Farm businesses tendering to become a contractor under a Contract Farming Agreement are seeking greater certainty about the income they will receive from the venture and are striking deals which shift the balance of risk back towards the farmer.

Speaking on the opening day of the Cereals Event, Richard Means, partner in the farming department of Strutt & Parker, said as CFAs are renewed or renegotiated the trend is for a higher contractor’s charge than has been seen in the past.

He said: "Contractors are looking at ways to improve and protect their position.

"Five years ago the average contractor’s charge was around £230 - £240/ha, but now we are seeing contractors bidding at levels around £275-£300ha for typical contractor services on combinable crop farms in the East of England and the Midlands.

“We’re also seeing a shift in the first tier of divisible surplus to be more in the contractor’s favour.

"In 2016, the average first split to the contractor was 59 per cent, but the trend on review is for that percentage to move upwards.

"At low levels of profitability that protects the contractor, but at good levels of profitability for the farm the returns for both parties are not dissimilar.”

The contractor’s charge is the payment per hectare that a contractor receives for providing labour and machinery and the day-to-day management to farm the land under a CFA.

The divisible surplus is the revenue that is divided between the farmer and contractor after variable costs, the contractor’s charge, fixed costs and the farmer’s retention or first charge have been deducted from receipts.

Mr Means said that there is still strong interest in CFAs from contractors, especially for land and farms which are well-provided for in terms of storage, drainage and other facilities and where the farmer is willing to maintain infrastructure.

Entering into a CFA remains a good opportunity for people who want to expand their business without having to buy extra land or enter into a tenancy agreement, which require higher levels of working and long-term capital, he said.

Mr Means continued: "However, the number of interested contractors is certainly nowhere near what it was when the wheat price was £160/t and contractors were really falling over themselves to take on extra land.

“People are taking a more rational decision about how they are able to integrate the land within their own business.

"They are also likely to ask more questions about issues such as the level of blackgrass and what that will cost them to farm the land.

"It is still a very good model for both the farmer and contractor.

"In well-structured agreements, both sides should be incentivised by the same outcomes – producing high yields, controlling costs and meeting the farmer’s objectives for sustainable land management.”