Peter O'Flanagan

Peter O'Flanagan

Chief Executive Officer

11 min read

An agricultural subsidy can be defined as “a government incentive paid to agribusinesses, agricultural organisations and farms to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities.” Governments worldwide provide over $700 billion a year in total support to the agricultural sector. The vast majority of this fund ($536 billion) finds its way into the pockets of producers - and for good reason.

These subsidies recognise the unique challenges that producers face - and the vital role they play in society to ensure we all have enough food on the table. Not only is farming extremely weather dependent; agricultural processes require significant investment from producers in expensive equipment, inputs and labour before profit can be generated - who must also contend with time delays between shifts in demand and supply.

For most farmers in Ireland, one subsidy, in particular, provides a large proportion of their income: the Basic Payment Scheme (BPS).

Farming

Basic Payment Scheme

The BPS - which replaced the Single Payment Scheme on 1 January 2015 - is an agricultural subsidy scheme of direct payments to farmers under the Common Agricultural Policy (CAP) governed by Regulation (EU) 1307/2013. As the biggest of the rural grants and payments that provide help to the farming industry, the BPS provides a safety net for farmers by supplementing their main business income.

Under the BPS, eligible applicants receive a single annual payment based on the number and value of the farmer's payment entitlements - rather than output. When the scheme was implemented in 2015, eligible farmers were allocated payment entitlements.

According to the European Commission: “In general, each eligible hectare gave the right to one entitlement (although some European Union countries applied limitations on the number of entitlements that could be allocated). Support under the BPS is then granted annually to farmers who have payment entitlements upon "activation" of these entitlements. This activation is done annually by declaring eligible hectares with an accompanying number of payment entitlements.”

A farmer who meets the scheme's criteria must also comply with greening practices and the cross compliance conditions - which aim to ensure the safe production of food, the welfare of animals, the sustainable use of land, the maintenance of natural resources and limit climate change.

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Who is eligible for the BPS

As a member of the European Union, applicants in Ireland are eligible for the BPS, provided you manage land and are involved in an agricultural activity. Under the BPS, a ‘farmer’ is a person/group of people or a business that does at least one of the following agricultural activities on their holding:

  • Produces, rears or grows agricultural products – including harvesting, milking, breeding animals and keeping animals for farming purposes.
  • Keeps some land in a state suitable for grazing or cultivation by keeping it clear of any scrub that can’t be grazed (sometimes known as ‘dense scrub’).

Farmers who receive BPS payments may also be eligible for a top-up called the Greening Payment - a subsidy that helps to protect the environment and tackle climate change.

Your BPS application is also used to apply for payment under other relevant schemes, including:

  • Areas of Natural Constraints and Areas of Specific Constraint (Island) Schemes
  • Protein Aid Scheme - there is no need to apply separately for this scheme
  • Green Low-Carbon Agri-Environment Scheme (GLAS)
  • Beef Data and Genomics Programme
  • Organic Farming Scheme
  • Continued Participation in the Young Farmers Scheme

How to apply for the BPS

apply online

Farmers can apply online or by paper for the BPS once a year – between March and May – with payments beginning in December. This includes Young and New Farmer applications. Applicants are encouraged to apply as soon as possible to give them enough time. Penalties apply for applications submitted after the May deadline.

You must declare the following:

  • All agricultural land parcels and areas on your holding.
  • The ‘land use’ and any non-agricultural features that can’t be applied for.
  • The eligible land you are using with your entitlements (which must be at least 5 hectares).
  • The number of entitlements you want to use to apply for payment (which must be
  • at least 5).

Payment rates

Under the scheme, you are paid per eligible hectare of land farmed for which you hold entitlements. The maximum rate you are eligible to be paid per hectare is determined by the value of the entitlements you hold.

The number and values of entitlements you hold depends on several factors, including:

  • Payment rates and the number of entitlements received under previous schemes.
  • Adjustments each year to move values towards the national average.
  • Transfers of entitlements between farmers.

Each entitlement held must be supported by a hectare of eligible land farmed to qualify for payment. The value of each entitlement is used to calculate the BPS payment.

The BPS payment and the Greening Payment - which is approximately 44% of the Basic Payment - are added together to form the total direct payment. Entitlements can also be transferred to other farmers.

The maximum annual payment that will be granted to a farmer under the BPS - excluding the Greening Payment - is capped at €150,000. Payment will not be made under the BPS where the total is less than €100.

If you do not meet all of the scheme’s criteria, you may receive a reduced payment or no payment.

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Your exposure to currency risk

Farmer’s in Ireland whose application for the BPS is successful will receive a lump sum payment of euros. These vital funds are often used to make purchases that expose them to currency market risk - including importing - or selling - machinery and other supplies from abroad and exporting goods to international buyers and shippers. They may also employ an international workforce who wish to receive payment in a foreign currency and repatriate overseas. These international payments - especially if made regularly - can incur significant costs if a poor exchange rate is agreed, while costly transfer fees from banks can damage your profits.

Much like farming, currency trading is a 24/7 business. Therefore, the value of the euro against other currencies is constantly changing - not just daily but by the minute. Why do they fluctuate in value? Currencies strengthen and weaken each day because banks and investors purchase huge volumes in response to political and economic news. Positive news about a country typically causes the value of the currency to rise (“strengthen”), while bad news causes it to fall (“weaken”).

We also know when they might move because we often know the timing of political events that might influence them, and the economic calendar shows us when influential economic data will be released. However, there will also be news that happens without warning - anything from a US president tweeting late at night to a fall in the price of bauxite.

What we cannot predict – and no one can – is whether they will move up or down or by how much. Even slight fluctuations can make a big difference to the amount of money that arrives in your business’s overseas account. In some instances, the impact of the political and economic variables that influence exchange rates can be severe, as has been proved in recent times.

For example, in November 2021 the euro cratered as a resurgence of Covid-19, European Central Bank policy divergence and political uncertainty converged. By 23 November, the common currency was down 2.6% on the month and 7.8% year-to-date against the dollar, and has also weakened against other major currencies.

The emergence of the new Omicron coronavirus variant is perpetuating the impact of the pandemic on currency markets. And while the wave of Omicron appears to be milder according to preliminary studies, concern remains that the sheer number of cases could overwhelm hospitals - yet more uncertainty that’s keeping the euro pinned down.

This has brought the need to seek the services of a currency specialist into sharp focus for many producers in the Irish farming industry.

Clear Currency

Currency payments

Clear Currency specialises in helping businesses that operate internationally to save money and execute safe and speedy transactions when making cross-border payments.

Exchanging large sums of money into another currency and transferring them overseas can be daunting and confusing. Aware of this, we use our knowledge and experience to cut through the jargon and provide you with a friendly and personal service.

We recognise that it’s impossible to accurately predict how exchange rates will perform; therefore, it’s prudent to plan for all eventualities. In addition to helping you benefit from quick, easy, reliable and secure transfers, your dedicated account manager can mitigate the impact of currency risk on their value.

Your business can’t afford for international payments to be delayed or inflated in price. Therefore, it’s vital that they are made on time and you know exactly how much they cost once executed. This highlights the need to protect their value from currency market risk.

Your account manager will work in partnership with you throughout the international payment process. For example, before you make an international payment they can prevent the cost from escalating. Because fluctuating exchange rates make it hard to judge how much you’ll pay at any one time, your account manager can help you execute a forward contract to secure the cost of each payment. This allows you to lock in an exchange rate for a date in the future, securing the price of your payments when the time comes to execute them.

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