A contract farming agreement involves a partnership between a landowner or occupier (the farmer) and a contractor.
The farmer directs the contractor to carry out practical operations and management of a crop or other enterprise based on the farmer’s guidelines and benefiting the farmer’s business. The roles and operations are outlined in the contract between the farmer and the contractor.
The farmer may contribute land, buildings, and/or other fixed equipment while the contractor provides labour, machinery, and expertise.
Contract farming can vary from a single operation to complete enterprise or farm management. Usually, the farmer retains financial risk and compliance responsibilities, while the contractor provides services according to the contract. A strong working relationship with clear expectations and defined responsibilities is essential.
Both businesses maintain separate records for tax purposes. The farmer usually assumes most or all of the risk and responsibility for the enterprise, and any attempts to advocate this to the contractor can affect the tax status of the business and the associated property. If the contractor’s buildings are used solely for agriculture, they may be exempt from business rates.
The farmer hopes to benefit from this arrangement by gaining access to the contractor’s resources and expertise without making a heavy investment in machinery. They may also experience long-term value through a sustainable relationship and have the flexibility to manage different aspects of the enterprise while the contractor handles specific tasks or the entire operation.
In conclusion, contract farming agreements allow farmers to utilise external resources and expertise while remaining active in the farming business.
To consider the suitability of a contract farming arrangement for your business or to reflect on the merits of an existing arrangement, contact Whirledge & Nott’s Rural Team.
