What you need to know about contract farming

Contract farming has been common in the arable sector since the 1990s,¹ but can also work for dairy and livestock businesses too. It became particularly prevalent in the early 2000s as cereal prices fell and rationalisation was required.² Farming businesses needed to put more work through their machinery to justify its existence. So neighbouring farmers took on contract farming agreements.

So what is a contract farming agreement?

A Contract Farming Agreement (CFA) is between two farmers or a contractor and a farmer. It rationalises the operational side of the business, whilst allowing the landowner to still be considered a farmer. Unlike Farming Business Tenancies (FBT) which means you lose your farming credential and become a landlord. A CFA is about cost management and bringing in quality farming skills, labour and machinery to deliver margin. Contractors can be:

• a neighbouring farmer; 
• a large farming business; 
• or a smaller farming contractor looking to start up an agri-business, or develop an existing one. 

The farmer supplies land and infrastructure. Many benefits come with investing in an agricultural contract on your farm. Scott Henry, Agricultural Contractor Account Executive from our Birmingham branch has put together his top benefits of contract farming:

The benefits of a contract farming agreement are:

1. As the farmer you retain your farming status unlike in a FBT letting of land
2. As a farmer you can invite farming skills into the business
3. By using contractors you can usually build in efficiencies of scale and improve margins
4. For contractors it becomes an income stream they otherwise wouldn’t have
5. In a formal agreement you have continuity throughout the year as opposed to relying upon sporadic contract services.

According to the National Association of Agricultural Contractors (NAAC) 91% of farmers use agricultural contractors.³ 

Farmers are already used to an environment of hard earned profits and where forward planning is essential. So it is unsurprising that they are increasingly looking to contractors for specialist knowledge, expertise and the latest kit.

With an increasing number of farmers looking to contractors for their expertise and specialist knowledge. They are also essential to the continued success of the farming industry.

Need to know about agricultural contractors insurance? visit our Farmshield page to find out more.

Sources

1. number13.in/1512-contract-farming-pros-cons-of-the-controversial-practice
2. statista.com/cereals-price-index-of-in-the-united-kingdom-uk
3. naac.co.uk