Guidance Notes – Joint Venture Farming

separating the role of landowner and ‘operator’ can help reduce this barrier.

Formal tenancy agreements have traditionally been the most likely mechanism to facilitate this

approach. However, there is growing interest in other more flexible agreements. A joint venture is

an umbrella term that covers a wide spectrum of collaborative agreements, including those

featured in this booklet, namely:-

 Contract Farming

 Share Farming

 Business equity partnerships

on capital through combined resources and expertise to accelerate growth. They can also avoid

the need to create a formal farm tenancy.

Examples of common circumstances in which joint ventures can be beneficial include:-

 Land coming back in-hand after being let out. The owner may be inexperienced but wishes to

retain vacant possession.

 The farm may not be large enough to be a viable holding on its own.

 The farmer may wish to release equity.

 To obtain economies of scale through splitting the cost of farming with others.

Genuine joint venture agreements work well but must be more than a written document. In

practice, it is important for both parties to abide by the governing rules in order to retain the

advantages (including tax benefits) and avoid it construed as an alternative legal entity such as a

tenancy, partnership, or employer/employee relationship.

Note that each agreement will be different.

SAC Consulting prepared this factsheet to provide general guidance. This does not substitute the

need for specialist and tailored advice or a professional agreement.

Guidance Notes – Joint Venture Farming

(known as the “contractor”) to undertake farming operations over a fixed period (typically 3 to 5

years) on pre-arranged terms – it may be more simply understood as farming with contractors.

Obligations:

The farmer normally provides the land, buildings, fixed equipment (if required or agreed), a

dedicated bank account, pay the required bills, finance to administer the agreement, and any farm

agreed with the contractor in advance of the start of the agreement.

The contractor provides the labour, machinery (including its incurred costs) and management

expertise. The contractor could be a neighbouring farmer, large farming company or traditional

contractor. For this, they receive a basic contractor’s fee (usually quarterly or half-yearly).

Via a separate livestock hire agreement, either party can supply breeding livestock (if applicable).

Both parties agree farming policy and the share of any divisible surplus in advance and meet

regularly to make management decisions and monitor progress.

available by separate negotiation with a residential or commercial lease

An example of how the three accounts work is shown below:

Guidance Notes – Joint Venture Farming

Benefits to the farmer:

A properly constructed CFA can avoid creation of a tenancy and maintains the ‘farmer’ status for

subsidy and tax purposes. It is a very flexible and adaptable agreement. It can generate a

reasonably stable income through a basic fee / retention and avoid much of the reoccurring capital

must retain some risk. The farmer incurs the administration costs, for example, to manage the

agreement and prepare separate financial accounts. For simplicity, a contract (‘No2’) account is

preferable for associated sales and input costs, although it is not essential. The No2 account is not

a separate business so the farmer will need to reclaim any VAT and transfer back to the account.

Benefits to the contractor:

Contractors can benefit from economies of scale (spreading fixed costs) by taking on more land

without tying up capital through land purchase or full duplication of machinery. This makes it a

relatively quick way to expand. There is a guaranteed regular payment per hectare (or per animal)

administration fee for budgets and accounts. It does also rely on both parties getting on well

together. While a CFA can provide economies of scale it may be difficult to build capital.

How to make it work:

The biggest factors in a successful arrangement are:

1. Trust, honesty and pragmatism

2. Robust terms

3. Good incentives for the contractor to concentrate their efforts (this will also reward the farmer

important but easily omitted issues such as mutual responsibilities for cross-compliance, health

and safety and associated insurance.

The “farmer’s” overall return under a CFA can be comparable or better than under an in-hand

farming operation as significant capital is released from investment in machinery etc. (enabling

invested elsewhere). A Contractors costs are invariably also less than the farms existing

overheads due to economies of scale.

Guidance Notes – Joint Venture Farming

1. These are two entirely separate businesses working the same land.

2. As separate businesses they share the value of the farms output (typically sales) rather than a

fee plus share of net profit.

There is no standard share farming agreement. The details are a matter for the parties involved

but each party needs to bring complimentary resources and skill sets. The share farming structure

to start as a share farmer with only a small share then progressively build equity share (within the

terms of the agreement) until owning most or all of the stock and/or equipment. There are three

conceivable paths for the agreement:

1. It may be a step towards farm succession.

2. If agreed, share farmer equity in livestock could be increased on renewal of the agreement.

3. Terminate the agreement:

a. allowing the share owner to follow an alternative plan.

b. to allow the share farmer to buy into another or larger farm.

c. liquidate to enable the share farmer to purchase their own farm and likely become a

certain input costs. The share farmer / operator will provide the working machinery, moveable

equipment, and technical ability and pay the balancing cost of inputs. Livestock are usually held in

undivided shares. Output and certain input costs (direct costs) are split using pre-agreed

allocations.

Guidance Notes – Joint Venture Farming

Benefits to the share farmer:

It presents an opportunity for significant involvement in a farm business for someone with the

necessary skills, but limited capital. Share farmer assets are transferable and can therefore move

if a greater opportunity presents itself.

There are few share farming opportunities in the UK, therefore, progression beyond the existing

agreement could be limited – this is most likely to progress to a larger contract farming agreement

or equity partnership in the UK. Within share farming agreement, the owner often remains in the

farm house, resulting in no house being available for the share farmer.

How to make it work

There needs to be a clear understanding of why both parties are entering into an agreement.

Clear and honest discussion is required to frame expectations. This should also cover the

As with a contract farming agreement, careful construction of the agreement is necessary to

ensure, as far as possible, each party has a reward relative to their involvement (responsibilities /

time / skills / equity / risk). Careful consideration is also required to deal with, for example: issues

of responsibility; terms and timing of payment of shared costs; or stock and machinery payout upon

termination of the agreement. Sensitivity analysis on budgeted figures is imperative.

Having a written share farming agreement alone is not sufficient evidence of a proper share

farming arrangement being in place. Care should be exercised to ensure that the arrangement is

implemented in practice, and on examination, cannot be construed as some other legal structure or

Guidance Notes – Joint Venture Farming

and for existing farmers to grow their business. An equity partnership may also benefit those

wanting to release capital from land for alternative investments or allow partial retirement as part of

structured succession, particularly with non-family members.

An equity partnership is most likely formed as a company, with potentially multiple investors.

These shareholders will pool their capital (equity), and possibly skills or resources, in the aim of

generating higher investment growth. The company will identify and assess an investment option,

shareholder equity and bank debt, borrowed by the company.

There are various structures and the most appropriate will depend on the type of investor. Often

one of the partners is employed as the farm manager, known as an equity manager. The board of

directors will run governance. Each partner normally appoints one director to the board. This

works well provided directors have the necessary and complimentary skills. This responsibility or

process can be contracted out, particularly where investor(s) are time limited, remote from the

operation or opt to be a ‘sleeping partner’.

Benefits of an equity partnership:

Disadvantages for an equity partner:

The biggest factor to success through this mechanism is good relationships. Two or more