29 December 1995

TAKING A GROUP APPROACH

Despite the advent of farm business tenancies, contract farming is still the number one

choice for many

CONTRACT farming has typically been a tool by which smaller farmers have taken on larger farmers to cultivate their land so both benefit from economies of scale.

But it doesnt have to be that way, as four Suffolk growers have demonstrated.

David Whiting decided in the early summer of 1994 to engage a contractor to undertake all operations on his 113ha (280-acre) Street Farm, Coney Weston, where combineable crops and sugar beet are grown.

After discussing the options with Guy Plenderleith of Brown and Co, the opportunity was advertised and a shortlist compiled.

"I was keen to use someone operating locally and, if possible, a smaller farmer looking to expand," says Mr Whiting. But whoever was chosen would need to have the relevant farming skills, commitment and a similar attitude to his own.

With that in mind, Mr Whitings attention was drawn to one particular application from three local farmers intending to operate together.

"We discussed the pros and cons of using a consortium. On balance we felt they would have the desired motivation to make this arrangement work.

"We felt that having three key individuals would be beneficial, since all of them would have a keen interest in the running and performance of the unit," says Mr Whiting.

The consortium, comprising Martin Farley, John Holden and David Scarfe, duly won the contract.

The first two are Suffolk county council tenants, each with 51ha (125 acres). Mr Scarfe has 134ha (330 acres) and considerable sugar beet expertise.

Also in their favour was that they all already undertook contract work and had been co-operating together for several years.

Machinery such as the combines, plough, cultivation equipment, corn drill, fertiliser spreader and sprayer are collectively owned by the three.

But Mr Plenderleith was keen to make the division of responsibility absolutely clear. "Mr Whiting and I felt it was imperative to have direct day-to-day dealings with one member of the group who would be responsible, on behalf of them all, for the proper running and general organisation of the holding."

It was agreed that Mr Farley would act as the spokesman. And although routine matters are directed to him, he communicates with the other two on a regular basis. And they all attend the quarterly management meetings with Mr Whiting and Brown and Co.

Despite initial concerns that these meetings may become unwieldy they have proved to be a valuable management tool, says Mr Plenderleith.

The agreement itself is typical of those in use around the country. An initial lump sum payment is made to the farmer and contractor in each farming year, which is then topped up by a share of the divisible surplus.

"Although I was standing back from the day-to-day workload, I wanted to be involved in the overall planning," says Mr Whiting. "And I wanted a formula which would give a fair return to each party in any particular year."

It was therefore agreed to use a two-tier split of the divisible surplus. Mr Whiting takes a 20% share of the first tier and 50% of the second.

In return, he accepted a more modest farmers retention than is often the case.

Using this split means the farmer gets a larger share in times of agricultural prosperity. But in periods of reduced profits, it still maintains an adequate return to the contractor.

The consortium, meanwhile, has a private and formal agreement determining how they divide their share.

"Contract farming was new to us and so we were very cautious in our projections," remarks one of the group. "But, having completed the first year, we are delighted with the outcome."

If the contractor is adequately recompensed for his costs, management input and associated risks, then the agreement is likely to be successful, says Mr Plenderleith.

The hope is that, subject to reviewed terms, the initial three-year term will be extended, says Mr Whiting.