Simply put, an entitlement is a capital asset, which gives its owner the right to claim the SFP, as long he or she is an active farmer.
They can be bought, leased or gifted and come in five different varieties, though most are either normal entitlements or set-aside entitlements.
There are also authorised ones (for fruit, vegetable and potato growers), special ones and national reserve ones.
No-one will know for sure the number or value of their entitlements until DEFRA has finished making adjustments to accommodate the national reserve, and future values will be affected by changes to CAP funding.
The earliest this is expected is in February – before that, it will not be possible to begin trading entitlements.
The transfer itself will use the RLE1 form, which will take six weeks to approve.
For that reason, farmers who want to transfer any entitlements in time to use them to claim the 2006 single farm payment must get their applications in by midnight on 2 April.
In the meantime, farmers can ask their solicitors to draw up draft agreements and future contracts so the paperwork is ready before February.
Estimated entitlement sale value*
|2005 historical income||2006||2007||2008||2009||2010||2011||2012|
* Source: Aubourn/Savills
Assumes non-SDA land above set-aside threshold with no National Reserve claim. Regional payment does not give rise to significant capital value.
The vast majority of entitlements can be sold either with or without land, but a maze of restrictions will apply to the trade:
If more than 20% of a farmer’s entitlements were awarded from the national reserve, none of them can be sold for five years.
Special entitlements will only keep their special status if they are all transferred in a block to the buyer.
Transfers without land can only take place if the owner has already used at least 80% of them or given the unused ones to the national reserve.
An individual entitlement can only be used to claim a payment in the region or area (ie. lowland or SDA upland) where it was established.
Those looking to acquire more entitlements before April may need to boost their set-aside area, says Tony Rimmer, a farm consultant with Carver Knowles.
“If someone is going to take on set-aside entitlements he must ensure that he has enough land in set-aside by 15 January.”
Christopher Monk of Strutt and Parker said most land would be sold with entitlements by farmers leaving the industry or changing farm structures.
“75% of trades in the first year will be farmers cleaning up after three years of complicated transactions on land.”
It is also thought that there could be plenty of the more valuable fruit, vegetable and potato entitlements up for sale in 2006.
But Francis Mordaunt of farm consultant Andersons says the narrow trading window may not leave enough time for FVP entitlements to find their way to the people who need them.
Since much of the sector works on rented land, at least 12 weeks will be necessary for entitlements to be transferred back to the landlord, then on to those who needed them, he says.
There is also a question mark hanging over vendors who farmed during the reference years and are eligible for entitlements, but have sold up since then.
DEFRA is seeking clarification from Brussels, but says it is inclined to allow these sales, even though they are not strictly between farmers.
But if the European Commission does not agree, the vendor may be obliged to acquire a minimum 0.3ha of farmland for the day of the sale.
Entitlements can also be let, but only if they are accompanied by land let in a farm business tenancy over exactly the same period.
A six-week notice period applies for processing the transfer, and six weeks’ notice must also be given if the lease is terminated before term.
For those who are already tenants on the land and want to attach entitlements, it will be necessary to end the existing lease and start another with the entitlements.
But Philip Wynn, head of agribusiness at Savills, believes there are ways around the with-land rule.
“It is difficult to see how DEFRA or the RPA could prevent the sale of an entitlement with the vendor retaining an option to buy it back, to get around the need to transfer land with entitlement under the lease rules.”
Another way around the rule would be to let out the income from the SFP, not the entitlement itself.
This could be attractive for banks who could use the income as collateral for lending, similar to a mortgage.