A new generation of contract farming agreements designed to maximise flexibility are likely to emerge in response to changes in government support and the introduction of more environmental measures into the arable rotation.
Speaking at Cereals Live, Richard Means, director in the farming department of Strutt & Parker, said a well-structured CFA would remain a very good vehicle to manage a farm as both parties could be incentivised, their skills utilised and economies of scale realised.
But the impending reduction in BPS payments, alongside the introductions of ELMS, would undoubtedly have an impact on the set up of future agreements because of their impact on crop rotations, he said.
“Ultimately, the farmer must still be seen to be taking the risk from growing the crops and the contractor needs to be fairly rewarded for having the retained running costs of labour, machinery and the management skill that they bring to the arrangements.
“Couple this with larger environmental schemes that might come into the rotations, then we will see more flexible arrangements where each cropping option has different rates for both the basic contractor’s charge and farmer’s retention.
“While that will make it more complicated to administer, it may well be the fairest way of dealing with the changes that are coming.”
The trend over the past two or three years has already been for contractor’s charges to rise as they seek to lock into higher guaranteed returns to reflect higher labour and machinery costs.
Provisional results from Strutt & Parker’s latest annual survey of contract farming agreements (combinable crop agreements only), show total income to the farmer for harvest 2019 averaged £392/ha, while income to the contractor is £395/ha – both returns above the five-year average.
The survey is based on the results of 60 agreements covering more than 12,000ha of combinable crops in England, mainly in the East of England, East Midlands and the South East.
· Total receipts from crops sales, BPS and stewardship payments higher than in 2018 at £1,332/ha, due to higher yields
· Average variable costs (£439/ha), up on 2018 levels and the highest for four years
· Fixed costs (£112/ha), compared to £97/ha in 2018
· Contractor’s charge broadly similar to 2018 at £276/ha, leaving a net margin of £506/ha – the highest since 2014
· Farmer’s retention £285/ha (£270/ha in 2018), leaving an average divisible surplus of £220/ha (£223/ha in 2018)
· Total returns to the farmer average £392/ha (£374/ha in 2018), which is well above the five-year average, but there is wide variation. The income expected for the middle 50% of farmers ranges from £331 to £444/ha
· Contractor’s total income averages £395/ha (£398/ha in 2018), which is above the five-year average. However, the income expected for the middle 50% of contractors ranges from £343 to £430/ha
Source: Strutt & Parker