Maintaining a profit margin in farming, particularly in these uncertain terms, is to become a higher priority for most arable farmers. Joining forces with other farmers within a sensible geographic area can deliver efficiencies to achieve this end, be that through machinery sharing or more formal collaboration agreement.
The collaboration between farmers is usually formed using a limited liability company, whereby the landowners become shareholders in the farming company responsible for farming the land. The general expectation of such arrangements is that each landowner/farmer would sell their own tractors, combines and cultivation equipment, to reinvest in equipment which is suitable for the new business, generally larger and more up-to-date. Through the sales of equipment, the shareholders would fund the investment required. Bank borrowing as needed might be secured with shareholder guarantees. The new business must be set up efficiently, structured usually with a managing director, a finance director responsible for buying and selling, an operations director making decisions on cultivation and growing the crop, an agronomist/sprayer operator, and with other staff making up the team depending on the size of the overall operation.
Such a farming company might also expect to enter into Contract Farming agreements with other farmers on a formal, or adhoc basis.
Consequences for such a change will ripple beyond the sale of equipment when comparing the old and new businesses, since these arrangements are unlikely to work when every shareholder wants to be managing director. They work only if redundancies are made and work best when there is a clear hierarchy within the company, where each of the directors is clear as to their own responsibility and are chosen having regard to the skills that they offer. Ideally some landowners, or farmers wishing to retire, would be included in the arrangement such that there is sufficient land available to farm not overburdened with existing staff or overheads.
The farming company effectively acts as a contractor to each landowner/shareholder, and often the remuneration to each landowner is equalised where block cropping is adopted for the benefit of the company (provided this is consistent with crop diversification rules under BPS) and sharing drying costs, for example where disadvantages in having a larger farm are exposed in a wet summer. Sensible adjustments can be made, for example where the yield potential on one farm is greater than another.
The aims of each business are therefore secured on the back of an efficient farming operation, with an additional return to the landowner for the shareholding reflecting their ownership of the business.
Differences in each holding can be allowed for, for example where the landowner retains management responsibility for a Stewardship Scheme. Any arrangement of this nature also needs to include a clear exit strategy for any shareholder wishing to withdraw.
Sheldon Bosley Knight can assist to draw farmers together to facilitate a collaborative venture. For more information contact a member of the team on 01789 387887.