Cereals 2017: Farm contractors are demanding more from their agreements, says Strutt & Parker
The 2017 Cereals show in Boothby Graffoe in Lincolnshire. - Credit: Archant
Agricultural contractors are seeking higher charges and striking deals which shift the balance of risk back towards the farmer, according to findings presented at the 2017 Cereals show.
Rural business experts at Strutt and Parker said contractors were becoming more selective when land becomes available under a Contract Farming Agreement (CFA) – a joint venture where the farmer provides the land and buildings and the contractor provides the labour machinery and expertise to grow the crop.
Richard Means, a partner in the firm's farming department, said there was a trend of higher contractor's charges when CFAs are renewed or renegotiated.
'Contractors are looking at ways to improve and protect their position,' he said. 'Five years ago, the average contractor's charge was around £230- £240/ha, but now we are seeing contractors bidding at levels around £275-£300ha for typical contractor services on combinable crop farms in the East of England and the Midlands.
'We're also seeing a shift in the first tier of divisible surplus to be more in the contractor's favour. In 2016, the average first split to the contractor was 59pc, but the trend on review is for that percentage to move upwards. At low levels of profitability that protects the contractor, but at good levels of profitability for the farm the returns for both parties are not dissimilar.'
Mr Means said while farmers were assuming more of the risk, the average return from a CFA was often significantly better and more stable than the income from farming in-hand, as the farmer benefited from the contractor's lower labour and machinery costs.
'It is still a very good model for both the farmer and contractor,' he said. 'In well-structured agreements, both sides should be incentivised by the same outcomes – producing high yields, controlling costs and meeting the farmer's objectives for sustainable land management.'
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Uncertainty about the impact of Brexit meant clauses were being inserted into agreements to protect against future changes in the level of support funding, said Mr Means.
'I think most people accept that the smart thing is to be flexible and sit down to work out how to get the most from the agreement once there is clarity on the situation,' he said.
