Ask An Expert: Edward Hutley on contract farming
In the latest in our Ask An Expert series, Robert Kynaston from Great Wollaston Farm asks:
“As Contract Farming Agreements become more complex and contractor charges keep rising, what can contract farmers do to help ensure long-term profitability?”
Here’s our answer from Edward Hutley, a partner at Ceres Rural with a wealth of experience providing financial advice and management to farms across the South East.
Edward covers:
Structuring agreements to ensure a fair balance of risk and reward
Building flexibility into contracts to reflect differing uses, skills and costs
Using environmental schemes strategically as a lower-risk, stable income stream
Managing risk in 2026 by forward-selling grain and timing sales well
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Transcript
Robert Kynaston
As Contract Farming Agreements become more complex and charges keep rising, what can contract farmers do to ensure longevity?
Edward Hutley
Contract Farming Agreements are under significant pressure. And they’ve been under pressure for a number of years now. So off the back of the invasion of the Ukraine, we’ve had three years where we’ve seen a fall in commodity values. And then we’ve had low yields, which has compounded issues. But during that period, there’s obviously been rising labour and machinery costs and things that have gone alongside that, which is hence why contractor charges have gone up.
So from a farmer’s perspective, it’s making sure that the agreement is correctly structured. And that’s just making sure that there’s an appropriate balance between risk and reward, making sure that the contractor is rewarded appropriately for the service they’re delivering, but that there’s a sufficient carrot for them to aim for, to strive to go over and beyond. Because the reality is that, if you’re not hitting a divisible surplus, which is what we’re seeing in agreements over the last few years, then that’s demotivating for the contractor. So it has to be a bit of balance.
Environmental schemes are reshaping how contract farming agreements are set up, and it’s altering land use. Ultimately, when commodity values are low and you’ve got issues with unpredictable weather and poor yield, what you’re tending to find is people are trying to elect for options which are low risk. And ultimately, utilising environmental options – whilst there is a whole raft of reasons why people might want to be engaging with that – the truth is that it provides stable income. And I guess the challenge is, how do we structure contract farming agreements so that this environmental money can be incorporated?
I think that, in absolute transparency, no one agreement is structured in the same way, and growing a pollen and nectar mix might not require the same level of skill as it requires to grow an extra tonne of wheat. And I think that it’s making sure that the contract farming agreement has the flexibility to allow for that.
When we look at harvest 2024, the performance from Contract Farming Agreements has been lower than 2023, which has been lower than 2022. Our forecast for 2025 suggests a further tempering on results. And I think that is undoubtedly a consequence of what has been a pretty poor harvest in terms of yields and commodity values that would be comparatively low, if you allowed for inflation, to 20 years ago. But when you look at our budgets for 2026, we’re showing that we’re expecting things to pick up.
I think the biggest thing on the horizon from our perspective is making sure that we market grain well for harvest 2026 because the reality is that 2025 has been pretty disappointing, and that forward-selling has been really, really important in terms of helping businesses that we’re involved with reach budget.
You know, the next step on risk management from our perspective is probably just making sure that we get grain sold at the right time in the next 12 months. Because if we don’t do something now, it might slip through between our fingers and we’ll be in the same position as we are currently.