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Share farming: When two businesses could achieve more than one

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With the obvious flexibility and opportunities presented by share farming agreements, it is perhaps surprising they are not more common on UK family farms.

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With the obvious flexibility and opportunities presented by share farming agreements, it is perhaps surprising they are not more common on UK family farms.

 

On paper, share farming can provide a useful solution to a number of the key issues affecting family businesses.

 

It can provide expansion without the need to buy land. It can, either temporarily or permanently, tackle succession issues. It is also one of the few ways new entrants can burrow their way into agriculture.

 

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Perhaps most crucially of all, it can bring two businesses together to achieve more than one business could in isolation, building resilience around both enterprises.

 

Yet the number of agreements of this type is still low, particularly when compared to New Zealand and Australia where about one-in-five farms have adopted the shared approach.

How does it work?

 

The principle is straightforward; two separate farming business entities agree to come together to carry out farming activities by providing specified inputs and resources for an agreed share of profits.

 

The two businesses remain entirely independent of each other and nearly always have other farming operations outside of their share agreement.

 

Hannah Moule, of Worcestershire-based Moule and Co, says: “A classic example is the landowner provides land, buildings and fixed machinery, while the operator supplies labour, livestock and machinery.

 

“The real strength of a share farming agreement is they are infinitely flexible. There is no statutory framework the parties have to work within, like you see in tenancy agreements.

 

“Each party brings something to the table; a value is attributed to this within the agreement, then profits are shared accordingly.”

 

It is a simple enough concept, so why aren’t more family farms getting involved?

 

Ms Moule says: “Understandably, it is in-built in a lot of farmers that you either farm in-hand or rent land out.

 

Share farming is something different which requires someone finding and working with the right people.”

 

Central to the success of a share farming agreement is trust, honestly and realism. These pillars of success are often set around how detailed the agreement is from the outset, and how regularly it is reviewed and updated.

 

Ms Moule says: “We are often asked to draw up tenancy agreements for one party. With share farming, it is far better to have one drawn up for both parties, so it is all equal and fair.

 

“A schedule should be included which details who is responsible for each task, be it financial or operational, which happens on-farm so there is total accountability and no reason for doubt.

 

“There is a lot of work which needs to go into a successful share farming agreement, but done correctly, it can bring a mutual benefit to both businesses and can work brilliantly.”

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Who provides what?

The owner usually provides:

  • Farmland
  • Buildings
  • Fixed machinery
  • Maintenance of land and buildings
  • Insurance
  • Some working capital

 

The operator typically provides:

  • Labour
  • Other machinery and equipment
  • Some working capital

Tips for a successful start to share farming

  • Approach openly and transparently
  • Be honest with the other party about expectations, not just about the joint enterprise, but also what other activities will be happening on the land, yard or buildings
  • Consider each party’s objectives carefully to ensure share farming is the right approach
  • Spend time doing budgets and, if necessary, ask a professional to assist

Finances

Although both parties are working together for the purposes of farming the enterprise, they remain separate business entities and each submit their own accounts.

 

At the commencement of the agreement, it is set out what percentage of any profits goes to each party.

For an existing landowner, share farming allows them to retain active farming status, which brings with it some tax benefits.

Potential benefits

Potential benefits

  • Share farming can bring complementary skills, machinery, experience and labour into one enterprise
  • Resources can be pooled, allowing a business to access assets it cannot afford or justify in its own right, such as specialist machinery or new technology
  • It has the potential to create a better business than the two parties could in isolation, but without being tied into a tenancy or legal partnership
  • It creates an opportunity for retiring farmers, or those looking to step back with no successor, to bring in an enthusiastic young farmer who lacks the capital to buy their own land
  • Presents family farms with the chance to diversify holdings and enter into different agreements

What can go wrong?

A breakdown in relationships between the two is usually the cause of the termination of the agreement, but there is usually a root cause behind it. One party not carrying out what is expected of the other could cause an issue, or one party’s existing enterprise taking over more land or buildings than was agreed can be another.

 

Starting out with a short-term agreement and building break clauses into longer term agreements is one way to ensure both parties have the opportunities to end the venture if things are not working out.

Finding opportunities

Finding opportunities

The Fresh Start Land Enterprise Centre has launched a matching service in England, aiming to work with landowners, business owners or land agents with an opportunity or land to offer.

 

The organisation says its initiative is beginning to bear fruit and is introducing landowners to those looking for opportunities to farm.

 

Go to freshstartlandenterprise.org.uk to read more.

Case study:

The savings and satisfaction of working in a joint venture are immense, says Charles Matts, managing director of Brixworth Farming.

 

Following a particularly difficult time for arable farming during the 1990s, Charles Matts, managing director of Brixworth Farming, felt he needed to do something radical to turn the business around.

 

His solution was to form a joint venture between five local farms.

 

He says: “I felt we needed to get massive economies of scale. The only way conventionally is to outbid your neighbours. But it was a lot more sensible to work with our neighbours instead.”

 

Brixworth Farming now owns all its machinery and hires staff for the five farms, which has allowed each farm to reduce the horsepower and manpower needed.

 

Mr Matts says: “We realised we needed to remove conflict if, due to lack of timeliness on one farm, there was a lack of yields or quality.

 

“Legally, each of us own the crop, but behind the scenes there is a pooling of the net margin. It means we farm the whole lot as one and we are not looking over our shoulder, wondering when machines are coming.”

 

While many farmers might be wary of relinquishing independence, Mr Matts said mixed farms could still concentrate on other aspects of the farm and it may open up time for more lucrative diversifications.

 

He says: “It is a big consideration, but it should not be a reason not to start those conversations with your neighbours. There are many benefits and they outweigh the disadvantages.

 

“A lot of farmers are one-man-bands, but working as a team gives you someone to bounce ideas off and you can all cry together in the bad times. Just do not give up at the first hurdle.”

 

 

Pre-Brixworth Farming Post-Brixworth Farming
Acreage 4,280 4,242
Total hp at harvest 2,035 1,000
Total no. tractors at harvest 15 6
Regular staff 9 2
Casual staff 5+ 4
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