Anthony Browne, Chief Political Correspondent
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City dwellers are making huge profits out of an EU loophole that allows people who have never set foot on a farm to claim European farm subsidies.
The loophole allows investors to become classified officially as farmers and then buy the right to receive annual EU subsidies to cut agricultural production. Because the subsidies are decoupled from the land they relate to, investors do not need actually to own the ground they are claiming for or even go anywhere near it.
The profits to be made are enormous, with investors potentially increasing their capital nearly fivefold in 5 years.
Auctioneers and brokers who used to sell cattle and farm-land are now focusing their attention on selling the rights to receive European taxpayers’ money — known as entitlement trading — in what one described as a “ferocious” market with the rights to subsidies “flying off the shelf”.
Demand is outstripping supply by five to one, because the profits from investing in subsidies are up to ten times higher than putting the money in a bank. After making a one-off payment, the investor is entitled to receive from the taxpayer every year a cheque that typically amounts to a third of the original investment.
Open auctions are being held — with one in Aberdeen due next Friday — while investors are also buying the rights to subsidies over the telephone, through brokers, through internet auction sites and inter-active trading.
The EU pays £60 billion a year in farm subsidies, which were originally aimed at boosting production, but last year farmers were given — free — the automatic right to subsidies, known as the single farm payment entitlement, in return for reducing production. They were also given the right to trade the subsidy entitlements between themselves, but the legislation is so loose that in practice anyone can officially qualify as a farmer.
British farmers claim around £5 billion a year of the subsidies in return for which they are meant to make environmental improvements to the land.
However, many are using their new right to sell the subsidies in order to raise a lump sum when they retire or to pay for new equipment.
Giles Lane, of C&D Property Services, which brokers the rights to farm subsidies, said: “You don’t need a farm to claim the entitlements. Sitting in your living room in London you could be claiming them.
One farmer emigrated to Aus-tralia and he’s still claiming the entitlements from there. It seems bizarre, but it’s totally legal. It’s how the Government wanted to set up the reforms.”
George Paton, of the agricultural brokers WebbPaton, who did 15 deals in one day last week, said: “This entitlement is detached from land. You pay £130 per hectare, and you get £624 per hectare back by 2012. It’s better than a building society, but it is high risk.”
The money will be paid until the next wave of EU farm reforms, which will not happen until 2013 at the earliest.
The loophole has been exposed by the Eurosceptic think-tank Open Europe, based in London, which last month sent a researcher to In-verurie in Scotland to pay £562.82 for a subsidy entitlement that should reap £306 a year until CAP is reformed.
Neil O’Brien, the director of Open Europe, said: “This is the final reduction to absurdity of the Common Agricultural Policy. Only the EU could have created a situation where people who are not farmers are paid not to farm.”
Farmers started trading subsidies between themselves last year, but the profitability of it has recently brought it to the attention of a wider range of investors. Mr Lane said: “There has been a lot more interest. Anyone who bought entitlements last year was laughing all the way to the bank. You’d get your money back in three years.”
Under EU regulations, only someone classified as a farmer can buy the right to receive subsidies, but to be classifed officially as a farmer, people need only hold a lease on a minimum of 1.7 acres for ten months of the year, and never need to visit it.
Scottish landowners are now leasing out vast tracts of rocky highland for as little as £5 an acre a year, so that investors can claim to be farmers. For each acre you lease, you can buy annual subsidies averaging £100 an acre, but which can rise to over £1,000 an acre.
Spencer Hayes, of the agricultural broker Hayes McCubbin Macfarlane, estimates that about 200,000 acres of Scottish highland and woodland are being leased to nonfarmers: “People are doing it massively. We have been leasing 100,000 acres simply to allow them to meet the European definition of farmer. The total market could be double that.”
Most people buying the subsidy entitlements are other farmers, but many are investors, including owners of hunting estates, who want their land to generate a second income. One estate owner, who wished to remain anonymous, told his local newspaper: “You can play this game like a stock market. What I would say is that we shouldn’t be here doing this; it is a crazy world.”
The trading of subsidy entitlements was fiercely defended by the National Farmers’ Union, which insisted it was essential for preserving the countryside.
A spokesman said: “Farmers couldn’t survive without subsidies. They ensure the beauty of the landscape is preserved.”
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Entertaining, yes, but totally untrue! This article is a complete load of tosh - as was the interview that John Humphrys did with Mr O'Brien on the Today programme yesterday morning. The Times should know better than to be hoodwinked into printing such rubbish.
Mark Sanders, Taunton,
Much of the article is simply untrue. Under the rules of the Single Payment Scheme, simply owning or leasing the land does not cause you to be classified as "a farmer" - you must be able to prove that you are undertaking an agricultural activity on this land in order to qualify for the payment.
Also, if the subsidy is worth so much to farmers, then it is more likely that the land owners themselves will want to retain the right to the aid, as opposed to leasing their land out so that someone else can have it.
Entitlement trading is designed so that only a set level of claimants are eligible for the payment each year. There are strict controls in place to ensure that these entitlements are not taken out of the UK's farming industry and into the hands of non-farmers.
HG, Yorkshire,
This is just what we need; bring it on. Anything that accelerates complete CAP reform is to be welcomed.
However, although the government may take the flak, surely the civil servants draft the legislation. So, is it shoddy leadership by the minister or bad management by... the minister?
Allan, Warrington,
whna frmer submits a claim for Single Payment the paragraph above where he signs states very clearly that the farmer confirms he is a farmer under Article 2 and that he has read and understood the definition of farmer.
Single Payment Entitlement is not I repeat not selling ferociously. The supply is out stripping demand, and due to farm land going under a bulldozer always will do as there will be more entitlement than land. The market the Times describes does not exist, at many of the recent auctions Single Payment Entitlments has been left unsold.
The facts are that you cannot claim payments unless you are a farmer, and to suggest that city dwellers who do not farm can invest in this commodity is just not happening and would not be allowed within the regulations and would fire straight in the face of Article 29 of the Eu regulations which is titled artificiality.
Please could the Times make sure before they print any article that they are printing facts rather than fiction
George Paton, Wootton Bassett, England
I object to the statement that farmers were given the subsidies for free - they are in part based on our production over three reference years, 2000, 2001 and 2002. The subsides received then enabled food to be sold more cheaply in the shops, and the same applies now. As all European farmers receive Single Payment should British farmers be despised for trying to make ends meet? In the dairy industry market forces work against us, we are legally obliged to sell our milk to only one buyer at at time, therefore we can't pit one customer against another to drive up our income, the result is our "customer" pays us the least they can get away with. We have to give them a year's notice to switch milk buyer and we are unable to dictate to them how much money we want for our product. I do not believe the income from selling ones entitlement would generate enough to retire on - unless you were planning to retire anyway when it would help.
Susan, Swindon,
Instead of Subsidising farmers not to grow food. Why not spend the same money on subsidising them to grow bio fuels? Oil seeds for bio-diesel? Bio-Mass for power stations? I don't know how fuel efficient it would be but surely it would make more sense environmentally than just letting people buy up allowanaces
Derek Richards, East Yorkshire, UK
EU loophole allows city farmers to reap millions in subsidy harvest
Does this tell you about the united EUROs hastily drafted constitution.?
Firozali A.Mulla MBA PhD, Dar-Es-Salaam, Tanzania
While I agree that current subsidy arrangements are completely bananas (this latest story comes on the heels of the announcement that the highest earning farmers win the greatest handouts) those who advocate an end to subsidies altogether should consider what would happen to this country if market forces were to decide the fate of the farming sector. The quaint rural communities where city-dwellers such as myself enjoy spending our holidays would more than likely disappear completely, with already over-crowded cities swelling still further with the influx of displaced inhabitants from those communities. And, even more crucially for me, our fabulously picturesque countryside would more than likely go to ruin. Think of subsidies not as a crutch for a failing industry, but rather as the cost of maintaining England as a tourist destination.
Johnny, London, UK
This article bares so many untruths that it is unbelievable and amazing that such a lack of knowledge of one industry can be displayed in such a sort article. Firstly and probably most importantly European single farm payments are made for maintaining land in good agricultural and environmental condition, onerous conditions which all Farmers, even those city farmers described have to meet! Profits made from these payments are certainly not enormous, the article has taken no account of managing
these cross compliance conditions and it has certainly taken no account of the financial charge for the land involved on which these entitlements can be used. Many other inaccuracies include the statement that payments are to cut agricultural production, demand is certainly not outstripping supply, you can not claim single farm payment on woodland, and many other untruths.
Please take care in future before attempting to destroy the reputation of such a vital industry
Andrew Blenkiron, Wolverhampton,
Well said, John Howe (above). I recall that, analagously, by the time the debate on responsibilty for the Asian bird 'flu outbreak at the Bernard Matthews plant had reached the floor of the House of Commons, we had EU law so conveniently (but incorrectly) blamed and Hungary as an icon of the victimised nation State praised by the Minister, Milliband. The Oppposition even joined in the populist blaming of the the EU and thus dropped their ball and opportunity.
Jonathan Stanley, London,
Has JH read the article? This is nothing to do with a question of should we subsidise farmers or not! The question is, should people who are not farmers, receive farmers subsidies. Come on JH and The Times, please spare us the agony of explaining articles further. Message is: if you do not agree with what I have said, please re-read the article above until you do.
Richard Sarsfield, London,
Greedy people will always find a way to feed on greed!
Michael Levy, Fort Lauderdale, Florida/usa
II can't understand how farmers can say "[We] ensure the beauty of the landscape is preserved.
Personally i would rather see untouched woodland or the like, rather than artificial, heavily weed-killed fields. I'm sure the countryside made do just as beautifully before farmers were around.
It's just an excuse to extract money from the tax-payer and preserve their way of life at the expense of our, and the developing worlds standard of living.
James Evans, Southampton, UK
Interesting, isn't it, that this doesn't seem to be a problem in the rest of Europe.
Could it be, I wonder that it is because only the UK Government that interprets EU directives in such a crass way?
It would be instructive, I think, to investigate *why* our government so often seems to make a mockery of EU directives that work well and sensibly everywhere else.
Tim Bartlett, Southampton,
Why Is this not being debated in "Paliament"? Mr. Blair??
Francis Wheeldon, Llantwit Major, Wales
Goldman,
We are enjoying the cheapest food this nation has ever seen as a percentage of average income. I would love to know where you intend this nation gets its food from if we find ourselves unable to import produce (as we have expirienced in the past).
If you want to be a self providing nation then we must keep our farmers. The choise is simple.
JH, London,
Fascinating: for once the French have done something we can benefit from!
This change from producer subsidies to fixed subsidies was made as the insistence of the French to "lock-in" their position as major beneficiaries of the CAP, ensuring they maintained it despite any (trivial) atempts to reform it!
Mike Bibby, St Albans, England -not EU
This is corrupt.
Farmers have been taking us for a ride for decades now. It is time to end subsidies in the EC and operate a free market. Food prices would rise to pay farmers at an economic rate but a free market system would be much more open and honest.
James, Newmarket, England
This article is so inaccurately reported that it can not go unchallenged. The Single Farm Payment (SFP) is, and never was, created to reduce production. The decoupling from production was designed to eliminate the overproduction of any agricultural product grown solely from a desire to chase the subsidy.
What neither Giles Lane or George Paton said, or at least you did not report, is that although anyone can indeed buy Entitlements, those entitlements can only be activated by having an equivalent number of hectares of registered land under your control for the requisite 10 months ( 1 entitlement requires 1 hectare to be activated). That Control is indeed a grey area as Section B11 of the Single Payment Scheme Handbook and Guidance for England 2005 states You will not be awarded any payments under the SPS if you artificially create the conditions required to obtain payment.
John Howe, Wincanton, England
I think I am correct in saying that last year there was a food supply deficit of some 100million tonnes globally. Instead of this absurd situation, would it not be better to farm and give a subsidy to those supplying aid to poorer countries undergoing famine?
Alistair Kipling, Birmingham,
The trading of Single Farm Payments entitlements is the consequence of the way the UK DEFRA operate the system.
Back in 1993 set-aside was introduced because the government wanted to reduce the area of cereals, and farmers were paid a compensation for taking land out of production. That payment has now become the SFP. Throughout Europe the SFP is paid to those farmers who were in receipt of compensation, only in the socialist UK, under Mrs Becket ,was a dogmatic policy adopted which insisted on spreading this payment across all land, including large gardens and pony meadows, a policy which has uniquely led to this problem in the UK. What is more, DEFRA made it so so complicated that they, again uniquely, made such a mess of it that they have now been fined hundreds of millions of pounds for failing to make the payments on time - payments which apparantly many don't really need, so they sell them!
Don't blame the EU for thisone.
j.kelleway, bern, switzerland
farmers are lobbying for supermarkets to pay more for milk .this is another subsidy for unwanted production .they have the opportunity to sell entitlements and land at record prices and retire . if you cant make a profit out of any business activity stop doing it. Presumably this is the intention of the scheme. What other failed enterprise enjoys these conditions?
edward.goldman, cambridge,
Another example of the greedy self serving money hungry people that know how to take advantage of an absurd political situation. When will common sense prevail??
brian willmer, chiang mai,