Joint Venture Farming

Working together with another farmer, by combining resources and sharing risks, can have various benefits for each party. For example, it could enable a farmer to take a step back from day-to-day activities whilst providing an opportunity for new entrants into farming; or it could allow neighbouring farmers to obtain economies of scale through splitting the cost of farming with each other. The arrangement between the parties can take different forms and can have varying degrees of flexibility and risk, depending on the objectives of the parties involved.

The type of agreement that will be most appropriate will depend on the specific circumstances of the arrangement. One example is a contract farming arrangement, which typically involves an agreement between a farmer, who provides the land and buildings and a contractor, who provides the labour and machinery. It is a flexible arrangement that enables the farmer to release working capital while continuing to trade as a farmer and remain the occupier of the land, which can be important for tax purposes. The farmer will still retain an involvement in management decisions but the contractor will carry out the operations. One of the main benefits of contract farming is flexibility, as agreements can vary depending on the type of farm and the extent of contractor services required, so the agreement can be adapted to suit the parties involved and their desired outcomes.

However, although such arrangements do have some flexibility, the parties should make sure that the arrangement could not be construed as another type of arrangement, such as a tenancy, a partnership, share farming or an employment relationship. This can have adverse consequences in terms of tax implications, the risk of unintended rights or obligations being created, or for tenant farmers it could result in them being in breach of their tenancy agreement.

In addition, even where a written agreement is put in place, it is vital that the parties do adhere to what is stated in the agreement. If something else happens in practice, it could be deemed to be a sham arrangement, which can then result in various adverse consequences for the parties. For example, if it simply involves the exchange of paper invoices and the contractor keeping the crop, the Contract Farming Agreement could be deemed to be a sham arrangement.

If you are considering entering into an arrangement with another party, it is very important that you obtain legal advice from the outset so that you can discuss the different options available and to determine which type of arrangement will be most appropriate for both parties. You should then ensure that the arrangement is recorded in writing to make sure that each party’s rights and obligations are clear, which should help to avoid the potential for dispute in the future.

If you would like more information on an existing farming arrangement, or if you would like to discuss future potential farming arrangement, please contact an advisor in our Agricultural Team on 01653 600070.