Gilston Crop Management was formed to cut costs on two Essex arable farms and fight back against low wheat prices. The new contracting company brought together farmers Stuart Tinney and James Gemmill, who farmed 1500ha (3700 acres), and were determined to slash power and machinery costs to just £160/ha (£65/acre).

A rent negotiation had highlighted the possibilities of working together, and the partners chose to form a limited liability partnership. Gilston Crop Management operates as a contractor, providing farm labour and machinery services on the two partners' farms. The firm operates at cost, and allowed the two partners to divest surplus machinery and reduce capital. Both put a smaller amount of capital into the new venture.

One year on, they were joined by Chaldean Estate, a neighbouring 809ha (2000-acre) arable and sporting estate owned by businessman Gordon Morrison.

Together, the partnership now runs to a total of 2104ha (5200 acres), and the partners hope that, in time, fixed costs will be further reduced by working assets harder across the greater acreage.

Sustainability

A third partner and a bigger acreage offered greater sustainability for the fledgling contracting firm. Mr Gemmill's brother Will, a partner in consultant Strutt & Parker, says to stay put at 1214ha (3000 acres) would have meant coping with inflationary rises in fuel and labour costs and facing reinvestment demands.

"We budgeted over five years, at £70/acre. We still think that's very realistic, but obviously hope we can get it down further over time. We couldn't just stand still, or costs would have just kept on creeping up."

Chaldean Estate's entry into the LLP also brought better administration and financial controls, so accurate costs can be reviewed on a monthly basis.

For Chaldean's Mr Morrison, coming into the joint-venture partnership was a purely commercial decision. "There has to be some changes in farming and I'm convinced the way forward is for farmers to work together.

"Cost pressures on farming are not going to disappear and there will be other squeezes to come. We know how single farm payment will decline. I was impressed with what GCM had achieved and it made my farming operation more economically viable."

Costs

Mr Morrison estimates that, even before the capital release from the sale of machinery, joining GCM would shave £30-£40/acre from Chaldean Estate's power and machinery costs.

Joining a limited liability partnership like GCM also meant Mr Morrison could retain some tax benefits of farming he may otherwise have lost by having his land farmed by someone else. As a partner in the business, he is still involved in the "trade" of farming his land.

This was an important consideration, says Mr Gemmill. "The recent McKenna case has already started to put a squeeze on some contract farming agreements, particularly where the landowner has no real involvement in farming the land. In this case, agricultural property relief was lost on the farmhouse."

Key to the partners' vision is to keep the GCM machinery fleet as small as possible, working to its full capacity, but making sure the two full-time staff have the right tools for the job. To this end, most of the Chaldean kit was sold, although the estate's Claas Lexion 560 combine has been retained to join the GCM kit.

But with an additional 809ha (2000 acres), many would expect to see a further sharp drop in fixed costs, as economies of scale grew. "Unfortunately, this hasn't happened straight away," says Mr Gemmill. "But we have managed to keep power and machinery costs down to about £70/acre. We budget for £70/acre, but are targeting £60/acre, and so we have to find efficiencies in the way we work to improve this."

But the main spanner in the works has been a sharp rise in fuel costs, coupled with above-inflation increase in labour bills, as GCM's budgets reveal (see table below).

Related Links:

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