FARMING opportunities and Joint Venture Agreements are on the rise according to Simon Britton, senior partner at property, land and business consultants George F. White.

Over the last three years, he has seen a significant increase in opportunities arising from farmers looking to retire or slow down and new investor buyers needing people to farm their land. In order for this to work for both parties, each needs to understand the mechanics and complexity of Joint Venture Agreements, such as share farming and contract farming

“It is very important that we do not confuse the two,” Simon said. “I talk to people who say they want a Share Farming Agreement and actually they mean, and require, a Contract Farming Agreement. The two are very different.”

Share Farming is defined as ‘the coming together of two parties in an agreement to farm a certain area of land, while remaining separate businesses’. Ratios are established to define how much money each party will put in and extract. Each invoice the businesses receive is then split by these pre-fixed ratios.

Notoriously complex agreements, they have never really taken off.

In contrast, Arable and Livestock Contract Farming Agreements, which have been widely used throughout our industry for a number of decades, have a proven track record.

A Contract Farming Agreement (CFA) is a contract between a land owner or tenant, referred to as the farmer, and a contractor who is employed to provide his services, namely labour, fuel, machinery and management expertise. Both parties retain their individual business identities and their trading status.

The basic financial principals of a CFA is the establishment of a separate contract account, which is administered by the farmer or third party. The contractor receives a fixed or guaranteed basic charge to cover some of his working costs. The net margin is then calculated by deducting all variable and fixed costs from the income received through crop sales and livestock sales, etc.

The farmer then receives the first payment, normally called the farmer’s basic return. Any remainder, the divisible surplus, is divided between the farmer and the contractor via a series of agreed tiers with are split by percentages. In the initial tiers percentage/weighting is more towards the contractor, this is where his profit is generated therefore motivating him to do a professional job.

There are a several benefits for both parties. The landlord or tenant can retain their farmer/trading business status and remain on the farm, while the contractor can expand and benefit from the economies of scale with little or no investment in machinery and labour. The contractor is driven by trying to achieve a large profit share to profit from the agreement, thus also increasing the return to the farmer.

Whichever agreement is chosen, high quality preparation and administration is the key to success.