Apart from inheritance or marriage, the traditional route into British dairy farming has been to start at the bottom of the county council farm ladder.
But as cash-strapped councils have sold off farms for development, some of the rungs on that farming ladder are now missing and, with starter farms so small, producers can’t develop enough critical mass to move on.
They remain stuck milking 50 or 60 cows, unable to generate cash to get onto the next available rung. Even where councils have merged small farms to create 150-cow units, fewer moves are possible.
But there is hope. Despite many farmers quitting the industry, there are more opportunities for equity partnerships, contract farming and sharemilking.
They may not lead to farm ownership, but set up properly with a five-year plan, targets and goals, they can lead to successful, profitable businesses.
- Cefn Amwlch Home Farm, Morfa Nefyn, Lleyn Peninsula
- 1000 cows including Jerseys and crossbreds
- 300ha (750 acres)
- 600 followers
- Spring block calving
- 3500-4000 litres/cow
Getting a foot on the housing ladder and building a good financial track record with a bank manager are key to getting equity to start farming, believes Rhys Williams.
Together with his wife Kelly, he is a 20% partner in a 1000-cow business at Morfa Nefyn on the Lleyn Peninsula, having given up the idea of sharemilking in New Zealand for a chance to return home in 2003.
“The hardest part is getting on the first step, once you are on that, getting the bank to lend you money is easier. Don’t change banks for a better rate. It’s more worthwhile to get a manager to look after you and develop a good track record,” says Mr Williams.
“Buy some bricks and mortar. Banks like security. Saving £3000 for a house deposit got me started – with herdsmen’s jobs paying good salaries it is possible to save.
“We used my savings to borrow against and double our money, while the house was a good move as in our second year of the partnership, we were able to borrow against this and move up to a 20% share,” he explains.
A chance meeting with farm owner David Wynne-Finch, while home on holiday, resulted in a beef and sheep conversion farmed initially under a profit share agreement.
This developed into the equity partnership, split 80:20, with Mr Williams responsible for managing the unit and staff. Although the basis of the partnership is mutual trust and friendship, it is backed by a written agreement which sets terms for five years.
Each side has to give six months’ notice if they want to quit.
“We started with a 7% share and now have 20%. We put in 20% of the cows, pay 20% of the running costs – all variable costs excepting capital expenditure – and get 20% of the profit back.
We can increase that percentage to 30-40%. If we went to 50:50, that would represent 500 cows and mean borrowing a lot more money. The only equity would be in cows and banks don’t like that. Instead, I would prefer to put more equity into buying land.”
Thinking big is, however, important. Scale in an equity partnership is used as a stepping stone to something else, says Mr Williams. And yet he will settle for buying a smaller farm himself.
In another seven years, he hopes to be in a position to buy a 200-cow unit. This reasoning is that while his ultimate goal is farm ownership, he also wants to be financially comfortable and create a good life for his family.
Margaret and Andrew Smith
- Cotehill Farm, Brampton, Cumbria
- 320 crossbred cows
- 162ha (400 acres)
- Spring block calving
- 4500 litres/cow
Educate yourself, network and seek out the best operators if you want to get into dairy farming, say Margaret and Andrew Smith. Five years ago this couple were still milking cows for other people now they contract-farm 320 cows in Cumbria.
With the benefit of hindsight, their advice to would-be milk producers is to educate themselves by working for top operators – including a spell in New Zealand. “We have learned more in the last few years than we did in the previous 10,” says Mrs Smith.
“We wish we had gone to New Zealand and worked for 12 months to learn about different farming systems and get a business and financial education.”
With the benefit of hindsight, she also wishes they had planned and set goals from a younger age. They would have also benefited from learning business skills sooner, she says.
By their own admission the couple had plenty of practical experience, but little financial knowledge until Mr Smith’s last job as a farm manager. There he learned the discipline of setting budgets, using cashflows and controlling costs.
Mr Smith, however, believes there is no difference in running their own business other than freedom of choice.
Their best move was buying property, Mr Smith having bought his first house when he was 18. “Although we have lived in tied accommodation, we have always had a mortgage to pay, renting out and renovating houses to sell. This gave us an asset base and we still have property we can borrow against,” he says.
Their contract arrangement was advertised in the farming press and was on a farm close to where they were living. “We thought it would be a good stepping stone and knew we had an asset base to go into a contract farming agreement, so we took the plunge.
“Initially it was for three years, but it’s been extended. We supply cows, machinery and labour. The landlord supplies buildings – including a new 24/48 parlour – land and 1.4m litres of quota.”
Although the couple looked at council tenancies, they were put off by the investment needed for ingoing fixtures and fittings, says Mrs Smith.
However, both stress not to get hung up about being an owner occupier and say people should enjoy life while they can. “Be sensible: We like cycling, walking and holidays. We may eventually buy a farm, but you have to live a life too.”
Because they didn’t have to pay for any tenant’s fixtures and fittings, the Smiths could sink all of their money into buying cows – and they took whatever they could find at the right price. Pedigrees aren’t necessary to start up, says Andrew Smith.