The short answer to our client’s question is yes. Farm businesses are engaging in a whole raft of collaborative ventures as they focus on increasing their competitiveness and preparing for the future.
Why are farmers opting for joint ventures?
Rationalising fixed costs
- This is a consideration in most of the JVs we are advising on. Careful pooling of machinery and labour can lead to significant savings in fixed costs per hectare and a more rigorous focus on budgets.
- A JV partner may bring investment with him (reflected in agreed profit shares).
Getting the right people in place
- A larger operational area may provide an opportunity for the next generation to step up and allow the older generation to step back. Collaboration can mean a wider range of skills is available.
Finding a secure supply of land to fulfil contracts
- A JV may be an alternative to a traditional farm business tenancy, particularly where there are synergies with other parts of a farming business.
Stepping back while maintaining trading status
- For those wanting to retire but needing to maintain their trading status for tax purposes, a joint venture is a way forward, bringing in others to look after day-to-day operations while continuing to have management control.
What form does JVs take?
Machinery-sharing agreements, contract farming, share farming through to the setting up of a separate entity (limited liability partnership, company or co-operative). The right model will depend on the scope of the JV, what the parties want to achieve and tax considerations.