or part of it, a [farmer] may by contract transfer the right to receive payment entitlements …. to only one farmer provided the latter is … [an active farmer].”
This suggest to me that everyone who claimed in 2011 has acquired the right to seek allocation in 2014 and that this right is capable of being transferred, presumably for value. My reading is that only one such right is created per 2011 claimant and this can only be transferred once. It is unwritten, but must mean that if it is transferred out, no residual right remains. Therefore it is possible that a working farmer could, if the wrong wording is inserted in a sale contract (or lease or grazing agreement) inadvertently transfer away his ability to seek allocation in 2014. So, as from now, in any sale contract or lease you should ensure that appropriate wording is inserted to deal with this risk.
With capping there is an express provision (art 11 3) that where farmers “have artificially created” the conditions to avoid the effect of capping then no payment shall be made. This is presumably included to stop large farming businesses from splitting into smaller ones that each receives less than the threshold for capping so as to avoid its effects. The problem with this is that there can be many reasons why farming businesses split, from commercial restructuring, through inheritance tax planning to succession planning to divorce. All of these may have the effect of creating smaller farming businesses from a larger one with the effect that capping is reduced or removed. However, who is to determine whether the motive was genuine or artificial – is it to be the RPA? How does one prove what the motive for a split might be? There will clearly be a need for accurate and timely minutes of any meeting as well as the securing in writing of the appropriate advice. You will need to ensure that any advisor dealing with a farming split has taken account of this issue and advised accordingly.
All the above comes with a health warning – namely that it has been deduced from a draft regulation that is many months from coming into force and will be changed. However it is clear that there are a number of issues that those advising farming businesses must be aware of and that are taken account of in any advice on the above matters given in the coming months.
For more information or advice on the new CAP reforms, please contact Paul Rice on 01926 880777.
October 2011
First published in the autumn edition of Farming and Rural Business News
