28 May 1999

SHARING POWER +

LABOUR PAYS OFF

A YEAR ago Edward Darling, who tenant farms 242ha (600 acres) of combinable crops at Greys, near Royston, Herts, sat down with two local farmers to talk about the possibility of mutual co-operation.

Today, the three farmers jointly direct Therfield Combined Farming Company. They enjoy considerable financial and operational efficiency, and claim a quality of life none would have thought possible previously.

"We were aware of economic conditions and farming press coverage that smaller farmers were expected to become increasingly non-competitive," says Mr Darling. "Options open to us were to give up and get a contractor in, secure additional land, or consider some form of diversification."

Expansion via land purchase or tender did not seem viable. Mr Darling also wanted to maintain a close relationship with his land while still retaining independence.

Two local farmers were approached to consider co-operation in some form. Similar soils, cropping and agronomy stood in their favour and a desire to survive, without losing independence was common among the three.

The Therfield Combined Farming Company evolved as a separate limited company with directors taking an active role in establishment, agronomy or harvesting.

"We each went away and worked out the most efficient way of running our department across the full area," says Mr Darling. "Target establishment dates were determined for each farm; a machinery profile and disciplined replacement policy was agreed; and a twelve month budget and five year business plan calculated."

The new company would own all machinery, charge work out to each farm on an area basis and pay the directors an hourly rate.

Independent cropping, agronomy, accountancy and grain sales were retained by each farm.

"Economic advice was to get rid of all employees, and manage the new company on working directors alone," says Mr Darling. But both he and Mr King were loathe to force redundancy on loyal staff. Mr King retained his employee, charging him to the new company on an hourly rate. Mr Darlings employee opted for voluntary redundancy on grounds of poor health.

"The impact on timeliness has been outstanding," says Mr Darling. "Instead of three men working in isolation, turning round at the end of the day, changing tackle and going out again, an efficient team evolved."

Capital invested has reduced by 40-50%, with £50,000 released and invested elsewhere, confirms Mr Darling. Machinery and labour costs have seen savings of about 30% and increased efficiency has been achieved through expansion.

"Even in a wet season we achieved all our targets with half the machinery and comfortably met all drilling dates," says Mr Darling.

Retaining extra staff proved to be the right thing to do. "The new company has benefited from a reliable and skilled worker at a critical time of year for a cost of approximately £5000," says Mr Darling. "Off-farm work has been found for 30% of his time, and the balance is made up on his own farm.

"We also have better control over our own time to invest in other opportunities and a better quality of family life," says Mr Darling.

A redundant building, previously used to house the workshop, has been renovated and leased out. And a new company has been established to offer consultancy to other farmers considering such a venture.

The three farmers employed Simon Ward of Bidwells, Cambridge to offer professional advice on the merge and provide target figures for the combined company to aim for.

"A typical 1300 acre farm would spend approximately £30/acre on labour and £60 on total machinery costs, including hire, depreciation, repairs and running costs," says Mr Ward. "A typical 600 acres farm would spend closer to £62/acre on labour and £80/acre on machinery."

He considers Mr Darlings situation to be unique for two reasons. First, all three farmers are employed by the company and are only paid for work carried out. If it is a rainy day and they do not work, the company does not have to pay them.

Second, he has chosen to hire both a combine and a harvest tractor, so to compare costs effectively, depreciation really needs to be taken into consideration.

By only charging for work carried out, Mr Darling has been able to keep his labour costs down to 50% of the targeted figures and 25% of the industry standard for a 243ha (600 acre) unit. His total machinery costs are also comfortably below the target and industry standard, confirms Mr Ward.

"The opportunity is there for considerable savings on labour and machinery," he says. "Basically Mr Darlings example, shows what can be achieved by merging if farmers have got the willpower and motivation to do so."