Contract Farming Agreements could become more popular as the UK moves into post-Brexit agricultural policy.
Good profits were expected to continue into the 2019 season, but the longer-term outlook was more concerning for arable businesses
And many farms would need to make ‘significant changes’ if they were to remain profitable over the next decade, with Brexit, high costs, a lack of break crops and stagnant yields hitting performances.
Speaking at the Cereals Event 2019, Andersons farm business consultants said its modelling showed the recent run of ‘robust’ arable profitability should continue for the 2019 harvest, but the outlook was less rosy.
Andersons highlighted how dependent businesses were on Basic Payment for overall profitability, meaning they would have to reassess their operations as changes to subsidy come into play.
One of the changes to the sector could be an increase in Contract Farming Agreements (CFAs), according to Strutt and Parker.
Richard Means, director in the farming department of Strutt and Parker, said total returns to the farmer averaged £375/ha in 2018.
This was comparable to the rent for a three to five-year Farm Business Tenancy, but Mr Means highlighted the farmer retained control of farming practices and the tax advantages of being a trading business.
The contractor’s total income was very similar to that of the farmer at £386/ha.
“Given the challenges of 2018 in terms of the weather, it is very positive to see a rise in the total returns to both parties with improved wheat prices, around £30/t higher year-on-year, offsetting lower-than-average yields,” he said.
Mr Means said he was expecting CFAs to become more popular as farmers adjust their businesses to adapt to subsidy changes.
“The incentivised nature of CFAs is such that it rewards innovation and better performance, which will be key to maintaining profitable farm businesses in the short to medium term,” he said.
“We are already seeing that some farmers who require more consistent returns to help service investment in other projects are turning to CFAs as a way of managing rising volatility in farming.”
Over the past five years, contractors’ charges have also been on the rise as they seek higher guaranteed returns and ensure the farmer bears a greater proportion of risk.