Contract Farming Agreements are providing landowners with higher than average returns
Contrasting the 2018 returns achieved from different methods of land occupation reveals a classic story of risk versus reward. The most suitable option for a landowner will continue to vary according to their circumstances and objectives. Considerations include whether they wish to remain resident on the farm, the degree of influence and involvement they wish to have, and of course taxation. CFAs encourage a collaborative relationship between the farmer and contractor and allow the farmer to focus on monetising environmental public goods, while a contractor assumes responsibility for carrying out fieldwork.
Contract Farming Agreements more naturally encourage a collaborative relationship between the farmer and contractor and could allow the farmer to focus on monetising environmental public goodsSavills Research
For the last two harvests (see below) a landowner’s profit, including BPS from land farmed using a CFA, has exceeded average grade 2/3 FBT rents, but from an income perspective letting the land has lower risk.
Landowners’ return by type of occupation
Source: Savills Research, Defra
Landowners’ average returns under the CFAs were 18% higher in 2017 and 29% in 2018, while in-hand returns for medium-sized cereal farms were 25% higher than FBT rents in 2017, according to Defra’s Farm Business Survey. Assuming a traditional rent review clause is in use, rents are typically fixed for three years and so rental income is likely to be less volatile than income from in-hand farming or a CFA.
In-hand farming and CFA returns both have more immediate exposure to global commodity prices and weather events impacting yields, although forward selling and other risk mitigation options are available for use.
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