Two sides of debate over farm payments

Published on Wednesday 7 March 2007 01:35

CLOSE on £400 million is available to Scottish farmers through the new single farm payment (SFP), the device introduced as the core element of the 2003 reforms of the Common Agricultural Policy (CAP).

However, to receive their slice of the funds, farmers need to have an "entitlement," which was based on the reference years of 2000-2.

The authors of the CAP reforms probably never imagined that entitlements would become a tradable commodity. But that is exactly what has happened, in much the same way as the right to milk quotas did almost 30 years ago.

The fact is that SFP entitlements are now a considerable capital asset. Farmers who retire or step back from active production are still eligible to receive their SFP cheques, provided they comply with some basic conditions. The value of that entitlement varies, depending on previous farming practice, but farmers who are expanding their operations are willing to pay considerable sums to become eligible for increased SFP income.

Auction companies and brokers have latched on to the business opportunities available to their portfolios, and sales are now a regular feature of the farming scene within the permitted trading period which runs until 2 April. Current prices have been as high as 3.5 times the face value of future SFP claims.

Ian Hope, of, the consultants Hayes McCubbin Macfarlane, commented: "Trade has been very brisk over the last month with most lots of entitlement flying off the shelf in the face of a very strong demand. The situation simply reflects supply and demand pressures and probably as a result of a number of factors, not the least of which has been the hints from Brussels that the SFP will be with us at least until 2013, and possibly for some years beyond that date."

Hope's company has recently launched a new online facility, broadly similar to eBay. This is not the first such opportunity to buy or lease online, but Hope and his colleagues reckon that their system, which is not instantaneous, gives both buyers and sellers time to consider the financial implications. A date is set for the actual sale, but bidders have the opportunity in the interim of adjusting their commitment.

The bottom line is that it is virtually impossible to farm profitably without SFP entitlements, and that has huge implications for aspiring new entrants to the industry. Acquiring the capital to take a farm, even on a tenanted basis, is difficult enough, but raising the cash for SFP rights is a burden too far for most.

An additional problem is that speculators, many of whom are non-UK residents, have moved into the market. SFP is increasingly viewed as a sound business investment.

At the recent annual general meeting of NFU Scotland in Dunblane, Jim Stewart, who farms extensively in Aberdeenshire, suggested that every sale of SFP should be subject to a "siphon". These entitlements would then be placed in a "national reserve" to which young farmers could apply for what is basically a right to farm. This idea has not gone down well with many of the older generation who view future SFP cheques almost as a pension fund.