Contracting an answer
Contracting an answer
CONTRACT farming can offer the easiest answer to the farm income crisis, according to Graham Ramsbottom of Strutt and Parker. He produced figures at a recent conference in Aberdeen to show that two farmers could each quadruple their income through a contract farming arrangement.
"Most farms are over-equipped, over-borrowed, and over-staffed. Farmers are well known for looking over the hedge but few look beyond the tramlines. The very key to survival will be looking further over the hedge for new opportunities, and contract farming is splendid example," he said.
"Take two 400-acre farms close together and both with surplus machinery and labour. Using simplistic figures, they are each left with an annual profit of £10,000.
Under a contract farming agreement, farmer A becomes the contractor and now handles 800 acres with extra total labour and machinery but with much lower fixed costs per acre. Even after allowing farmer B a retention of £35,000, farmer A is left with a profit of £40,000.
"Farmer B has his retention of £35,000, some property and administration costs but a net return of £24,000 and plenty of time on his hands to take a job and boost his income to at least £40,000. He is also able to realise capital from sales of machinery," Mr Ramsbottom said.
The move gave protection against modulation with each holding retaining its IACS status and he was confident contract farming could offer significant advantages to many farmers, owner-occupiers and tenants. "I believe it will become more popular after Agenda 2000 reforms are agreed," he added.