Contract farming has been proven to be an effective business model for those looking to achieve a stronger role in agriculture.
Farmers Guardian looks at how to get started...
Agricultural contractors are being utilised more than ever before and this provides a range of opportunities for those looking to make it in this sector.
It is estimated 91 per cent of UK farms now use a contractor, with the National Association of Agricultural Contractors (NAAC) figures suggesting contractors apply 70 per cent of slurry, harvest 85 per cent of sugar beet and buy 98 per cent of self-propelled forage harvesters.
Jill Hewitt, NAAC technical consultant and managing director of Springtime Consultancy, says: “Contracting can take a number of formats, from businesses offering individual specialist farming services, such as drilling, harvesting or crop spraying, either uniquely or as a package; to more complex contract, whole farm and joint farming arrangements.
“All have become an integral and important part of farm business management.”
So where do you start if looking to become an agricultural contractor?
Charles Baker, managing director of R.C. Baker and NAAC chairman, says: “Contracting can be a viable option for enterprising new entrants, providing they go in with their eyes open, do the right research and ensure there is a market for the services proposed.
“Commitment is essential from clients, ideally for five years if whole farm contracting, to allow for confident investment in new machinery and labour.
“Getting costings right is then a vital step to make it work. Overheads can be crippling and, with machinery replacement costs escalating at 5-6 per cent each year, it is critical jobs are carefully calculated to make certain capital is wisely invested and a return is possible. If it does not pay, why are you doing it?”
1. Identify a market for your services before you invest in machinery. Try not to just offer
the same services as your local, already established, contractors; a niche market is ideal.
Competition is healthy but if your local contractor has loyal customers, you may struggle to get work unless you seriously undercut, which is usually dangerously unsustainable.
2. Know your costs. Make sure they are your costs as everyone’s business and aspirations are unique and be certain you account for everything including labour (including your time if self-employed), depreciation, fuel, maintenance and tyres.
3. Account for ‘dead time’ when you are not directly earning money. As a contractor, especially if employing staff, you can have considerable time travelling or doing repairs and maintenance work, or standing in the yard waiting for better weather.
4. Costs need to be worked out to know the rate each job needs to be charged at to break even. A margin must then be added.
Vast amounts of hectares worked mean little if there is no profit or income to reinvest, making the business unsustainable and inevitably fail.
5. Invoice promptly. There is nothing to be gained by doing 60-plus hours a week in the tractor seat if your paperwork is weeks out-of-date and invoices are not being sent out.
Your business will not survive without income as you will continue to be billed for finance and fuel. Prompt invoicing is a sign of a well-organised, professional business.
6. Chase payment. Your customers will expect to pay when a professional job is completed. A creditor’s money is a far cheaper source of cashflow to a contractor than a loan from the bank.
7. Get properly insured. Inevitably things can go wrong and it is necessary to be properly insured for the operations you carry out. We all make mistakes, but in contracting, these can be expensive.
8. Be safe. Working alone for long hours can be a perilous occupation, both mentally and physically.
Do not take risks, as the time saving will never be worth the price you pay by cutting corners on safety for you or your employees.
Get ahead on health and safety paperwork before the physical workload becomes too pressured, as it is important to keep up-todate, be well aware and avoid risks.
9. Be well-informed and enjoy it. Contracting has the potential to prove a fantastic way of life if you are forward-thinking and take a professional approach.
Take the opportunity to network with other contractors and get as much information on legislation, safety and technical issues as you can absorb.
With past experience managing a number of dairy herds, Carl Martins and his wife Natalie decided to setup a relief milking service with a difference.
Providing farmers with much needed rest during holidays, sickness or to provide relief work, the husband and wife team are actively trying to improve the work-life balance in what can often be a quiet and secluded job.
Carl, who operates the business from a laptop and a phone depending on where in the country they are, says: “Unlike other relief milking services, we consider ourselves a herdcare provider, which will look after all duties on-farm, and we hope to maintain, if not improve, herd health.”
Based in Melton Mowbray, Leicestershire, the couple cover work from the tip of Cornwall to the heights of Scotland, and have visited more than 100 farms in the past five years, with units ranging from one-man-band farmers running abreast parlours, to working on larger herds with herringbone and rotary units.
Carl says: “There is a lot to give relief milkers a bad name, so we try specifically to think and act as the farmers would do themselves. The aim is to minimise stress and disruption caused by labour orientated issues; be these farm injuries, ill health, staff shortages or holiday cover.”
Along with managing day-to-day duties of the farm, milking and carrying out any required livestock work, Carl says he hopes to add additional services to his business, such as a hoof trimming crush for use during his time on-farm.
With the pair constantly looking at training and new qualifications, administrative and book keeping work is also possible while on-farm.
Recruiting staff remains a challenge as they look to expand, although they do have a number of trustworthy relief milkers to call upon.
Carl says: “We pride ourselves on our service and finding additional staff is difficult, as they do not always have the same commitment and passion without their name above the door.
“I am proud of my industry and enjoy learning and doing the training. Educating the public is a big part of what we are doing.”
Colin Crowley, partner at Rowlinsons, talks through some of the financial considerations for anyone planning to start a contracting business:
It is possible to start a contracting business from scratch?
Capital start-up costs will be the big barrier. A brand new limited company with no history is going to find it difficult to secure lending.
Asset finance would probably be okay, but whether someone would be willing to lend 100 per cent of the money against a combine, for example, could be a problem.
Can two farm business ‘team up’ to contract farm?
Yes, but both parties will want to protect themselves. A limited liability partnership is a common way of getting around this.
It is easy to move kit back if things do not work out, whereas with a limited company, your assets are locked into the business.
What problems might be encountered by contract farmers?
Practical things, such as who gets to who gets to use machines when, especially if one farm in the partnership is bigger than the other and may need longer with the machines on their own farm.
Working hours and sharing profits need proper consideration from the outset.
Are there any tax advantages?
A farmer’s own business will have the annual investment allowance (AIA), which dropped from £500,000 to £200,000 in January 2016.
In a joint venture with another farm, you effectively have three bites at the cherry; an AIA for both farms and one for the joint ventures.
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