Land expert advises caution before entering a contract farming agreement
A leading land expert is warning farmers to beware of the potential pitfalls when entering a contract farming agreement.
Malcolm Taylor of Bell Ingram Land and Estate Agency warns that despite being seen as a positive way to maximise flexibility for the farmer or land owner, those looking to enter an agreement with contractors must do so with careful consideration.
Most commonly used on arable units, farmers will benefit from such an agreement as they are guaranteed to obtain a first payment out of the contracting account whilst keeping an active role in the farm.
Some may also be drawn to the potential for retaining subsidy payments while the contractor will also reap the benefits from economies of scale, a contracting and management fee and prospects of a profit from the divisible surplus share – if there is one.
However, many of these shared farming agreements are partnerships, with all of the difficulties and complications that often go alongside these types of business arrangements.
Malcolm, Partner, based at the Bell Ingram Forfar office and immediate past chairman of the Royal Institution of Chartered Surveyors said: “Anybody contemplating a contracting arrangement should consider why they are doing it carefully.
“It is all very well retaining the Basic Payment Scheme (BPS) and a first charge on the contracting account, but the question arises as to who pays to maintain and improve the fertility and quality of the soil.
“If a contractor is being pushed to increase output, then the first things to suffer are soil structure and ultimately, the wider environment.
“Farming simply cannot continue the way it is at present. If we choose to ignore environmental issues, it is at our own peril.”
As the popularity of these types of farming agreements increases, Malcolm believes landowners must be sure they are entering a deal which is right for them and their current situation, whilst also considering the potential long-term effects.
Malcolm added: “For some, contracting is a way of holding onto land while they decide what to do with it if there are no obvious family members looking to take on the farm.
“If this is the driver, the option of selling now when land values are still relatively strong should be a serious consideration.
“As the farmer, ask why it is being considered and as the contractor, make sure that you are not just taking on more land for the sake of it or to secure potato ground. Read the contract and take professional advice.”
Senior Partner, FRICS ACIArb
Rural Land Management
Tel: 01307 462 516
About: Malcolm is Bell Ingram's Senior Partner and heads up the company's Forfar office, where he specialises in farm and estate management, including the provision of agricultural rental advice and acting as an expert witness. He is the immediate past chairman of the RICS in Scotland and remains actively involved with the Institution. Malcolm is also head of Lettings within Bell Ingram. Interests: AMC Agent, Corporate Estate Management, Rural Land Management, SRDP Applications, FRICS Registered Valuer.
Article posted on 11/05/2018