Contract Farming - Management Tool

Last updated: Monday, 5th October 2020, 14:04

There has been a lot of press and interest in the use of Contract Farming as a tool in order to help maintain the status of Agricultural Property Relief on farmhouses and land.  It is a tool which Farmers can use to vary the way in which they manage their farm and perhaps stand down from day to day management requirements. 

Ben Corbett MRICS of John Amos & Co in Leominster says it is more than just that.  It can be used to preserve the status of agricultural land as business property to preserve the benefits in such situations as development land.  Contract Farming is a longer term more involved alternative to Farm Business Tenancy and an alternative to annual Grazing Licences and other such short term arrangements.

There are alternative uses that Contracting Farming can be a useful tool in order to help Farmers and Contractors to develop their respective businesses.

• It can be used to introduce new and specialist crops and access to market which would be close to Farmers as well as allowing them access to skilled niche management sectors.
• Contract Farming can be used as a method of introducing new entrants into the industry.  New entrants often have relatively little capital to introduce into farming businesses, their only asset being their skill and enthusiasm.  By creating a clearly documented mechanism to allow these new entrants into the market and reduce the day to day management liabilities on the Farmer.  

Frequently sited reason being:-

• To allow a Farmer to stand back from day to day activities.  If there is no obvious successor to a family business, the Farmer does not want to leave the farm, he would employ a Contractor to undertake any of the day to day activities but be involved in the business in ways that he can still manage the day to day business, such an arrangement could be utilised in such situations of ill health or the need for the Farmer to stand back and be involved in other activities away from the farm.  Nonetheless, the possibility of undertaking some or part of the management records.

Many Farmers are concerned about maintaining the lifestyle of a Farmer and continuing to live in the farmhouse whilst working beyond an age that their health does not suffer.  In these situations, Contract Farming can be a route to stand back in the most onerous activities, whilst preserving the status of the farmer and their health.  It has been a growing issue of farmers working beyond an age that is healthy to them. 

Any Contract Farming Agreement needs to have a number of important components to it.  

• It needs to be a fully documented Agreement between the Farmer (Landowner) and the Contractor as to the parties responsibilities.
• It needs to state who is responsible for inputs,  machinery, stock, finance and day to day operational responsibilities? 

The aim will be that after the Farmer has been paid a first charge and the Contractors paid for his agreed costs, there should be a divisible surplus that will be split in an agreed proportion between the respective parties to reflect their inputs and risks undertaken by each party.

A Contract Farming agreement can allow the release of capital for the Farmer to invest in alternative enterprises. 

Advantages of using contractors to smaller farmers should be ability to purchase inputs, machinery and better prices and better terms. The better use of machinery, inputs, more cost efficiently and better accessibility to more modern technology should all help to improve returns to the farmers.

Contractors are often more than just a one man band allowing access to a team of people with specific skills that allow best resources to be inputted in the most appropriate times. Contractors often have better access to the best marketing resources by being able to access specialist market and more specific local markets who are better able to benefit from poor marketing features and other options to allow them to make better returns.

Finally, it is important that your Accountant and Solicitor are involved in the setting up of any agreement and it meets the required purposes of the respective parties. For further information Ben Corbett can be contacted on 01568 610007.

 

← Show all news