Opinion: Contract Farming Agreements need new approach

Taking a new approach to Contract Farming Agreements based on long-term thinking, more collaboration and greater transparency could benefit both landowners and contractors.

Many existing agreements are being terminated or renegotiated, with low commodity prices often cited as the reason, while the disappearance of the Basic Payment Scheme (BPS) in England is also rendering them unfit for purpose.

Many Contract Farming Agreements (CFAs) have been left to roll on annually since BPS reductions started, in the hope that new policies or better prices might help fill the hole.

While this may have seemed sensible at the time, it is unlikely that either will happen soon.

This, combined with the lack of certainty and confidence, means now is the time for both parties to proactively shape agreements for the longer term.

Contractors and landowners have both been feeling the pain. Contractors’ costs continue to rise with ever-increasing machinery prices, labour charges, and fuel price fluctuations.

Landowners often have the pressure of providing working capital to run such agreements.

Their first charges are also being questioned. These were typically similar to BPS levels, but landowners are now relating them to Sustainable Farming Incentive income, or looking for this within the CFA “pot” which depletes already-under-pressure profits and can leave the agreement with no surplus – or even a loss.

New structure

Ultimately, both parties want an agreement that gives them security. But now that there isn’t the same amount of money to be split, it calls for a new structure.

Many agreements have traditionally been a 50-50 profit share after the landowner’s “retention” and the contractors “first charge”.

Now is the time to look at tiered structures, reducing the exposure to perilously low divisible surpluses.

The contractor gets a proportion of the first tier to cover their costs and reduce their risk exposure.

There is a middle tier from which the profits are shared appropriately. Then there is a third tier, so that if wheat prices returned, for example, to the dizzy heights of £250/t, the landowner would take a larger share of the benefit.

If you’re in a CFA that isn’t working for you, you should be having a conversation about whether you can renegotiate the terms.

Consistent contractor returns of sub-£500/ha just aren’t sustainable. But if you’re a landowner, don’t feel you necessarily need to go back to the market via a re-tendering exercise.

With careful planning, transparency and a flexible mindset, well-structured agreements will share both profit and risk. Both parties can “get by” in the challenging years and, in the better years, both are rewarded.

‘Us and them’

I am currently drawing up many agreements along these lines. Having worked with as many contractors as landowners, I am determined to change the “us and them” narrative.

A common cause of friction between parties are the costs that sit within the CFA, such as the landowner’s agent/professional fees.

So why not have an independent adviser who understands the businesses on both sides of the fence? This will ensure they enter an agreement that feels fair to both sides and is sustainable.

For landowners, the answer is not always a review of the market. Instead, why not try a review of the agreement’s nuts and bolts?

What is beneficial is a relationship of partnership between landowner and contractor, ensuring CFAs will continue to be the right vehicle for many, in good and bad times alike.