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Contract Farming has been an extremely valuable part of our farm business management, nationally, for many years. Over the next 5 to 10 years, as our industry comes to terms with and adjusts to a farming economy with far less direct financial support, we believe Farming Contracts will offer huge opportunities to both The Farmer (land provider) and potential Contractors alike, in both the arable and livestock sectors, but to succeed they have to be well planned, structured and then well managed.
In the re-organisation that we, at GSC Grays, feel is bound to come, some Farmers may look for an alternative management structure for the farm, or, depending on their stage of career and whether there is succession or not, they may wish to retire completely. A carefully established Contract Farming Agreement would give them this opportunity, whilst at the same time allow them to stay living “ at home “ if they wish, remain the proprietor of a farming business and, crucially preserve Working Farmer Status for tax purposes.
The Contractor to an agreement would benefit from a new farming opportunity allowing their business to grow, offer economies of scale and increased profit whilst at the same time, present new challenges for the next generation. The key to unlocking these opportunities is very careful establishment, followed by sound ongoing management and good communication. The establishment of an agreement begins with a careful appraisal of the Farmer’s objectives and a thorough selection process to find the right Contractor.
Once appointed and the agreement has been documented and signed, ongoing management begins. Like all good businesses, a well-run Contract plans ahead with a detailed budget, which sets out The Farmer’s Policy for the coming year. Another vital ingredient of success is the working relationship created between Farmer and Contractor. Regular management meetings are held and minuted, which allow the parties to monitor the farming and the budget as the Contract year progresses.
At the end of the year, management accounts are prepared to calculate the rewards due to both parties. As a key part of good, ongoing communication, the year’s performance against budget is reviewed, thoroughly and adjustments are made to Farming Policy as necessary. The benefits to both parties, of the right agreement, can be very significant, but care and attention is needed along the way and all of these stages are core services that our Farm Business team at GSC Grays offers to our clients.
In the establishment of a new Contract it is also vital that both parties review and put in place appropriate and sufficient “Insurance Cover”. This is necessary to protect not only their own property such as livestock, buildings and machinery but also the roles and services they deliver to the agreement.
The Contractors central role is to deliver “Contract Services” to the farmer. To do this staff and machinery are deployed, either to manage livestock or to grow and harvest crops. From time to time accidents happen and mistakes are made, examples include crop loss due to inadvertent spray damage or action on the farm which puts in jeopardy some or all of the Basic Payment. Sadly, there are sometimes cases where the parties thought they were adequately covered, and as it turned out they were not. The financial stakes can be high. The good news is quality insurers and brokers now offer specialist cover that is ideal in a Contract Farming situation. From the Contractor’s point of view, it must cover negligent seed drilling, property damage or yield loss arising from spray damage, the potential loss of support payments, and of course third-party injury. The starting point is identifying, together, the key risks you are both looking to protect.
In summary, benefits from establishing a Contract Farming Agreement are often very significant, but it is so important, at the outset that, firstly, you plan, establish and then manage the right agreement for your collective needs. Secondly, where insurance is concerned, you need to review each of your insurance needs very carefully and take advice from your insurer or broker so that you are well protected. Once you can relax in the knowledge that you are well prepared and well covered, you can, not quite sit back, but certainly, reap the rewards of your agreement together.