Over the last 10 years there has been a significant change to the structure of farming businesses in the UK. Gone are the days of a single holding per farm, as many farmers are now required to expand and take on additional land in order to achieve economies of scale. When farmers take on additional land, there are several different agreements that offer a broad range of benefits and securities to both the landowner and the farmer. These can include Farm Business Tenancies, Contract Farming Agreements, Share Farming Agreements, Grazing, Cropping and Mowing Licences, and Crop Contract Agreements.
A recent article in the October Farmers Weekly discusses the different types of farming agreements focusing on Contract Farming and Share Farming. As an alternative to a Farm Business Tenancy, these agreements offer many benefits to farmers and landowners. Farmers approaching retirement and wanting to maintain tax relief on their assets; landowners wanting to demonstrate to HMRC that they are actively farming; new entrants to the industry; and existing businesses wishing to expand their farming operation could all benefit.
At George F. White we are seeing a significant increase in farmers and landowners using Contract Farming and Share Farming agreements. Firstly, it is very important that we do not confuse the two. We talk to a number of people that say they want a Share Farming Agreement and they actually mean, and require, a Contract Farming Agreement. The two are very different.
Share Farming Agreements are defined as “the coming together of two parties in an agreement to farm a certain area of land while remaining separate businesses”. The owner and the operator define the arrangement around a series of ratios, which establishes how much money each party is responsible for putting in and entitled to take out.
Contract Farming Agreements are widely used throughout our industry with a proven track record. A Contract Farming Agreement or CFA is a contract between a land owner or tenant, referred to as the farmer, and a contractor who provides his services namely labour, fuel, machinery and management expertise. Both parties retain their individual business identities and their trading status.
There are a number of benefits of the CFA to both the farmer and the contractor. The farmer is still allowed to retain their “farmer status” and remain on the farm and benefit from being a trading farming business. The CFA allows the contractor to expand and benefit from economies of scale. The contractor is driven by trying to achieve a large divisible surplus/profit share in order to profit from the agreement, which also increases the return to the farmer.
As Agriculture policy and direct payments begin to take a new direction, farmers and landowners are looking to review their businesses including making sure that their farming agreements are fit for purpose. Therefore, it is vital that all existing agreements are formally documented and that any new agreement fulfils the requirements to ensure they remain legally recognised and robust.
For assistance on Farming Agreements or any area of our services please contact: