Advantages of Contract Farming: Pros, Cons & Risks

Dealing with unpredictable British weather or needing specialised equipment and expertise? Sometimes, bringing in extra hands isn’t just helpful – it’s essential.

As the demand for food and agricultural products rises, farmers across the nation need to adapt to an evolving landscape. Enter, contract farming: a solution to help navigate these challenges.

The benefits of contract farming

Whether you’re the farmer tending to the land or the landowner appointing workers to help you get the job done, contract farming benefits for landowners go far beyond easing the workload.

1.  Unpredictability

In an industry prone to unpredictability – be it fluctuating market demands or the strange British weather – specialised skills, tools and expertise are often needed. Farmers might find themselves drastically unprepared for various situations, and contract farming works as a saving grace. Throughout 2023, the agricultural industry has suffered with a labour shortage, which exacerbated the need for contract farmers to help out on UK farms, offering a helping hand during uncertain times. To read more about 2023’s farming labour shortage, click here.

2.  Year-round support

It grants access to specialised services, cutting-edge agricultural technology and invaluable expertise, all of which ultimately boost productivity and profitability. For landowners, it’s a reduction in operational costs, thanks to shared responsibilities and optimised resource utilisation. We’re seeing an increasing demand for skilled labourers, machinery and technology to carry out vital tasks (like crop spraying) on farms across the nation. For many farmers, investing in new equipment isn’t financially viable – which is why farming machine hire has become so popular in recent years. Ranging from mini-diggers to muck spreaders, our catalogue of machinery is ever-expanding, and ensures that we can lease high-quality and well-maintained equipment to our clients when they need it.

Not having to invest in tools, machinery and training to facilitate a project that might not be a year-round thing is a huge benefit, offering flexibility for a fraction of the cost. Whether you’re looking for snow ploughing in the winter or crop planting and cultivating in the spring, having access to seasonal services from a contract farmer offers specialised support precisely when you need it.

3.  Retaining ownership of the land or farm

In the UK, where the farming population is ageing, contract farming presents an innovative opportunity to continue growing the business, without having to sell land or assets. This in itself is beneficial for the farmer, who doesn’t have to upend generations of farm life, while the contractor can bypass the expense of starting a farm or smallholding from scratch.

Plus, by entering into a joint venture, the farmer gains valuable insight and expert advice, thanks to the contractor. Working with a contractor on a long-term basis can easily prove to be more economically viable than hiring a piece of machinery, or new members of staff.
For the farmer: Release of working capital

4. Release of working capital

Contract farming agreements allow both the farmer and contractor to generate a stable, regular income. But, for the farmer, a joint venture presents them with an opportunity to release working capital, primarily through the costs of machinery.

And as mentioned in point 2, the contractor would typically provide their own machinery, the farmer is no longer responsible for the upkeep and maintenance of plant equipment. So, not only do they avoid depreciation charges, but the money saved by offloading the recurring costs of equipment is free for the farmer to use however they deem fit.

Disadvantages of contract farming

But as with any good thing, there are bound to be the odd downside. While contract farming offers many benefits, it’s important to be aware of the potential drawbacks before entering an agreement. but we’d definitely say the positives outweigh the negatives.

1. Work quality

One of the key concerns in contract farming is the quality of work delivered. If the contractor fails to meet agreed-upon standards, whether it’s crop quality, animal welfare, timelines, or technical compliance, it can create disputes and financial setbacks. Since the landowner typically relies on the contractor’s expertise, poor performance can directly affect profitability and reputation.

However, this risk can be greatly reduced by thoroughly vetting the contractor, clearly outlining expectations in the agreement, and partnering with a trusted agricultural contractor, like us!

2. Market changes

Contract farming doesn’t shield either party from market fluctuations or market volatility. External factors like price drops, shifting consumer demand, or supply chain disruptions can still impact the overall profitability of the agreement. Even with a contract in place, both the landowner and the contractor may be affected by changes in the wider market after terms have been agreed.

The role of contract farming in risk mitigation

Contract farming plays a valuable role in reducing certain types of risk for both farmers and buyers. By agreeing on prices, quality standards, and delivery timelines in advance, it offers a level of predictability that can help protect against sudden market shifts, production uncertainty, or inconsistent demand. While it doesn’t eliminate all risks, it does provide a more structured and secure environment for agricultural operations.

Is contract farming profitable?

Yes, contract farming can be profitable for both farmers and contractors when managed well. With agreed prices and assured buyers, farmers often benefit from more consistent returns. That said, the true profitability comes down to the fairness of the contract, how well both parties deliver on their commitments, and external factors like weather and market trends.

Contract farming: A win-win proposition

Contract farming fosters mutual benefits for all. Farmers experience an uplift in productivity and market competitiveness by accessing crucial resources, expertise, and markets. This translates to reduced operational responsibilities and a steadier income stream, fostering stability and growth.

On the other hand, contractors seize a valuable opportunity to scale their business and broaden their customer base, relieved from the burden of land costs. For the entrepreneurial contractor, entering into one or more contracts can allow them to expand their business exponentially. Additionally, they can share their expertise while gaining further insights and opportunities for growth.

AWSM Farming: Your contract farming partner

Choosing AWSM Farming means choosing a dedicated partner invested in your farm, opening up a whole host of unparalleled benefits.

Our suite of services can be tailored to elevate your farming experience. From baling to soil sampling, each service is designed to drive productivity. No matter your project, no matter your farm’s size, we’ll work with you to find a solution that works for you and your business’s needs. We prioritise your goals, align our strategies and amplify your outcomes.

Ready to see the full potential of contract farming? Partner with AWSM Farming today to explore how our partnership can revolutionise your farming experience and propel you towards success.