Group finds strength by pooling resources
In our latest article
looking at the restructuring
of arable farm businesses we
consider a merger of five
Norfolk farms which has
seen unit cost of wheat
production drop below £45/t,
giving enough confidence for
each farm to expand.
Amanda Dunn reports
WE all sat round the table at our rugby club dinner in 1995 and moaned," says Delta Farmings Laurie Ritchie.
"Each of us had a problem on-farm and we were told the future was bleak for agriculture. We knew we had to do something if we were to survive."
Chairman, Andrew Alston, came up with the idea of pooling labour and machinery on all five farms to try to cut overheads. "In those days joint venture or merger farming had not been heard of. We just knew we wanted to act from a position of strength and do something out of choice, rather than to be forced into something later.
"We spent the next six months meeting regularly and trying to work out how to manage five businesses as one, only latterly taking legal and accountancy advice," says Mr Alston.
A limited company, Delta Farming, was subsequently set up to act as contractor to each farm. Each farmer became a director with equal voting rights and capital invested reflecting cropping and area. Machinery was bought by the company from existing line-ups and two tractor drivers transferred to the new company.
"We cherry picked our equipment from what was available and lived with what we had," says Mr Alston.
"We only own those machines we can fully utilise, and employ contractors to fill in the gaps. In this area, competition is strong for beet harvesting. It is pointless setting ourselves up at a cost of £80/acre when we can employ someone for £60/acre."
So far 160ha (400 acres) of combining is contracted in, one main tractor is hired in for spring and autumn and one potato harvester is shared with a neighbour.
The same is true of hedge cutting. "Why tie up a man and machine when you can employ someone to do it cheaper?" asks director Louis Baugh.
Machinery is up to date, but worked hard.
The three-strong labour-force is complemented by all shareholders during peak demands, while day-to-day management is the responsibility of director, Charles Bracey.
An agronomist visits weekly to discuss recommendations for all farms with Mr Bracey, who then actions and oversees work, receiving remuneration from the company for his work.
Crop recording is updated by e-mail and copy work records are passed to each farmer for computer logging to satisfy protocols. "Keeping our own records eliminates the need for a farm secretary," says Mr Alston, who carries out all bookwork and management accounts for the group. Budgets are produced annually and scheduling meetings held each month to assess physical and financial performance. "Within five years the group has seen overhead costs reduce by up to a third.
"I used to see repair bills in the region of £67/acre. Now, through Delta, I am paying closer to £53/acre, while my labour bill has gone from £72 to £44/acre." But cost benefits are not restricted to overheads. Savings have also been seen with variable costs. At the outset these were initially bought independently, but buying power has encouraged a trend towards centralised buying.
"Last year we bought all our sugar beet fertiliser together; this year we bought all our seed wheat through Delta," says Mr Alston. Chemicals are also bought jointly now, through a local buying group.
"My seed, ferts and sprays bill has reduced by £37.50/acre over the five years, although some of this may be due to a general reduction in seed potato prices," he says.
"When we started in 1995 we had 1750 acres, now we have 2500 acres. Unit costs have reduced to the extent that even with this additional acreage our capital investment in machinery remains within £500 of when we started. With Delta we have each had the confidence to go out and buy land."
"Delta has given us efficiency and economies of scale without losing control over our own businesses. It has given me confidence not just to carry on, but to invest and expand," says Mr Baugh, who has raised his area by almost 50%. *
Men with a mission… Delta Farming emerged from the realisation that working alone was no longer a realistic propsect. Norfolk farmers Andrew Alston (left), Charles Bracey (centre) and David King merged their labour and machinery with Loius Baugh and Laurie Ritchie. the results have been dramatic.
Delta Farming details
Andrew Alston Louis Baugh Charles Bracey David King Laurie Ritchie
Arable area (ha) 140 200 185 105 300
Sugar beet X X X X X
Feed wheat X X X X X
Malting barley X X X X X
Potatoes X X X X
Vining peas X X
Maize X X
Dwarf French beans X
Italian rye grass X
Soil type Sandy loam Light sandy loam Heavier sandy loam Heavier sandy loam Sandy loam
Land bought 20ha arable 90ha arable 40ha arable 20ha arable+ 70ha arable
Alternative biz interest Farm management Pedigree Pig units Conservation Dairy unit
consultancy Holstein cattle
• 1995: Five farms, diverse cropping, range of soils, 1000ha (2500 acres).
• Now: Three full-time staff plus 5 directors when needed, own machinery + hire in one spring/autumn tractor, one shared/one owned potato harvester, contract in beet harvesting, hedge cutting and 160ha (400 acres) of combining.
• Overheads down 33%, variable costs down £93/ha, higher yields.
• Future: Seek new director/shareholder, need extra 160ha (400 acres) cereals for 2nd Lexion combine, look at added value potato grading.