Siren calls to give tenant farmers the absolute right to buy (ARTB) their farms – irrespective of whether the owner wants to sell – have killed off the prospect of landowners offering farms for let for a generation, it was suggested at a contract farming conference held by the North-east Scotland Farm Management Association.
Land agent Tom Stewart, of CKD Galbraith, said the review of agricultural holdings legislation was “too little, too late”. Farmers who wished to expand their business and new entrants were increasingly finding ways of circumventing the tenancy legislation by entering into alternative business arrangements with landowners, such as contract farming, joint ventures or share farming.
“Even if the government rejects calls for the introduction of an absolute right to buy, the concerns landowners have about being forced to sell to a tenant who wants to buy his farm will not go away if the threat of ARTB continues to hang over them,” said Mr Stewart.
“Those calling loudly for ARTB are doing the tenancy sector a great disservice. The only beneficiaries will be those who are able to buy their farm cheaply and it will result in even less land being available for rent in the future.”
Mr Stewart said the area of tenanted agricultural land had fallen from 90% at the beginning of the last century to 41% in 1983 and only 24% in 2012. He estimated 30 purely agricultural estates – not sporting – which had let out farms had disappeared in Aberdeenshire alone. He asked where the land was going to come from for future letting.
“Landowners are not going to be willing to let farms, the Forestry Commission is buying up land for planting, the Scottish Crofting Federation wants 10,000 more crofts to be created, existing farmers have an insatiable appetite to expand and more land is disappearing for development. The Western Peripheral Route around Aberdeen, for example, has taken 1,500 acres of mostly good agricultural land out of farming.”
He suggested freedom of contract might be an answer – allowing landowners and prospective tenants to come to their own arrangement rather than being bound by tenancy legislation – and pointed to the introduction of farm business tenancies in England which had resulted in an average of 30,000 acres a year coming into the tenancy sector over the past eight years compared with a decline of 50,000 acres a year in the six years before the legislation was introduced in 1995.
Contract farming, he suggested, was an option which allowed landowners to farm on a profit sharing arrangement with a contractor without being responsible for day-to-day management.
The usual arrangement was for the farmer to provide the land and buildings and the contract farmer to work the land with his own machinery and labour and in most cases provide the stock.
“Contract farming is a useful mechanism for a new entrant to get on the first rung of the farming ladder without the financial burden of having to buy land,” Mr Stewart said.
“They take the farming risk but receive a regular income, perhaps on a quarterly basis, which is good for cash-flow, and profits are shared, usually on the basis of 30% to the farmer and 70% to the contractor, with windfall profits in a good year being split 50:50.”
Mr Stewart admitted the arrangement carried risk, and demanded a “leap of faith” by the landowner, but it was a way forward which could suit both parties. Both he and the other two speakers, Clive Phillips, a partner in solicitors Brodies, and Alex Arthur, of accountants, Johnston Carmichael, stressed the importance of entering into proper legal agreements and adhering to them to the letter, to avoid the risk of the arrangement being viewed as a partnership which had tax implications.
Mr Phillips suggested the present tenancy system was defunct with too much emphasis on land tenure rather than concentrating on the business of farming. Share farming was a slightly different concept to contract farming and had been practised in New Zealand for many years. It was a good concept which lent itself to expansion and could provide an exit route for retiring farmers and career progression for new entrants.