Contract Farming Agreements – what to consider

By Douglas Ogilvie, Farming Consultant

Farmers need to respond to the challenges of increasing productivity, innovation, climate crisis, extreme weather and unknown policy changes that will hopefully help boost sustainable food production while supporting the environment.

One way is for a landowner or tenant, while remaining in complete control of their business and being an active farmer, to harness the management skills, labour, machinery, sometimes breeding livestock and technology of another farmer.

A Contract Farming Agreement is a straightforward Agreement whereby a Landowner or Occupier (the Farmer) engages the services of another Farmer or Contractor (the Contractor) on pre-arranged terms.

These agreements can be extremely flexible, prospectively long term and many agreements have been going for over 30 years.

The agreements are subject to the law of contract, and it is critical that these are properly drafted. There are many instances of agreements running into difficulties during inspections because of inadequate documentation or incorrect supervision.

It is vital therefore, that the documentation is correctly drawn up and supervised. Agreements work better with a third-party adviser being a facilitator and prevent problems festering. The adviser helps prevent mistakes, parties behaving contrary to the agreement, or it being found a sham.

Contract Farming Agreements should be distinguished from other agreements such as tenancies, partnerships, employment agreements, share farming and short term lets.

The Farmer usually provides:

• The land

• The buildings

• Fixed equipment (eg. grain drier), although sometimes the Contractor will provide these facilities

• Single Farm Payment, LFASS, SSBSS, SUSSS and in certain cases AECS

• Finance to administer the agreement

• Short and long-term policy objectives

The Contractor usually provides:

• Labour

• Machinery and all associated costs

• Breeding livestock and replacements although these can also be provided by the Farmer.

• Management expertise to implement the farming policy

Variable Costs and Fixed Costs

All variable costs are paid by the No. 2 Account. The Contractor pays for all his own labour and power costs. The remaining fixed costs are paid out of the No. 2 Account and may include:

Livestock

Breeding livestock can be owned by either the Farmer or the Contractor.

Finding a Contractor

Finding the right contractor this is the most important key to a successful long-term agreement, not the financial reward.

Finally

These agreements work extremely well for both parties for all enterprises whether arable or livestock. They are extremely popular and very flexible.

For further information

Contact Douglas Ogilvie who has over 37 years’ experience of Contract Farming Agreements or one of the Bell Ingram team in your local office. Tel. 01738 621 121.