Contract Farming Agreements– How do they work in practice?
A contract farming agreement is simply a joint venture between a farmer/landowner and a contractor. At Grasslands, our contract farming agreements are designed to be tax efficient for agricultural property relief (APR). They allow the farmer to take a back seat in the running of their farm whilst removing some of the working capital that maybe required for other areas.
Crucially, the farmer that Grasslands works with still maintains control of what is happening on the farm. This is the halfway house between farming solely by yourself and completely renting out your land to a third party, who you then have no control over.
At the start of the process, the farmer and Grasslands agree on the calving period that the farm will operate within. Grasslands operate a 12 week block calving which is decided by potential grass growth, the infrastructure accessible on the farm and the milk contracts available. Once this is decided then the project, if required, is set up to deliver the requirements of the system.
At this point, potential farmers can examine the 2 operating blocks on other Grasslands farms. They can then debate improvements for the up and coming project as well as look into the latest research from Teagasc in Ireland. There is a solid research base underpinning the Grasslands system of dairy farming, of which Teagasc play a vital role.
Once the system and project is decided we will swiftly move onto potential budgets. These are produced on Grasslands spreadsheets and can be compared to similar farms, as well as against the actual values being achieved. Discussions will take place on how these figures might be improved and how much capital might be required to do so.
The budgets are linked closely to the key performance indicators’ (KPI) required for the business to operate. All this information is collected daily and displayed on the farms KPI white boards. This enables all members of staff and the farmers to see daily how the farm is performing. The farm manager meets the operations manager on a regular basis and produces a formal written assessment on how the farm’s KPI’s are performing, listing any alterations that maybe required. All financial work for the running of the farm is under taken by Grasslands with as much involvement by the farmer as desired. From this data financial reports are produced against the budget.
Additionally, we have a formal projection and review of finances every 3 months in which we examine how we have performed and discuss our predications for the next 3 months. We regularly have formal reviews with the farmer on the operational performance and projections going forward.
Finally, Grasslands delivers regular updates regarding the risks to the farms overall sustainability. These include x-compliance, farm assurance, aligned contact compliances and health and safety risks.