Share Farming - an opportunity for young and old alike?
There are few greater barriers to potential new entrants to farming than the availability of land. Lack of capital and high land values combine to make the idea of buying any significant acreage out of the question, and the lack of available land to let for anything approaching the duration required to get a new farming business off the ground is well known. Many members will have heard of the concept of “share farming”, the idea originated in New Zealand, and has gained some popularity in England and Wales, but as of yet there are only a handful of examples in Scotland, and the concept isn’t generally well understood.
In some ways share farming is akin to a number of arrangements which are currently in wide use, contract farming being the most obvious, partnership being another, but there are important differences which mean that share farming may be an alternative option for some farmers. It’s important to realise from the outset that the concept relies on an acceptance that the parties can and will work together for their mutual benefit, rather than one party attempting to maximise their share at the expense of the other. Whilst all farm businesses experience good years and bad years, the combined enterprise must be capable of producing sufficient output on average for there to be something which can ultimately be shared.
Share farming involves two separate farmers, or farm businesses, each bringing different things to the table, both using the same piece of land, and agreeing to share the overall combined proceeds in a pre-determined way. One party will usually provide the land and whatever fixed equipment is available to enable the farming activity to be carried out, and the other party will generally provide machinery and labour. That might not sound all that different from contract farming, however the key difference is that, in share farming, risk is shared between the two parties, whereas in a properly constituted contract farming agreement, the landowner should carry the financial risk of the business, while the contractor is paid for his or her input, and usually has an entitlement to some form of bonus, dependent on output of the landowner’s business. In contrast share farming doesn’t give either party any guaranteed income at all, being purely a sharing of profits or losses, therefore the risk of the overall farming venture is shared.
The owner and the share farmer each operate separate businesses, but work together to produce the agricultural output of the land, whatever that happens to be. Each party is then rewarded by a pre-agreed share of the value of that gross output. Each business will have its own bank account, will draw up its own, entirely separate, business accounts and be responsible for its own tax and VAT returns.
Typically, the landowner provides the land, fixed equipment and expertise, while the share farmer will provide the working machinery and moveable equipment. Other inputs such as stock, fuel, feed, fertiliser, seed and so on can be contributed by either party, but it’s crucial that it’s understood from the outset who’s providing what.
The principle is simple, the parties agree a value for their respective inputs, which’s then converted into an overall percentage of contribution to the enterprise, which in turn determines the share of the overall gross output which each party is entitled to receive. This sounds easy enough, but the difficulty is in recognising the value of things that are less tangible, such as knowledge and experience.
Nevertheless, if agreement can be reached in valuing the various inputs, share farming offers scope for an older farmer to work with an aspiring “new entrant”, reducing the day to day demands on the older party, whilst still retaining an active farming business, with all the benefits that brings, but without the risk of being in a formal partnership with the share farmer. From the share farmer’s perspective they’re able to get a foot on the ladder, to gain experience, and to build a business from potentially very modest beginnings.
In theory, share farming could work equally well where one party holds the land under a lease. Share farming isn’t sub-letting, however the terms of the lease would need to be checked carefully for any other conditions which could potentially be breached by entering into a share farming agreement.
Crucially, the shares between the parties can be adjusted at the start of each year, so the share farmer might choose to reinvest his or her profit by purchasing more efficient machinery or equipment, or increasing stock, or even purchasing land or other assets from the landowner. In this way share farming can form part of a retirement plan, by allowing a gradual planned transfer of the business to the share farmer. As has been stated it’s essential for the details of the arrangement to be well understood and clear which ordinarily requires a Comprehensive Share Farming Agreement. As ever anyone contemplating share farming should take specialist advice.
As featured in June 18 edition of Scottish Farming LeaderBack to news list