Fresh set-aside transfer project lifts restrictions

27 August 1999

Fresh set-aside transfer project lifts restrictions

By Philip Clarke

IMPROVED returns for both lessors and lessees is the aim of a new set-aside transfer project being set up by Lincs-based consultants Duncan Clark Farm Management.

The move follows the demise of the official set-aside transfer scheme, which is being scrapped by the European Commission.

According to Duncan Clark, this was little-used anyway due to its restrictive nature. Producers were limited to moving set-aside land a maximum of 20km, while both holdings also faced additional penalty set-aside of 3%, (recently reduced to 1%).

But the new arrangement he is developing allows farmers to rent-in set-aside without such restrictions.

"A change in the EU regulations means it is now possible to set land aside in the first year it is farmed by an applicant," says Mr Clark. "As a result, farmers can now rent in set-aside from anywhere in the UK on an annual basis."

Low yielding land

For producers on low yielding land who are struggling to make a profit, it may make more sense to rent out their entire farms for more efficient farmers to set aside.

And it may be more profitable for producers on more productive land to lease the land required for set-aside elsewhere in the country, enabling them to maximise production on their main holdings.

"The current regulation regarding a maximum of 50% set-aside on a holding only applies to farmers making an application for aid," says Mr Clark. "In circumstances where farmers rent out their entire holdings, they are not deemed to be making an application for aid and are not bound by this regulation."

The level of rent agreed will depend on the profit expectations of the two parties. But deals completed so far have settled at £350/ha (£140/acre), compared with a set-aside payment next harvest of about £225/ha (£91/acre).

"For the lessor, this is a far higher rent than he could expect from a normal farm business tenancy or by contracting out his farm," says Mr Clark. "On brashy land, without irrigation, he might only get £123/ha (£50/acre)."

The lessee also stands to gain considerably. In the example shown, a farmer growing 100ha (247 acres) of supported crops makes an additional £2180 gross margin by farming his total area, and renting his set-aside from elsewhere.

Such transfers are set up by means of a farm business tenancy. The landlord is also employed as a contractor to the tenant under a management agreement, which requires him to carry out all the normal works demanded for set-aside land.

In turn, the lessee protects the landlord by ensuring that his area aid claim has at least 11% set-aside overall, instead of the statutory 10%. "This means that even if a small, but genuine error is made to the areas declared, there will be no penalty to the tenants linked area payments," says Mr Clark.

There is no distance restriction to the renting of set-aside under the new regulations, though Mr Clark recommends producers stick within the same yield regions, as area aids will then remain constant. &#42

Set-aside transfer example

(100ha of eligible, supported crops, with 11% rented set-aside)

Revenue forgone Revenue gained

Set-aside payment Set-aside payment

(10ha @ £225/ha) £2,250 (12.36ha @ £225/ha) £2,781

Additional costs Cereal aid payment

(10ha @ £225/ha) £2,250

Renting set-aside

(12.36ha @ £350/ha) £4,326 Wheat sales

(87.5t @ £70/t) £6,125

Wheat variable costs

(10ha @ £240/ha) £2,400

Total £8,976 Total £11,156

Increased gross margin (£11,156 – £8,976) = £2,180

NB: Under Agenda 2000, set-aside and cereal aid payments will coincide in 2000.

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