23 August 2002

TREAD CONTRACT PATH WITH CARE

Are financial or other

pressures tempting you to

bring in a contractor?

Andrew Blake finds

several important points

need considering before

signing an agreement

TURNING all or part of a farms operations over to a contractor should not be undertaken lightly, warns David Bolton of Andersons.

"Id suggest there are 10 key areas which deserve attention first." Only by exploring them all and getting satisfactory answers can farmers be sure of a potentially satisfactory outcome, he explains.

Solvency

In an increasingly competitive market it is important to determine that contractors are operating on a sound financial footing. "You need to know that they are going to be there when you need them," says Mr Bolton.

"Dont be over-awed by fancy premises, and remember that size is no guarantee of continuity. You should ask politely to see the accounts or at least get a bank reference on the firms financial strength. Companies like Andersons should also be able to run a slide rule over the business."

Financial awareness

Many farmers with apparently spare machinery capacity are eager to act as contractors. But it is important that they fully understand the marginal economics of what they are planning.

Tread warily with potential contractors who find they need to invest heavily in new equipment and perhaps more staff to accommodate your operation, he advises.

"Id be more impressed by a contractor who came to me and said: I see the size of your operation as a good opportunity, and could prove it."

Farming ability

"You wouldnt buy a second-hand car without looking under the bonnet, and its the same with contractors. Find out if they grow things really well or whether they simply do the job required. Are the crops they already look after full of sterile brome or other grass weeds?"

Specific crop experience counts for a lot in this area, he suggests. "There is not a lot of point in asking someone to take on sugar beet if they havent grown it before."

Enterprises match

Possessing suitable machinery for specific crops is an important follow-on.

"It may seem obvious, but someone well equipped to grow oilseed rape is not necessarily well placed to handle root crops."

Tidiness

This is a subjective area requiring fine judgement, he admits. What is acceptable for some customers will be abhorrent to others. "Now that there always seems to be less time to do a job, its inevitable that some scruffiness may creep in."

On the other hand a cosmetically over-tidy approach may indicate financial naivety which could lead to problems. "But if you see spilled diesel and weeds all over the place youll probably want to think twice."

Existing capacity

"Find out what that brand new Lexion combine is already doing, how many other customers its flirting with and what it can really cope with. Ask the same question about that 6m Vaderstad drill."

Standard theoretical work-rate figures can be used to calculate whether the proposed extra operations are feasible, says Mr Bolton.

Management succession

For anything more than short-term contracts it is worth inserting a "death clause", he advises. "This allows the arrangement to be terminated if the business passes, say, from father to son who has different ideas that you may not like.

"Remember you are usually making a deal with an individual and you should have the right to back out if circumstances change."

Personal chemistry

Closely linked to the previous point. "Its unfortunate, but in agriculture as everywhere else, it matters. Ask yourself do you really want to see a particular person regularly in your yard."

Special customer deals

Contractors working with many clients are increasingly able to pull together valuable contracts to fill specific market needs, notes Mr Bolton.

"They recognise the need to be closer to markets. Oats for porridge and seed peas or beans are typical areas where contracts are available that offer potential advantages for both parties. Potatoes are rather more fragile!"

Some contractors also operate modern blending and drying plants which allow them to add value to combinable crops which might not be available through the farms own facilities. "Its the sort of thing thats worth investigating."

Location & logistics

The distance a contractor has to transport tackle clearly affects costs, and that is likely to be reflected in charges, says Mr Bolton. "Its becoming a more pressing issue as it becomes more expensive to move equipment about. I know some contractors already working on this basis and it is bound to affect overall bills."

Getting machinery to the farm is only part of the battle, he warns. "You need to ask whether that 6m drill can get down your lane or through that gate." Restricted access may mean the contractor has to use a narrower version, which in turn could justify a heavier charge. &#42

Shiny kit may be encouraging, but there are plenty of points worth checking before signing up to a contract farming agreement, advises David Bolton (below).

&#8226 Solvency.

&#8226 Financial awareness.

&#8226 Farming ability.

&#8226 Enterprises match.

&#8226 Tidiness

&#8226 Existing capacity.

&#8226 Management succession.

&#8226 Personal chemistry.

&#8226 Special customer deals.

&#8226 Location & logistics.