Contract farming agreements see changes to head off pressures

Returns are under pressure for both farmers and contractors, with the loss of Basic Payment Scheme (BPS) money and higher costs, in particular for machinery and fuel.

While results are very variable even within relatively small areas, generally 2024 crop yields are down, negating in many cases the positive effect on margins of lower fertiliser costs than for the 2023 harvest.

See also: What’s behind the rise in farmland sales in 2024

Adviser Ceres Rural has reported on the results of arable-only and mainly combinable cropping contract farming agreements (CFAs).

These cover 14,946ha in 14 counties, with the figures based on data from 66 agreements in 2023 and 64 in 2024, predominantly in the east of England.

The main findings include:

Contracting charges

A steady increase in contractors’ charges per hectare, averaging £288/ha for 2024, up from £285/ha in 2023. Sugar beet saw the largest increase in rates, moving from £353/ha to £379/ha.

Farmers’ return

The farmers’ basic return was stable between 2023 and 2024, rising just £2/ha to £242/ha in 2024.

Environmental stewardship

More than four in five CFAs have some form of environmental stewardship. The average area for these features rose to 42ha in the 2024 harvest year, compared with 36ha in 2023.

Estimated returns 2024

After a dip in total returns in 2023, lower fertiliser prices for 2024 crops are expected to be largely responsible for taking CFA returns back to a level similar to those of 2021, despite lower yields.

While some capital tax changes are expected in the forthcoming Budget, CFAs remain a viable option for landowners, says Ceres Rural, but it highlights the importance of maximising government funding.

The results from the 2023 harvest were affected by high fertiliser prices and unpredictable weather, particularly a long, dry period in the spring.

This brought down total returns for both parties, with the farmer seeing a 38% drop to £363/ha and contractors down 28% to £433/ha.

These overall results include some farms growing sugar beet.

2024 looks more positive, with both parties forecasted to see better returns, says Ceres Rural (see tables below), at £475/ha for contractors and £399/ha for farmers, similar to long-term averages.

However, 80% of these CFAs have some form of environmental grant scheme income and this is generally included in the agreement.

Uptake of environmental schemes

Between the 2023 and 2024 harvest years, the average area of land being used for a physical environmental feature – for example, seed mixtures, field corner management, or legume fallow – rose from 36ha to 42ha.

BPS income has generally been included in CFAs in the past. Opinions vary on whether environmental payments should be included.

Until recently, arable CFAs have been templated and often varied little between farms.

However, changes in support mean there is no “one size fits all” agreement, says Rachel Bush, associate partner at Ceres Rural.

Bespoke agreements

“Agreements are becoming more bespoke. For example, there may be more than one tier of profit split [which has been the case in some agreements in the past].

“Typically, it was a 50:50 split – now there may be a first tranche of, say, £100/ha or a lump sum of several thousand to the contractor, it just depends on the circumstances.

“From our data, we can see there is a general consensus that the payments for the management plans [integrated pest management, soil management and nutrient management] should be included in the divisible surplus calculation.

“Whether the in-field options are included depends on the views of both the farmer and contractor – some contractors have embraced the environmental initiatives more fully than others.

“Also, if there are just small areas of environmental uses, these can be costly to establish and manage and this needs to be accounted for.

“If contractors are going for tenders, it’s important they understand who they are going to be working with and what their objectives are.

“In some cases, the environmental scheme land is being taken out of the CFA and managed under a separate contracting charge.”

Bidwells’ head of agriculture and environment, Ian Ashbridge, says there are many new agreements in the pipeline and a lot of land coming up.

“In some cases, CFAs are beginning to be agreed on quite different terms than has been the norm and there are examples of farmers’ first charges being markedly lower than in the past,” he says.

This is a consequence of reductions in BPS income now being really significant and greater risk attached to the contractor’s share of profits.

“We’re seeing the delinked payment left out of new agreements entirely as its value diminishes.

“Contract farming agreements work at their best if you make the cake as big as possible and you will only get a realistic return if both sides are willing to back each other.

Rate for the crop

“It may be that we see a return to different contracting rates being charged for different crops and land uses – there has often been a different charge for sugar beet, for example.

“SFI is all about doing things differently [not about occupying eligible land].

“It’s important that all activity relating to SFI options has excellent record-keeping, and if the contractor is going to be expected to do that, they need to be remunerated for that additional work.”

Countryside Stewardship and SFI income should be included in contract farming agreements, says Ian, with charges properly recognising the cost of that work to the contractor.

“2023 harvest results were not pretty for some CFAs – had Countryside Stewardship not been included, they would have made a loss.

“The contractor is exposed to more risk now, their share of profit is more at risk.”

Both sides squeezed

Land agent and consultant Berrys has six offices between Shropshire and London.

Partner Guy Banham says CFAs are being squeezed from both ends, with profit shares varying widely between agreements.

“Some are still on an 80:20 basis in favour of the contractor, but it all depends what the landowner needs from the agreement,” he says.

“We’ve also seen a move away from CFAs and to share farming agreements between neighbours working together.”

Contractor business changes

Hampshire-based Lily Walker of BCM Wilson Hill says the area has seen a lot of change in contractor businesses in the last year or two, with some retiring.

“We have seen increases in contractor first charges to take account of the fluctuating fuel and machinery costs with ranges between £280-£325/ha.

“We have seen the farmers basic retention come down due to reducing BPS payments.

“The key discussion we are having is how to deal with new agreements such as SFI.

“SFI presents opportunity to maintain returns from CFAs at current levels, but adjusted for inflation, this represents a reduction – as is seen from farm business tenancy rents.”

“Despite the industry concerns, we have seen a lot of competition from contract farmers – though largely existing contractors looking to expand their cover and spread their costs.

“Contractors are looking for a higher first charge and the volatility in cereal prices means that CFA results can be vary variable, depending on how grain has been marketed.”

Farmer’s basic return*
	Highest rate £/ha	Lowest rate £/ha	Average rate £/ha
2023 harvest	371	30	242
2024 harvest	371	50	244
*All crops, including sugar beet. Source: Ceres Rural

Contracting rates by crop type
Crop type	Datasets – numbers of agreements		Highest rate £/ha		Lowest rate £/ha		Average rate £/ha
	2023	2024	2023	2024	2023	2024	2023	2024
Winter combinables	67	55	395	400	105	105	295	297
Sugar beet	17	19	565	500	245	250	353	379
Pulses	11	15	385	400	210	210	277	293
Source: Ceres Rural