Contract farming agreement - livestock

[Obi Wan]

Hello there, we’ve been offered to contract farm a reasonable size hill farm in the Scottish Highlands producing for the store market. The unit is currently running a closed flock 900 sheep flock to meet minimum stocking density. The unit has previously run upto 1200 ewes and 70 suckler.

The sheep are lambed in doors on sand from the start of April, this is dude to excessive protected feathered predation.

The buildings, machinery and infrastructure are in good condition. There is a farm house with the agreement on a separate token tenancy.

The summary of the agreement is; we as contractors run the place with the stock mentioned above wholly owned by the farmer. An expansion on numbers is how the contractor can build equity.
The contractor is paid a management fee of £25 per head on the 900 sheep, and then there is a 60/40 split in the contractors favour on any profits (this includes all subsidies incomes).

I’m wondering what people thoughts are on the above.

 

[Frank-the-Wool]

Hello there, we’ve been offered to contract farm a reasonable size hill farm in the Scottish Highlands producing for the store market. The unit is currently running a closed flock 900 sheep flock to meet minimum stocking density. The unit has previously run upto 1200 ewes and 70 suckler.

The sheep are lambed in doors on sand from the start of April, this is dude to excessive protected feathered predation.

The buildings, machinery and infrastructure are in good condition. There is a farm house with the agreement on a separate token tenancy.

The summary of the agreement is; we as contractors run the place with the stock mentioned above wholly owned by the farmer. An expansion on numbers is how the contractor can build equity.
The contractor is paid a management fee of £25 per head on the 900 sheep, and then there is a 60/40 split in the contractors favour on any profits (this includes all subsidies incomes).

I’m wondering what people thoughts are on the above.

On what basis is the profit calculated?
Is a rent figure taken out for the land?
How much is the token tenancy for the house? A pound?
Are there any cattle now? If not they would surely help the economics!
If sheep numbers can be increased by 500 ewes, the contractors equity is that all to the contractor and who values those?

A lot more information needed before saying if it is a good deal or not. Presume Blackies so lamb value not great!
And very expensive Tups!!!

 

[Wooly]

Initially it does seam a fair deal.

Basically you are paid £22,500 guaranteed for the work and then 60% of any profit. As the subsidies are added to the figure at least you should make a profit.

The devil will be in the detail though. Have you seen the farm accounts from previous years ?

 

[capfits]

As contractor are you providing soley the labour? Or providing bikes etc
Are you clipping them too for example.
Just as an aside manage a tick mop flock circa 2500 over 7000 acres
Six month bill, without shearing was in excess of sum offered to you, but gathered every 8 weeks, lambed 300, and including our machinary and some minor inputs.

 

[Hill Ground]

stock mentioned above

I'd say it hinges on weather the "stock mentioned above " includes bikes, tractors etc etc or if they are for you to provide, and how much they want for the house.

Is the farm known to you, how long was the last shepherd in place for? That's as important as anything, if the owners a nightmare and turning over staff it's hopeless however good the deal is.....if they are stepping back and know the job you could be onto a winner!!

 

[AngusLad]

As said above the devil is very much in the detail and it is vital to strike a deal that both parties are happy with from the outset otherwise it just leads to upset further down the line.

In my case I was offered a deal similar to yours with a profit share type agreement but in the end we agreed on a flat rate paid per ewe on the farm. It is all very well sharing profit when there is one! Becomes a lot harder when there isn't...

I summer my own cattle there and pay a headage rate per week to keep them there.

My tuppence worth would be to keep it as simple as possible. Work out what you need money wise to make the job work and ask them to pay you that.

 

[Obi Wan]

Hi, sorry for the lack of response, been a busy day. Thought it best to first write a generic post prior to reply to each comment. Please note I’m still reading through the 48 page document, it was drawn up by SAC’s advisory dept.

 

[Obi Wan]

On what basis is the profit calculated?
Is a rent figure taken out for the land?
How much is the token tenancy for the house? A pound?
Are there any cattle now? If not they would surely help the economics!
If sheep numbers can be increased by 500 ewes, the contractors equity is that all to the contractor and who values those?

A lot more information needed before saying if it is a good deal or not. Presume Blackies so lamb value not great!
And very expensive Tups!!!

It’s only based on the livestock and associated equipment. Sheep income + subs minus livestock management costs.

There’s no land rent.

The token house rent is £1.

No cattle yet, I’m hoping to involve my cattle somehow, this is yet to be discussed.

I’m not sure on how any additional stock (contractors equity) will be handled with regards to cost/profit. There’s to be an agreed umpire appointed to appraise stock and equipment.

Hill cheviots, closed flock.

 

[Obi Wan]

Initially it does seam a fair deal.

Basically you are paid £22,500 guaranteed for the work and then 60% of any profit. As the subsidies are added to the figure at least you should make a profit.

The devil will be in the detail though. Have you seen the farm accounts from previous years ?

I’ve seen the average from the last 3 years, I’ll be asking to see more asap.

 

[Obi Wan]

As contractor are you providing soley the labour? Or providing bikes etc
Are you clipping them too for example.
Just as an aside manage a tick mop flock circa 2500 over 7000 acres
Six month bill, without shearing was in excess of sum offered to you, but gathered every 8 weeks, lambed 300, and including our machinary and some minor inputs.

Initially labour as all the kits there.

Clipping is completed by a contractor, along with scanning, dipping, fencing, drainage and winter forage work.

Some of these could be taken back in hand to reduce cost if I wish.

 

[Obi Wan]

I'd say it hinges on weather the "stock mentioned above " includes bikes, tractors etc etc or if they are for you to provide, and how much they want for the house.

Is the farm known to you, how long was the last shepherd in place for? That's as important as anything, if the owners a nightmare and turning over staff it's hopeless however good the deal is.....if they are stepping back and know the job you could be onto a winner!!

Equipment is owned by the farmer, and the house rent is a small token £1.

I’ve been aware of the farm for years although not involved, previously there was another contract farmer runnning it until they retired. The owner/farmer then put in a Shepard for 6 years but has decided contract farming suits better as they have other more profitable business interests across the UK.

 

[Obi Wan]

As said above the devil is very much in the detail and it is vital to strike a deal that both parties are happy with from the outset otherwise it just leads to upset further down the line.

In my case I was offered a deal similar to yours with a profit share type agreement but in the end we agreed on a flat rate paid per ewe on the farm. It is all very well sharing profit when there is one! Becomes a lot harder when there isn't...

I summer my own cattle there and pay a headage rate per week to keep them there.

My tuppence worth would be to keep it as simple as possible. Work out what you need money wise to make the job work and ask them to pay you that.

Thanks, that’s something worth considering

 

[Hill Ground]

Equipment is owned by the farmer, and the house rent is a small token £1.

I’ve been aware of the farm for years although not involved, previously there was another contract farmer runnning it until they retired. The owner/farmer then put in a Shepard for 6 years but has decided contract farming suits better as they have other more profitable business interests across the UK.

Sounds like a good shot to me.

Best of luck

 

[Obi Wan]

Sounds like a good shot to me.

Best of luck

I’m still working through it, there’s to be a yearly “Farming Policy” where tweaks can be agreed, also a budget “if agreed as necessary by both parties” It’s taking time to capture the verbal agreements from the interview and farm visit process as comments against the draft of the agreement for completeness.

 

[Hill Ground]

I’m still working through it, there’s to be a yearly “Farming Policy” where tweaks can be agreed, also a budget “if agreed as necessary by both parties” It’s taking time to capture the verbal agreements from the interview and farm visit process as comments against the draft of the agreement for completeness.

Are you competing with other people, like tendering for a farm? Or are you the chosen one just ironing out the details?

 

[Obi Wan]

Are you competing with other people, like tendering for a farm? Or are you the chosen one just ironing out the details?

Just ironing out details

 

[Henery]

Keep it simple, …. Flat rate per ewe, if you can get your cattle there at a sensible transparent rate, and the house is worth more than a pound…
Simple is everything, reducing dispute .

 

[ringi]

If you increase number of ewes with you owning the addational ewes.

• How would it be decided what ewes are yours?
• What payment system for you to buy addational store lambs to keep?
• What stops you choosing the best store lambs for yourself?

Is there enough land to overwinter mules? If so can you buy the draft ewes?

If you reduced costs by doing fencing etc rather than using a contractor, do you get paid 100% of the savings or 60% of the savings?

Can the flock practically be setup as high health status?

Would you be able to keep 100% of the money from selling rams if you did performance recording? (Quality of ewes would improve, so increase returns for owner.)

Can some of the stores be cheaply kept overwinter and then sold next summer?

Can it be setup to give you 20 years in control?

The arrangement seems to be setup so the landowner is counted as a farmer for inheritance tax, so expect problems if the government limits inheritance tax relief on farms.

 

[ringi]

But I expect the simple way to produce your own profit is to keep the ewes as they are and have native breed cattle that you own 100%. (The cattle will help manage grazing and reducing worm pressure on the ewes.)

 

[Obi Wan]

If you increase number of ewes with you owning the addational ewes.

• How would it be decided what ewes are yours?
• What payment system for you to buy addational store lambs to keep?
• What stops you choosing the best store lambs for yourself?

Is there enough land to overwinter mules? If so can you buy the draft ewes?

If you reduced costs by doing fencing etc rather than using a contractor, do you get paid 100% of the savings or 60% of the savings?

Can the flock practically be setup as high health status?

Would you be able to keep 100% of the money from selling rams if you did performance recording? (Quality of ewes would improve, so increase returns for owner.)

Can some of the stores be cheaply kept overwinter and then sold next summer?

Can it be setup to give you 20 years in control?

The arrangement seems to be setup so the landowner is counted as a farmer for inheritance tax, so expect problems if the government limits inheritance tax relief on farms.

Thanks for the advice regarding inheritance tax. Yes I’ve asked similar questions to the points you’ve raised above.