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