WHO SHOULD CONSIDER JOINT VENTURE FARMING?

You may be:

• An existing Farmer who, for reasons of economics of scale, staff related issues, expensive capital replacement decisions or disinterested successors, wishes to release working capital and reduce risk without necessarily losing the fiscal benefits of being a working farm.
   
• A Landowner who is presented with a block of vacant land on the departure or termination of a tenancy.
   
• A Tenant, who for whatever reason, seeks a secure income from the arable side of their operation fully within the terms of his Tenancy Agreement.
   
• A New Entrant or owner with no immediate wish to finance or run the farming business.

The three main options are a Contract Farming Agreement, a Short to Medium term Letting by means of a Farm Business Tenancy or an Annual Operational Contracting Agreement.

Contract Farming Agreements

The Landowner or Secure Tenant (the Farmer) provides the land and any existing fixed equipment (i.e. Grain Storage/Dryers etc). The Contractor provides the machinery and staff to run the farm including to an agreed extent, the hands on management. This will generally incorporate the purchase of inputs e.g. Seeds, Fertiliser, Agrochemicals and Sale of Commodities e.g. Wheat. All of this takes place within a Budget and Cashflow originated with and necessarily approved by the Farmer.

The Farmer receives a “farmer's retainer" and the Contractor receives a “Contractor’s charge”. A bank account is set up (in the Farmer’s name) which funds their payments, all variable costs and an agreed element of fixed costs. The account also receives all crop sales and subsidies. The resulting divisible surplus is split between the Farmer and the Contractor. N.B. The ratio of the Farmers Retainer and Divisible Surplus i.e. the risk ratio can be adjusted for each individual requirement. Normally the bank account management invoices and receipts are handled via the Loudham office in the farmer's name as part of the CFA service. However this is not essential and an individual Landowner can choose to retain his farm’s book keeping in house if that is preferred.

The Farmer’s retainer usually reflects an element of “Rental Equivalent” plus a significant share of any divisible surplus. A larger share of the divisible surplus goes to the Contractor. This is important as the Contractor’s charge is usually set at a relatively low level thus fully motivating him in terms of making a success of the venture and further ensuring the security of the Farmer’s retainer.

Advantages for the Landowner/Secure Tenant: -

1. The occupier can continue as the Farmer with proper Management involvement.

2. Capital could be realised through the sale of machinery OR on a new farm Capital setting up costs are effectively nil.

3. Working Farmer Tax status may be retained together with the potential for beneficial IHT treatment

4. Risk in terms of loss of income is minimised as the Contract may be underpinned by the level of the Contractors Charge as outlined above.

5. There is no risk of a Tenancy being created and therefore no risk to vacant possession value.

6. Good husbandry practice is guaranteed by the very nature of the Agreement.

7. An element of the farms insurance cost is generally taken over by the Contract Agreement.

8. Variable period of involvement (usually 5 years).

9. High level of communication between the Contractor and the Farmer including regular farm meetings and the provision of detailed Quarterly Financial Reports, liaison with Bankers etc.

Farm Business Tenancies

As the name implies this type of involvement allows for a Landowner to take an outright rent for his Land within the context of what can basically be a Custom Made and Site Specific Agreement. Almost any aspect may be incorporated as required including for example a Rolling Break clause to minimise any effect on vacant values in the event of a sale. The Target Rent will be that derived from related Entitlements Transfer Income adjusted +/- for each particular Farm Unit, its potential and the Term concerned.

Advantages for the Landowner:

1. Cross Compliance under SPS effectively met by the Tenant thus relieving the Landowner of a Cost they would otherwise inevitably have to meet.

2. Low risk income

3. Secure and well-tried arrangement.

4. Requirement for good husbandry and proper maintenance of related Roads, Buildings, Hedges, Walls etc are intrinsic to the Agreement.

5. Owner need have no involvement or responsibility for the land or those operating on it.

Annual Contracting

This alternative although generally less popular can also serve as a good entry to one or other of the former options. Where sub contracting of operations is being considered by a Farmer it can again free up capital but also 'incentivise' the Contractor far more because it is an annual agreement than might otherwise be the case where General Contractors are involved upon a piecemeal basis.

The agreement can be originated upon the basis of either an agreed scale of rates pro rata for operations or simply by the Contractor quoting upon a “Packaged Basis” upon a given cropping scenario and farm location. – In either case it would be central to Loudham to provide a timely and effective service because it is a full annually based agreement we would aim to retain.