Contract farming has become an increasingly prevalent and beneficial tool in agriculture, a land agent told a conference in Norwich yesterday.

The contract farming system, in which the farmer provides the land and finances the input costs and the contractor supplies the labour, machinery and day to day crop management, allows the farmer to free up capital, maintain flexibility and retain trading status which in turn offers tax advantages, delegates heard at Strutt & Parker’s Land & Property Briefing at the John Innes Centre in Norwich.

It also allows farmers to take advantages of economies of scale and embrace new technology.

Jason Cantrill, Farm Business Consultant in Strutt & Parker’s Norwich office, said annual returns to the farmer through contract farming agreements grew from £368 per hectare in 2007 to £502 per hectare in 2011. The income to the contractor grew at a slower rate from £428 per hectare in 2007 to £495 per hectare in 2011.

Mr Cantrill said: “This trend looks likely to continue. It is excellent news for the farmer but it is not so good if you are a contractor. Profits can be split in a variety of ways but the profit share is normally a first split of 70%/30% to the contractor with a second split of 50%/50%. The contractor must be properly incentivised for the agreement to work. It is important to remember it is a relationship, not simply a legal agreement.”

Mr Cantrill also told the conference that Agricultural Holdings Act (AHA) tenancies in the Eastern region increased by as much as 50% in three years. Rents for bare land agricultural holdings grew from £50-£65 per acre to £75-£90 per acre. Fully equipped holdings increased from £55-£75 per acre to £75-£100 per acre.

Similarly, Fixed Business Tenancies (FBT) in the same region also saw a significant increase in the past three years. Bare land arable holdings increased by as much as 50% again (£90-£125 per acre to £135 to £150 per acre) and fully equipped holdings (excluding farmhouses) increased by up to 67% (£100-£150 per acre to £160-£250 per acre).

Mr Cantrill said: “This is all excellent news for landlords who will be enjoying an increasing return on their investments, although it should be noted that rents are underpinned by the increased profitability of the arable sector.

He added: “I believe we will see further increases in rent due to rising commodity prices, strong competition and demand for land outstripping supply. The future’s bright, the future’s farming.”

Meanwhile, Strutt & Parker Farm Business Consultant, Christopher Monk also addressed the conference on the wider outlook for farming. He said Strutt & Parker’s yield league table for 2012 showed that average wheat yields were down 7% on 2011 in the Eastern region. However, the region was better placed than many, given that the national average showed a 14% drop.

He added that 2012/13 benchmarking suggested production costs would rise by 5% year on year. However, ‘yield is king’ and if they return to average levels then the cost of production will also fall.

Mr Monk, Partner in Strutt & Parker’s Cambridge office, said: “Total income from farming (TIFF) improved in 2011 but is likely to fall back in 2012 which only serves to underline the importance of EU subsidies and grants to UK farming. CAP reform will have a big effect on farm profitability and careful consideration by DEFRA, when the rules are known and implemented in the UK, is required to support the industry.”

He said the overall picture showed a strong arable sector while dairy continued to pose difficulties for the majority of farmers and other livestock enterprises faced challenging times due to higher feed costs.

Russell de Beer, Land Management Partner in Strutt & Parker’s Norwich office, also spoke at the conference. He reminded delegates of the value of Norfolk’s marshland and said it should not be dismissed as rough grazing land.

Mr de Beer referred to one particular marshland property, Pope’s Marsh, the sale of which he was involved in last year. It involved 143 acres of marshes at Salthouse with no fewer than seven environmental designations as well as a number of other agreements in place.

He said: “They were widely regarded as the best sporting marshes in Norfolk, incorporating a number of hides and butts and I saw the bag numbers to prove it. We sold the property to a wildlife organisation that was anxious to keep it away from our European shooting neighbours and we realised £7,500 per acre. Not bad for some marshes.”

Mr de Beer said: “Out of 48,500 hectares of agricultural land in Norfolk, the marshes make up 20% and they are more valuable than people think. As a whole, they are worth more than £90million. So next time you see them, don’t just think they are for grazing cattle.

“Historically they are held under the same ownership for many years and rarely traded. There are only a small number of transactions and the majority of them take place off market. Values typically range from £7,400 to £10,000 per hectare, although, with some environmental schemes due to expire, this could reduce the capital value.”