Finance Monthly Global Awards 2016 Edition

33 FINANCE MONTHLY Finance Monthly Global Awards 2016 UNITED KINGDOM AGRICULTURE LAWYER OF THE YEAR Winner: Farming within the UK is a tough business. Capital costs (land, machinery and stock) are high and returns (farm income after payments out for labour, interest on borrowing and renewals etc.) are low. Those two factors are frequently barriers to commercial funding, particularly for those farmers with little equity. Frequently (in modern times) the cost of production can be greater than can be achieved at the farm gate. Added to which: (a) The effects of climate change increasingly make production more unpredictable; (b) There is now relative volatility in many markets; (c) Advances in bio-chemistry increasingly demand that a farmer needs to call in and pay for specialist advice to develop his farm holding whilst; (d) The requirements of increasing environmental protection, whilst often good for us all, very much limit many traditional farming practises. All in all it is rarely possible for a farmer now to simply be a “good stockman”. Farm economists often use the term “viable holding” meaning that for any farm to exist in a particular activity there needs to be a minimum acreage for the farmer to make a profit. As each year goes by farmers are driven to acquire more land in order to achieve that illusive viable holding. For most that means buying land and borrowing money where they can. The dairy industry is particularly affected by market forces and its cost of production. Most vulnerable are the small to medium sized family farm businesses which for centuries have woven the rich tapestry of carefully tended fields within our agricultural community. In August 2005 there were approximately 14,500 dairy units within the UK. By August 2016 this had reduced to 9,500. The hardest hit were those smaller family farms. Against this background the average working farmer’s age gradually lengthens. Their incomes depleted, they cannot afford to pay youngsters to come in on to the farm to help them. For those young farmers without a family farm to take over, the opportunities for new entrants hoping one day to own their own viable farm are few. There is a way out of this spiral of decline where an existing land owner wishes to continue (albeit perhaps not with the same physical effort), pass on his farming knowledge, whilst at the same time admit a new entrant on his farm with new energy and perhaps modern farming methods to apply to it under a system of contract farming. Modern contract farming is an arrangement where a land owner farms land with contractors. He instructs them to provide services to his business which range from individual operations to more comprehensive packages. The farming business on the land is the land owners business and the outputs from it are his and he accounts for tax on it. The contractor is seen in law as merely the Licensee having access to the land in order to fulfil his duties under the purpose of the contract for the owner. The contractor is usually entitled under the agreement to a fee for his work reflecting labour and machinery which might be used. They might receive additional sums based on the financial outcome of the farm enterprises benefitting under the Contract. The Agreement between the land owner and the contractor tends to provide that the contractor will pay a “basic charge” (which must not look like a rent, there must a degree of risk in the Agreement). There is then a formula for a division of a “divisible return” on the farming activities. The mutual fairness of the divisible return is crucial to the working relationship of the parties. The degree of risk by the land owner fulfils the legal requirement as a payment to him is not a sham alternative to rent. As the contractor is a Licensee those important benefits under APR and BPR will continue to be available to the farmer. As will be the “entitlements” running with the farm, partly because that is agreed and partly because the farmer continues to have the land available to him at his disposal. The advantages for the contractor are: 1) He can get on to the farming ladder. 2) Because of the sharing of profits under the “divisible return” it is safer than entering in to an expensive Farm Business Tenancy paying rent which he might not be able to afford. 3) The contractor can use his own skill and modern methods to earn a good living if successful and 4) With current land prices it is a quick way of moving up the ladder. The advantages for the land include: 1) If properly addressed and applied the scheme will protect the land owner’s entitlement to APR and BPR and 2) If properly addressed there is no security of tenure for the contractor. David Hassall of Fortress Hassall Law Limited will be pleased to assist in these new Contract Farming initiatives. As a Fellow of the Agricultural Law Association he is only too aware of what can go wrong if these Agreements are not carefully negotiated and documented. However, if properly done they can be one significant step in enabling access for the younger generation in to the vocation of their choice. Contact Details David Hassall, Barrister, Fortress Hassall Law Limited. Tel: +44 (0)1548 854878 Mobile: +44 (0)7775 851 271 Email: david.hassall@fh-law.co.uk Web: www.fortresshassall-law.co.uk David Hassall