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This Explanatory Memorandum refers to the Financial Assistance for Young Farmers

(Northern Ireland) Order 2004 (N.I. 21).

FINANCIAL ASSISTANCE FOR YOUNG FARMERS

(NORTHERN IRELAND) ORDER 2004

2004 No. 3080 (N.I. 21)

Explanatory Memorandum

Introduction

1.     The Financial Assistance for Young Farmers (Northern Ireland) Order 2004 ("the Order") was made on 17 November 2004.

2.     The Explanatory Memorandum has been prepared by the Department of Agriculture and Rural Development ("the Department") to assist the reader in understanding the Order. It does not form part of the Order.

Background and Policy Objectives

3.     In accordance with the Rural Development Regulation (EC 1257/99), which makes provision for the "setting-up of young farmers", the Department wishes to introduce enabling powers which will permit it to use national monies to offer a similar scheme in Northern Ireland.

4.     More specifically, Regulation 1257/99, at Article 8, permits setting-up aid to facilitate the establishment of young farmers (defined in the Regulation as those under 40 years of age) who possess adequate skills and competence and are setting up as head of the holding for the first time. The holding must be economically viable and must comply with environmental, hygiene and animal welfare standards. Regulation 445/02, at Article 5, clarifies that the beneficiary has up to three years to fulfil certain of these conditions. Regulation 1257/99 specifies that the setting-up aid may be in the form of a single premium payment up to a maximum of €25,000 and/or an interest subsidy on loans, with the capitalised value of the interest subsidy set at the same limit. Regulation 1783/03, amending Article 8 of Regulation 1257/99, now permits payments up to a maximum of €30,000 to "young farmers who are using farm advisory services linked to the setting up of their activity during a period of three years after setting up".

5.     The policy objective is to increase the levels of investment in agriculture which, the Department considers, is most likely to take place following the establishment of younger farmer "new entrants".

Consultation

6.     Consultation on the proposed scheme took place between May and August 2003. The proposal followed the guidelines for "setting up of young farmers" as outlined in the Rural Development Regulation (EC 1257/99). The consultation document was issued to interested parties who responded to the circulation of an earlier letter informing all potential stakeholders of the consultation exercises planned for 2003. Consultees were also identified from responses made to a number of press advertisements. Responses, which came from farming, environmental, political and other organisations and individuals, were for the most part positive with overwhelming numbers wishing to see a scheme for new entrants introduced.

Main Elements of the Order

7.     The Order essentially gives enabling powers to the Department to

provide financial assistance to young farmers. The Order does not specify how assistance will be provided or, other than with respect to age (under 40s), who is eligible, leaving this to the subordinate legislation which will be the subject of a separate consultation at the end of this year.

8.     It is intended that the powers to make subordinate legislation contained within this Order be used to introduce a New Entrants Scheme which is to be implemented as outlined below in paragraphs 12-19.

9.     It will be a requirement of the Scheme that the assistance provided should be used for an 'agricultural' purpose on the holding in relation to which the loan is obtained, with a view to promoting additional farm investment which will add value to farming in Northern Ireland. It is important that the Scheme should not adversely affect existing farming activities.

10.     It is proposed that assistance will be in the form of an interest rate subsidy on capital loans obtained from lending institutions. The commissioned research study (Caskie et al., 2002) concluded that the interest rate subsidy option represented much better value for money compared to the single premium option available, in that the interest rate subsidy would be more effective at increasing the productive potential of the farm business. Furthermore, the interest rate subsidy option also has advantages in terms of tying the assistance to commercial decisions, requiring applicants to present a business plan to lending institutions and to demonstrate a commitment to the development and expansion of their farm with a view to maintaining viability. Participants will be required to pay back the capital to the lending institutions, with the Department subsidising interest payments up to a maximum interest rate and to a maximum amount of €25,000 (or a proportion of the interest on the loan, if this is less than €25,000). A maximum interest rate for the scheme will be determined at the outset and will be subject to periodic review. If the interest on a loan were to exceed €25,000 it will be up to the participant to pay that excess. It is proposed that the scheme will be open to applications for 3 years, and the maximum period for interest subsidy will be 5 years. In all cases the maximum Government contribution of €25,000 will apply (or €30,000 - see paragraph 4).

11.     It is proposed that the Scheme as described above will be open to applicants who: -

• are setting-up for the first time as head of the holding;

• are under 40 and can display the required competencies and adequate skills, either at the time of approval of the loan (and interest subsidy) or during the first three years after their loan has been approved, as permitted by the EU Regulation and as assessed by the Department;

• have an economically 'viable' holding; and

• are able to demonstrate that they are aware of, and will comply with, minimum standards regarding the environment, hygiene and animal welfare.

12.     Applicants will be required to retain documentation for the duration of the loan for verification purposes. Loans may be taken out for any period but the interest subsidy will be payable for a maximum of 5 years. Loans must be identified and accounted for in a separate specific loan account. If the farm for which the loan is obtained is disposed of or transferred within 5 years (or another period to be determined) of the last interest subsidy payment, then claw-back provisions may apply.

13.     The Scheme will not cover loans for land purchase nor, in most cases, for the purchase of conventional farm machinery. However, projects which add value, are innovative and involve the purchase of machinery (and/or leasing of land) will be considered.

14.     Applicants will be required to submit a business development plan, including a specific project proposal, and a personal development plan indicating how competence requirements will be met (if unable to demonstrate adequate skills and competence at the outset) when seeking the loan.

15.     Applications must be made simultaneously to the lending institution and the Department, with all necessary supporting documentation, including the business plan and personal development plan. Lending institutions will screen applications on commercial grounds. DARD will not have any role in this, but will screen applications to ensure they meet the other criteria and will wish to satisfy itself that there is a positive economic benefit from the project.

16.     The Department will, on request, assist applicants in preparing loan applications, including the business and personal development plans, and in making assessments of farm viability. Applicants may, of course, obtain such assistance from other sources.

17.Guidelines on age limits, interpretation of terms such as 'agriculture', 'head of holding' and 'setting up for the first time', as well as for determining acceptable levels of occupational skills and competence, economic viability and minimum standards regarding the environment, hygiene and animal welfare are detailed in Appendix A of the Equality Impact Assessment.

Commentary on Provisions

18.The Order contains 3 Articles.

• Article 1 sets out the title of the Order and states that the Order will come into operation one month after the date on which it is made.

• Article 2 provides an interpretation of some terms used in the order.

• Article 3 sets out the Departments' powers to make a scheme providing for the making of grants.

Article 3 states that the Department may make an Order providing for financial assistance, namely grants towards eligible expenditure (including servicing a loan), to be given if expenditure has been incurred in connection with an agricultural business and has been approved by the Department. This Article also outlines basic eligibility criteria for applicants (i.e. that applicants must be under 40) and allows the scheme to make provision for specific matters such as the application process and the procedure for checking and monitoring applications.

Article 3 also makes provision for:

• claw-back procedures; and

• the protocol to be followed if applications are refused or revoked.

Article 3 states that the order containing the scheme would be subject to negative resolution procedure.

Commencement

19. The Order will come into operation on the expiration of one month from the day on which it is made.

Crown copyright 2004

Prepared: 21 December 2004