Arable Benchmarking Survey

Arable Benchmarking Survey
 
Weighing up the options

12 June 2017, by Giles Hanglin

A well-structured contract farming agreement can offer income and capital taxation benefits as a trading business

 

In today’s challenging farming environment, long-term planning is vital and a major change in structure could bring significant opportunities to release capital, management time and buildings, all of which can be redirected into other enterprises.

Any major change in structure must be fully considered against the farm’s objectives. Indeed, the options available for individual farming businesses are wide-ranging and could include continuing to farm in-hand, making cost savings through sharing machinery with neighbours or entering into a full contract farming agreement.

Contracting agreements can take any format and bespoke agreements can reflect the particular nature of any farm or situation. Below, we focus on the advantages and possible triggers of when farms may consider contract farming agreements.

Of course, every time a landowner opts to move to contract farming, an opportunity is created for a new or existing business that wishes to expand.

FIGURE 6

Delicate decision – The balance of whether to contract or farm in-hand isn’t straightforward and rests on financial as well as personal requirements

 
Figure 6

Source: Savills Research

Industry outlook

Short term A ban on neonicotinoids insecticide puts pressure on farms growing OSR, especially given the prevalence of pre-2017 harvest drought conditions in major UK growing regions. With a mild 2016/17 winter, slug and pigeon damage, and less than ideal crop establishment in autumn, there will be disappointing results for growers and merchants at harvest 2017.

Medium term UK arable farmers will have to wait to understand the challenges that Brexit will have on the industry. A ban on glyphosate (under consideration) could increase pressure on arable crop margins if introduced. Brexit and the potential impact on the livestock sector could affect the home for a large part of the UK-produced cereal crop, leaving a need for new market destinations.

Long term Recently approved trials on GM crops could give farmers the incentive they need to break through the yield plateau that cereal crops have reached since the early 1980s.


Contract Farming Database

In addition to our Arable Benchmarking Survey, our Contract Farming Database analyses 27,000 hectares of arable land with an average farm size of 263 hectares. It has national coverage with the predominant soil type being Grade 3. The 2016 farmers’ average basic charge is £234 per hectare (when BPS income is included in the CFA) and the 2016 contractors’ average basic charge is £261 per hectare. 41% of agreements within the database have only one profit split, 43% have two profit splits and 16% have three profit splits.

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Key Contacts

Giles Hanglin

Giles Hanglin

Director
Rural Research

Savills Margaret Street

+44 (0) 207 016 3786

 

Nicola Buckingham

Nicola Buckingham

Associate
Rural Research

Savills Margaret Street

 

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