A FARM AGREEMENT
BUCKS THE TREND…
Using a management
agreement to boost profits
while retaining an active
interest in the farm
business has brought big
benefits for one Beds farm.
Amanda Dunn reports
MOVING to a whole farm business management agreement has seen profits on one Beds farm buck the trend and rise markedly.
Unit cost of production has fallen to £50/t for wheat, putting it in Grant Thorntons top 25% for management profit.
Trevor Tongue and son Will introduced contract farming agreements 10 years ago to release capital and relieve workload at New Barns Farm, Carlton, where they farm 162ha (400 acres) and 250 sheep.
"Those arrangements worked well with average returns," says Will. But a desire to retain more of the profits made him consider alternatives.
"Three years ago we replaced the contract farming agreements with one whole farm management agreement which covers not only the arable operation, but also the sheep enterprise and fixed cost element of the business," says Will.
Day-to-day and long-term management of the farm is now conducted by Robert Jones, who runs a farm management service. In return he receives a management fee and profit related bonus.
Mr Jones remuneration reflects a lower risk and investment than the contract farming arrangements, enabling the business to retain more of the profit share previously realised by the contractors.
Individual contractors are employed on an operational basis, an independent agronomist provides specialist advice and a local buying group supplies variable inputs.
Long-term planning is carried out in collaboration with the Tongues, while regular review meetings are held to discuss progress.
"By using individual contractors we know were getting the most competitive rate and if we need a certain type of drill, plough or press well use a particular contractor," says Mr Jones. "This year we are considering direct drilling rape. The flexibility of our system means we can pick and mix as necessary, were not stuck in a rigid system.
"Paying for each operation also means cost of establishment becomes much more focused and we know exactly what it costs to grow each crop."
Last autumn contractors were paid £84/ha (£34/acre) to establish wheat using a plough-based system.
A natural progression during the past year has seen Mr Jones provide much of the contracting himself at competitive rates.
The independent agronomist provides whole crop consultancy, offering advice on varieties, seed rates, fertiliser policy and agchems.
"Its important to get a whole service, to try to become more technical and professional," says Mr Jones.
Variable costs have been cut by home-saving seed, reducing rates, joining a local buying group and extending the use of liquid fertiliser.
Each year we save virtually all our seed and introduce lower seed rates in accordance with our agronomists recommendations. To cut costs further, we are also discussing the feasibility of drilling untreated seed, says Mr Jones.
"Variables, previously shopped around for, have benefited from a 4-5% financial saving since joining the local buying group. Weve also seen a saving in management time."
A switch to using liquid fertiliser on the whole farm has seen a small cost benefit and slots well into the system.
"There is just a small cost benefit using liquid over granular fertiliser, but as we only own a small tractor loader it suits our system. With liquid fertiliser you dont need to be there to unload it," says Will.
Post-harvest grain is held on-floor in flat stores and sold for pre-Christmas movement. For outloading, a loader is hired in as necessary from a neighbouring farmer.
"We try to achieve a realistic price and spread the risk by selling a bit forward and a bit at harvest," says Mr Jones who hopes to average £60/t for harvest 2000 grain.
Other costs have also been scrutinised. Fuel is now sourced competitively through the buying group. Property repairs and machinery spares and repairs have all fallen since the business management agreement was undertaken.
"A 35% saving in insurance costs has been seen by changing insurers," says Will. "A reduction in accountancy costs has also been realised by carrying out more of the preparation work ourselves," says Mr Jones.
By applying attention to detail across the business, improving financial control and increasing yields, unit cost of production after rent and finance has dropped to £50/t and should fall further as yields and costs are expected to improve again this year, says Mr Jones. *
Whole farm business management Three contract farming agreements.agreement.
Contractors employed on operational Profit share arrangement.basis.
Management profit in top 25% Management profit below Grant Grant Thornton. Thornton average.
£296/ha (£120/acre)) fixed costs before rent and finance, but after contractor/management costs.
£84/ha (£34/acre) cost of establishment.
£50/t unit cost of production.
Right: Working together brings big benefits for Beds farmer Will Tongue (left) and local management consultant Robert Jones, lifting farm profitability into Grant Thorntons top 25%.
• Whole farm management agreement.
• Improved flexibility.
• More owner input into decision-making.
• Higher profit retention.
• Rent review.
• Investigate opportunity cost of renting out grain stores.
• CROPPING t/ha (t/acre)
• Biscuit wheat 9.26 (3.75)
• Seed osr 4.55 (1.84)
• Beans 2.96 (1.20)
• Rotation: ww – ww – break.
• Hanslope series clay.