Plunging profits force contractors to slash costs

By Robert Harris

CONTRACT farmers are having to cut costs hard as returns from management agreements tumble, latest figures from property consultant Bidwells reveal.

Contractors charged landowners £94/acre to farm the land in 1998, almost the same as the previous year. But additional income from profits fell to £23/acre, down 37% on the year.

This produced an overall contractors return of just £117/acre, almost 10% lower than 1997 and just half of typical 1995 levels, says Bidwells Richard Potter.

A near 10% fall in net profits was partly to blame. But landowners also increased their prior charge, or initial share of the profits, by almost £2/acre, to average over £95/acre.

This represents almost three-quarters of the net profit, a climb of almost 9% on the year.

Add the share of remaining profits, and landowners average income hit £108/acre, just 1.2% lower than 1997, says Mr Potter. On an average size farm of just under 400 acres, this amounts to an income of over £42,000. But in the top 50% of farms, owners income hit £128/acre, up 5% on 1997.

“Pressure to reduce labour and machinery costs by increasing acreage remains intense, and ensures that contract managers must keep costs to a minimum,” says Mr Potter.

This year is likely to see the same trends continuing, he adds. “Contract managers can operate successfully for a total return of below £120/acre provided that additional land is taken on without increased investment in additional machinery or employment of extra labour.

“Successful agreements will therefore depend on securing managers who can operate at low costs without prejudicing the efficient management of the farm.”