Profits up in contract farming survey

Contract farming results unveiled by Bidwells at Cereals 2011 showed net profit for the 2010 harvest was up by more than 30% on 2009 at £489/ha.

The farmer’s prior charge on profits was up slightly (1.6%) to £210/ha, while the profit share over and above the prior charge (the rateable profit) increased 72% to £279/ha. Of the rateable profit, the farmer received 39% and the contractor 61%.

Total returns to the farmer in 2010 were up 22% on 2009, to an average of £320/ha, while returns to the contractor, including contracting charges, were 5% higher at £390/ha.

The improved results were largely due to better crop prices, a 26% fall in variable costs and a 17% fall in overhead costs, which were only partly offset by a drop in total crop income (beet output was down 33%) and reduction in the single farm payment.

The biggest cost reduction was for fertiliser, which fell 59% between 2009 and 2010 to £133/ha. Seed and spray costs were also down slightly, as overall variable costs averaged £311/ha, 2.4% above the five-year average.

“The levels of profit share vary from one agreement to another, depending on the level of risk borne by each party,” Bidwells agribusiness consultant Helen Peirson said. “However, the majority of our contracting agreements now include a second tier of profit share at a more equal level. This allows both parties to benefit from increased profits and higher commodity prices, as happened in 2010.”

Looking ahead to the 2011 harvest, she said it could be another good year for arable farmers and contractors. “Prices are still relatively firm and costs haven’t risen too far, so I’m expecting similar results, especially in areas that caught the rain crops needed. Farms on light land probably won’t do as good, though.”

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