If all of these are favourable, the potential for a higher gross margin – meeting the first charge with a good divisible surplus – is realistic.
A lot comes down to the quality of soil, field size, yield potential and grain storage. The level of the farmer’s first charge has to be sustainable and not all businesses can carry a robust first charge. Renewals have taken place where the farmer’s first charge is now higher than the contractor’s basic charge. That’s the key.Ģ - Be realistic when setting the level of first charge. They have nothing to do with the detail of a contract, but focus on the principle.ġ - Get the right contractor a point summed up brilliantly by one client who said: ‘I employed a farmer, not a contractor.’ This is someone who is not simply spreading their costs over more acres, but is interested in improving productivity, soil quality and returns – for themselves as the contractor and for the farmer. Contractors have seen a 3% drop in total return, which has increased the gap to £27 per acre.įor me, though, there are three golden rules to achieving a great result for the farmer and contractor. The initial results from last year show that average earnings were up from £175 to £180 per acre. So, where have we got to with contract farming agreements? Well, the initial results from our benchmarking survey last year show a continued widening of returns in favour of the farmer.
What’s more, some farmers are attracted by small savings when they should focus on the bigger goal that is being an active trading business, with all the benefits that go with this. Both situations raise questions about who is taking the risk and whether they share any loss. There’s sometimes uncertainty over who makes the claim for the Basic Payment Scheme. In some cases, the contractor pays for seed, fertiliser and sprays rather than the farmer.
The reality, however, can be a lot messier. Any surplus to the net margin at the end of the harvest year is shared between the two parties. In return, the contractor provides the labour and machinery for a set payment. In a CFA, the farmer sets up a dedicated bank account, pays the bills, and takes all the vital management decisions. But, all too often, the focus is on the detail in the agreement and loses sight of the principle behind farming with contractors.Īfter all, that is the key. Structuring the right contract farming agreement (CFA) makes a real difference to the profitability of a business.
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