Share farming

Written agreements

Share farming is an arrangement that can benefit both sides. If you are a landowner, share farming is a way of getting a reasonable return on the capital invested in your land without having to pay large sums of money to own and operate machinery or to buy stock. If you are a farmer who does not own any (or enough) land but who owns stock or a full set of cropping machinery, you can make a living from these assets through a share-farming arrangement.

A sharefarming agreement is an arrangement whereby a landowner or person in possession of land grants a farmer possession of the land to cultivate the land. The profits and/or produce derived from the farmers cultivation are shared between them in proportions agreed between the parties. A share farmer is neither an employee nor a tenant of the landowner, so the legal relationship between the share farmer and the landowner will be quite different from that between a tenant (or lessee) and the owner: see also 'Tenants and leases' under Chapter 2 Land and its uses.This is primarily because a sharefarming agreement does not normally grant the farmer exclusive possession and is therefore not a lease. For further detailed discussion on farming leasing and share farming, and the pro's and con's of each, view the RIRDC Report written by Rod Ashby in 2003 ‘Successful land leasing in Australia - A guide for farmers and their advisors' .

Written agreements

All share arrangements should be put into a written agreement and dated and signed by both farmers. If you then have a dispute, this agreement provides proof of what you agreed, Any disputes that occur under a share farming agreement that was purely an oral agreement between the farmers is likely to be an expensive one, as there will be no proof of what the parties had agreed upon.

Share Farming Dispute

A case in the Supreme Court of Victoria illustrates the problem with oral agreements. The case involved a family dispute over the estate of the father, who had a share-farming agreement with one of his sons. The agreement was never written down and various members of the family had different memories of what was said between father and son.

The uncertainties over the share-farming arrangements meant that the son received less from his father’s estate than what the son thought he was entitled to.

Source: Supreme Court of Victoria (Couch v Couch [2002] VSC 502)

A typical written agreement

The agreement should contain at least:

start and finish dates;
commercial arrangements, such as who is providing which assets;
the duties and obligations of each party, especially in regard to honest dealing and open disclosure of all relevant information;
operational issues such as time commitments and farming processes;
taxation and insurance obligations;
access by the owner; and
income and cost-sharing arrangements.

You must work out a fair income and cost-sharing agreement for each situation. Both sides must be satisfied that they are getting a fair deal for the amount of capital each side has invested, the amount of risk taken and any other contribution each will make A common method is to decide first what costs each will pay and then divide income in the same proportions. A variation is to divide your costs on both sides in the same proportions as you divide the income.

The biggest problem you might have is deciding what monetary values to give to land and improvements compared with machinery, stock and management. The help of an expert evaluator would be useful in many cases.

Compared with dairy farming, share-farming arrangements for crops are often short-term. Sometimes they only last for one crop or one season of stock rearing or grazing. Agreements may be renewed if each party is satisfied with the performance of the other. For example, agreements for sharecropping usually start at the time that the ground is prepared for cropping. They finish after the harvest is delivered to the market or storage. Farmers owning the machinery are usually responsible for the cartage of grain; they would normally charge the landowner for their share of the cartage cost.One item that should be included in the contract is a method of settling disputes if they arise. Your solicitor will help you draft a share-farming agreement or to check an agreement you or other parties have drafted. Some industry groups have prepared standard contracts for their members. The Australian Dairy Farmers Federation has produced an excellent publication called the National Share Dairy Farming Guidebook, which it gives to all of its members. : see also 'The law of contract' under Chapter 6 Business and finance

To assist members to understand the standard contract, the National Share Dairy Farming Guidebook provides a commentary on each clause. Some of the most important items are listed in the four detailed schedules attached to the contract:

provision of assets (who provides what);
duties, rights and obligations;
income and cost sharing; and
farming operations and management.

Schedule 3 is reproduced in part here as a sample. While this sample suits dairy farming, other types of farming would obviously require different items.

2.2: Model schedule 3: Income and cost sharing

	Owner Percent	Sharefarmer Percent
Shared Income Milk Sales - manufacturing, market, step-ups, back pays	50	50
Stock Sales - culls		100
Stock Sales - calves		100
Shared Costs
Herd Costs:
Animal health Calf rearing Herd Improvement General herd costs		100 100 100 100
Shed Costs:
Light & power Dairy supplies		100 100
Feed Costs:
Agistment Contractors (fertiliser & fodder) Fertilizer - N, P & K Fodder conservation Fuel, oil and grease* Hay purchases Grain & concentrates By-product feeds Irrigation costs Seed Silage purchases Weed & pest control**	50 50 50 50 50 50 50 50 50 50 50 50 50 50	50 50 50 50 50 50 50 50 50 50 50 50 50 50
Labour costs (including on-costs):
Casual* Permanent* Amenities & on-costs***		100 100 100
Overhead Costs:
Variable
Cartage Consultancy fees R & M (Irrigation) R & M (Improvements) R & M (Vehicles & plant)	50 50 100 100 100	50 50
Fixed
Accountancy Administration Bank & borrowing fees Insurance (assets) Insurance (disability) Insurance (fodder) Rates Registration & insurance (plant and machinery)	Own costs Own costs Own costs Own costs Own costs 50 100 Own costs	Own costs Own costs Own costs Own costs 50 Own Cost

* based on a 50%:50% agreement. Financial sharing arrangements are at the discretion of the parties.

** excludes capital applications of fertiliser or weedicides necessary to bring the farm to an acceptable operating standard. Such costs are the responsibility of the Owner.

*** excludes costs for farm developments or improvement and personal use

Source: National Share Dairy Farming Guidebook