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Giving young people a start
CONTRACT farming could play a useful part in the farm succession process, according to a leading land agency.
Smiths Gore says it can give the next generation – even within the family – a start in farming while the older generation can retain their stake in the business for the length of the agreement.
The firm said contract farming was becoming increasingly widespread as a response to historically lower returns, high levels of fixed costs associated with considerable capital expenditure, and because it allowed the occupier the continued benefits of “active farmer” status.
It is most popular in the arable sector, with agreements usually lasting three years. It can also offer the farmer better timing of operations due to higher outputs of contractor machinery, often leading to more reliable yields. Other key benefits in most situations are reduced fixed costs and the option to be less involved in the physical work which is undertaken by the contractor.
Duncan Winspear, head of farm management, Smiths Gore, Corbridge, said: “The next generation, becomes the contractor, allowing them to benefit financially, as well as learning the skills of running their own farming and contracting business.
“The older generation retains their status as the farmer, and continues to benefit from the better prices seen in many agricultural markets, while maintaining overall control of the farm. Entering into a contract farming agreement (CFA), whether with another family member or with an existing contractor, can also allow farmers to realise some of their assets and release money from their business to invest in other business ideas.”
Contract farming agreements can equally apply to livestock units.
But there are also pitfalls, in relation to cross compliance and where that responsibility lies, and with tax reliefs in relation to the farmhouse, for example.
Michael Yeadon, head of farm management, Smiths Gore, York, said: “For the security of any farming business, it is vital that CFAs, whether inter-family or otherwise, are properly drawn up.”