Although contract farming arrangements have been running for a long period of time and have seen various changes to legislation (both national and European), they still provide a very attractive solution to farming land. As agriculture becomes more uncertain with volatile prices, changes in legislation, the potential loss of support and new environmental schemes, this option is becoming quickly more attractive. We were recently instructed by a first-generation farmer, who had acquired a block of arable land, to advise him on the best arrangement for farming it subject to his objectives being:
· To be included in the decision-making processes relating to cropping, marketing and environmental features.
· The financial returns from the land need to be competitive.
· To not invest vast sums of money in machinery that will depreciate.
· To ensure that the latest technical advances in agriculture are used on the land.
· To ensure that the environmental benefits of the land are maximised.
· To ensure that the land was farmed in a long-term sustainable manner.
After comparing a tenancy agreement versus a joint venture contract farming agreement, the latter was the clear winner.
Although returns do fluctuate annually, the return to the “farmer” (the person supplying the land to the agreement whether tenant or owner) has averaged in the region of £160/acre over the last six years. The structured forward budgeting and formal meeting processes allow the farmer to be actively involved and engaged with what happens on the land.
It allows the farmer to utilise the benefits of modern machinery such as; low compaction, fuel efficiency and targeted input applications on their land, which would financially not be viable if they were to invest in the machinery themselves.
Recently a client quoted “Seven years ago, before using a contractor, it would take me two days of preparation and half a day with the auditor to cover the ACCS inspection on my 200 acres. But now, ensuring that the legislation is met the responsibility is moved to the contractor, who is able to complete the process much more efficiently. This was a strong motivator for me when deciding to transition into a contact farming agreement.”
New software systems enable the farmer to access their own records and to view details like activities carried out on their land and crop sales. These record keeping systems also simplify annual stock take valuations that need to be carried out.
The above advantages and a competitive rate of return for your land should lead to serious consideration to using a Contract Farming Agreement. One client quoted “Why should I invest £750,000 in depreciating assets like machinery when someone else can come in and do the job quicker and more efficiently at a lower cost than I ever could”.
To discover more about Contract Farming Agreement options please contact one of our Agricultural Business Consultants at your local Brown&Co office.