JOINT VENTURES KEEP THE WOLF FROM THE DOOR
Joint ventures and tenancies
could be a way for more milk
producers to secure a
profitable future in dairying.
Jessica Buss reports
DO YOU think you could run a dairying business with a neighbour? Doing so could be worth 1.5p to 2p a litre in cost savings.
Thats according to farm consultant Teresa Dent of Strutt and Parker, Sailsbury, Wilts, author of a recently completed MDC report, Restructuring to survive: Options for dairy farmers.
Mrs Dent explains that these opportunities include tenancies and joint ventures such as share farming, contract farming and farm business partnerships: All could allow producers to exploit economies of scale, mainly though savings in overhead costs and pooling of technical expertise.
"These arrangements are popular and effective in the arable sector, its surprising the dairy sector hasnt taken them on. This may be because its simpler in the arable sector as it is easier to move grain than cows and less facilities are needed."
The arable sector has also suffered greater financial pressures historically and its recent downturn in prices started before milk prices fell.
"While these options are not the solution for every milk producer, they are worthy of consideration. There are instances where these are working well for both parties.
"However, none of these agreements is an excuse to take capital out of dairying by selling quota. If you want to do that its better to quit milk production," says Mrs Dent.
Deciding whether to leave assets in dairying is an important consideration for those looking into joint ventures or becoming a landlord.
But any venture must be capable of producing a business big enough to provide a return for both parties. Its important to complete your own budgets and to view it as a business venture. You should also take professional and taxation advice.
"And when the debt of either party is high, you must ensure restructuring allows enough of the debt to be paid off for a sustainable future. But there is nothing to stop an owner-occupier in debt moving to a bigger farm as a tenant or entering in to a joint venture which allows sale of land and buildings or perhaps the farmhouse.
"Entering into a joint venture may mean a producer has to move house, but it could save their career."
Another key factor in the success of any of these arrangements is that the people involved can work together.
Being able to work together is important, but in reality it is a business venture and partners only need to be honest and honourable, says Mrs Dent.
"If trends in the dairy sector follow the arable sector, there may be fewer opportunities than those willing to take them on." This may give land owning parties a choice of applicant for a tenancy or contract farming agreement. But will make it more competitive for those seeking an agreement without land.
Copies of the report, Restructuring to survive: Options for dairy farmers, are available from MDC publications (01285-646510).
• Economy of scale.
• Saving overheads.
• Pooling technical expertise.
Farm business partnership example budget*
Farm A Farm B Partnership
Cows 70 125 195
Acreage (acres) 94 168 262
Sales (litres) 455,000 968,750 1,423,750
Income (£) 77,900 165,738 243,638
Variables (£) 35,352 72,850 104,302
Overheads (£) 39,222 66,560 85,390
Profit (£) 3328 26,328 53,946
Profit (p/litre) 0.73 2.72 3.79
*Source: Restructuring to survive: Options for dairy farmers; MDC 2000. Based on a milk price of 17p a litre.