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End of an era? Probably not

Colin Stewart explains why changes to the Basic Payment Scheme might not be as imminent as first believed...

It is now more than 10 years since agricultural support was de-coupled from production and area based entitlements were introduced and awarded to farming businesses.

The Single Farm Payment was introduced in 2005 followed by the Basic Payment Scheme in 2015. An important feature of these entitlements has been the ability to transfer and sell them to another producer. This has given farming businesses great flexibility as there are often structural changes to a business due to the loss or sale of land, acquiring more land through purchase or tenancy, new entrants, death, divorce - the list goes on.

The ability to easily dispose of and acquire the rights to agricultural support has been relatively straightforward and generally welcomed by the industry because of the flexibility it provides.

Brexit, however, has cast a shadow over the future of the support producers currently receive through the Basic Payment Scheme. CAP is scheduled for another major reform in 2020 when change would be likely, but many feel the current Basic Payment Scheme system is unlikely to change prior to 2020 despite the impending departure from the EU. It's almost a certainty that we will still have the current system during 2017 and 2018 and that would leave only 2019 and 2020 to continue with the present scheme until reform is scheduled anyway. Given the capacity of the Scottish Government's IT infrastructure in place to deal with these payments, it is unlikely that Government would change to an entirely new system again within a two to three year window.

This brings us back to the question of whether there will be any entitlement trading for the 2017 subsidy claim. Given that there is a fair prospect of another four payments under the current system (2017 to 2020), CKD Galbraith envisages producers will continue to actively look to trade as a result of this.

Purchasing entitlement, at say one and a quarter times its face value, in order to receive possibly four payments in return would make financial sense for the majority of producers. Many producers who have acquired additional land feel it is advantageous to have that land covered with entitlement. This is often seen as akin to an insurance policy because the land is in the subsidy system, which potentially makes it eligible for whatever may come along post 2020. This rationale is also in the thought process of new farmers who are currently not claiming support.

Only time will tell what transpires once Article 50 has been triggered and we have a clearer timeline for the UK's withdrawal. The trading of entitlements for 2017 and beyond will certainly be available as a ready market should exist. As ever in this complicated area specialist subsidy planning advice should be taken.

Initially published in our Rural Matters Autumn/Winter edition 2016.