Rewards there for contract managers

REDUCING LABOUR and machinery needs, as well as securing a healthy income, are all areas beef producers are being told they need to do to survive CAP reform. And as James Evans is finding out, contract management can offer those rewards.

Partridge Farm, at Linley, has now been under contract for six years. The 518ha (1280-acre) holding carries 250 suckler cows and is managed by Mr Evans, father, John, and brother Rob. But all breeding stock, land and buildings are owned by Justin Coldwell.

Mr Coldwell provides banking facilities and is responsible for keeping all accounting records for the farm, says Mr Evans. “In return a joint policy is agreed for which we provide labour, machinery and day-to-day management expertise.” The family are also responsible for keeping all farm records.

As well as contract managing Partridge Farm, the Evans family own a 307ha (760-acre) holding six miles away which is run separately. Walcott Farm at Lydbury North is all-owned and sources store cattle from Partridge Farm at market price.

These stores are then sold off-farm, rather than fattening and competing with producers with access to cheaper inputs in the East Midlands and eastern counties. Selling cattle to Walcott also frees capacity for a larger suckler herd at Partridge.

But these are sold at market value. “Selling at a preferential price would realise a good profit at Walcott, but would make Partridge”s farm accounts look poor.” As payment for providing labour and machinery, Mr Evans receives a basic monthly payment and Mr Coldwell withdraws an agreed basic return from the bank account. “This figure is agreed by both parties to provide Mr Coldwell with a fair return for the resources provided,” he says.

Farm income and expenses, including contractor payments and the owner”s basic return, is traded through a dedicated bank account in Mr Coldwell”s name and is used solely for contract account trading. “This will also include single farm payment,” adds Mr Evans.

At the end of each year a set of accounts is prepared which, he says, show the true return of business. These accounts exclude private and estate expenditure and use market prices for all valuations.

“Breeding stock are given a fixed unit value agreed at the beginning of the arrangement to avoid any profit on valuation of breeding animals provided at no cost by the owner.”

At the end of the year the surplus shown in the management accounts is split between owner and contractor as agreed. In this case 70% of surplus is for Mr Evans.

This method of management brings advantages and disadvantages to both owner and contractor, reckons Mr Evans. “For an owner it means they can keep their hand in with the business, as well as securing tax and VAT benefits. It also brings more control over land than a tenancy agreement would bring.”

But he says there is a higher risk with this method compared with a tenancy agreement, as the bank account is in Mr Coldwell”s name. When there is no surplus, in theory returns could be reduced.

For Mr Evans the main advantage is in spreading labour and machinery costs across both enterprises. “With no breeding stock or quotas to buy, reduced working capital and no rent to pay in advance, we have significantly cut our overheads.”

The family can also exploit the potential to keep machinery and overheads down, areas Mr Evans feels will become more important as direct subsidies are removed.

With both parties taking a strong interest in the arrangement, monthly meetings are arranged with an independent consultant to determine future strategies for the farm.

Although the system is proving successful, Mr Evans does realise a contract management agreement is not suited to everyone. The most important thing is to have a high degree of trust between both parties coupled with well above average performance required from the contractor, he believes.