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New entrant or retiring? Share farming could hold the key to succession...

Farmers approaching retirement are increasingly concerned about succession issues, while new entrants struggle to start up a business.



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Here’s why share farming is a solution worth looking at...

 

Share farming is different to traditional contract farming because both parties share the risks and rewards on pre-arranged percentage terms. The farm owner provides the land and the start-up farmer is responsible for operational activity.

 

The system has proved popular in many other countries, such as New Zealand and Australia where it has been adopted by nearly one in five farms. Meanwhile, more and more members of the British agricultural business community are talking about it.

 

What’s the appeal of share farming?

 

Statistically, the majority of British farmers are nearing retirement, with Defra figures suggesting that the median age of UK farmers is 59. Many face succession issues and are looking for someone to take over the operational side of the business.

 

The other, equally powerful driver, is a marked increase in agricultural college graduates and young farmers looking to gain a foothold in the industry, who are frustrated because they cannot afford to buy or rent land.

 

The theory of share farming is that it provides a viable succession solution for older farmers, as well as an entry opportunity for those at the start of their farming careers.

 

A ‘third way’ approach to farm ownership

 

Studies by the Country Land and Business Association (CLA) show that the main issue with the status quo is that a farmer is either in or out, and there is little room for flexible options such as transitional periods.

 

Share farming represents a ‘third way’ that allows a farmer, who cannot afford to retire immediately, to scale back workload while maintaining an acceptable level of income. It means mature farmers can stay involved in the operational side of the business while moving away from full-time responsibility.

 

How does share farming work on the ground?

 

Typically, a share farming agreement involves the farm owner providing the land, buildings and fixed assets with the entry level farmer managing machinery and labour.

 

Unlike a partnership arrangement, the two parties operate as totally separate businesses. The upshot is that the owner can make the most of tax advantages and the operator has an opportunity to build capital resources while adding commercial value.

 

It it also important to keep in mind what share farming is not. For example, it is entirely different to contract farming, traditional partnerships, contracts of employment and tenancy agreements.

 

Before entering into detailed discussions, both sides should be aware of this fundamental distinction, otherwise time, energy and money could be wasted.

 

The importance of a robust agreement

 

A professionally drafted share farming arrangement should be drawn up to cover all areas of the share farming operation. The commercial and financial risks of relying on a verbal agreement can hardly be overstated.

 

Individual arrangements should be bespoke, reflecting the specific needs of both parties. However, standard clauses are present in the majority of contracts.

 

These include a detailed definition of the land that will be farmed; conditions for the termination or renewal of the contract; pre-agreed dispute resolution procedures; and a schedule of risks and liabilities.

 

Remember to ensure all boxes are ticked

 

Before entering into an agreement, you should also ensure it provides for an asset register setting out precisely who owns what, including a comprehensive valuation schedule; the condition of assets at the start of the agreement; an unambiguous assignment of duties and responsibilities; and financial records identifying operational costs.

 

The agreement should also address how profits will be divided and what happens in terms of business succession if one of the parties dies.

 

Blog courtesy of Robson and Liddle Chartered Surveyors


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