New entrants to the farming industry could enjoy significant benefit from embracing share farming.
Ian Hope, partner in CKD Galbraith's rural division, said: "Share Farming, while well established in America, Australia and New Zealand, has been a well discussed topic but a rather rare beast in the UK.
"Unfortunately, the practice is hindered by a few errant misconceptions on what it actually means. Share farming can take many forms but is essentially about sharing the risks and rewards of a farming enterprise with both parties sharing inputs and bringing different assets to the table. Share Farming can grow and both parties can be enhanced, offering an alternative and flexible agreement to contract farming which can remain stagnant in business terms.
"The share farmer and landowner provide different contributions to the venture. For example the farmer might provide labour, machinery and have a share in livestock whilst the landowner provides land, buildings, equipment and takes care of maintenance costs and property repairs. Livestock is usually held in undivided shares meaning that each party owns a share of each animal. The share farmer and landowner maintain their own books, VAT and tax returns".
Share farming has many benefits for farmers seeking to reduce their input on a day to day basis, as well as for new entrants or famers looking to develop their business.
Ian continued; "New entrants should give this type of agreement some serious consideration as it would enable them to get a foot on the farming ladder without the immense challenges of gaining a tenancy or buying land. Share farming is underrated; it offers up an egalitarian system which can grow and enhance both parties' contributions. Like all relationships trust between both parties is an essential element.
"The average age of farmers and landowners is well into their 50s but some still want to retain their farm/landholding for financial reasons or for the next generation. Share farming offers a way forward for the sector and it's time for the industry to give this opportunity a go."
Key advantages of share farming for landowners and farmers include:
Advantages to the landowner:
- Will benefit from APR and BPR for inheritance tax purposes plus the capital gain tax and income tax advantages of farming
- Flexible arrangements can cater better for both parties' needs
- Freedom of contract
- Helps to establish a good business relationship with farmers
- Potential to increase capital value of the farm business and increase returns
Advantages to the farmer:
- Greater returns as the business grows
- Better incentives to engage, perform and reap the rewards in relation to efforts
- Potential to build capital to own land
- Larger degree of control over the business
A version of this article appeared in the Press and Journal (Aberdeen) on 23 August 2014