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Decisions4Dairy - It’s not what you do, it’s the way that you do it : joint ventures

It’s a really positive thing to know you want to make changes for you and your business. So what could these changes be? It’s likely that if you have come to this conclusion, a small change isn’t going to make a big enough change to deliver what you want to achieve. 

Two options that you might be considering could be a system change or becoming a part of a joint venture.

Could a joint venture be your best option?

When faced with a lack of succession or just a lack of motivation, sometimes the only answer seems to be to quit cows. But could a Joint Venture (JV) be just the ticket?

Joint Ventures are types of business structures that allow you to continue farming with all of the tax (and lifestyle) advantages, but without the daily physical challenges. While there are two main types of structure available in Britain – equity partnerships and contract farming – the latter offers two parties the chance to combine their technical and financial skills to grow a dairy business.

This type of JV not only gives a motivated new entrant a start in dairying (or the possibility for another dairy farmer to grow their business when their own homestead doesn’t allow it), it also keeps you, as an experienced dairy farmer, active and involved in the thing you love, dairy farming.  

It gives a chance for a profitable business to be maintained until any successors might be ready to take over or for you to receive a good return on your investment.

Therefore, profit has to be the driving force behind such a venture, says Andersons business consultant Tony Evans.

The term Joint Venture is used to show that it is two separate businesses working together. Tony points out that any other name could imply a joint business and be interpreted as a trading partnership by the tax man or creditors. “Where either party fails to honour its debts and the suggestion is of a trading partnership, each partner is liable.

“This is why we don’t operate sharemilking agreements. In New Zealand, sharemilking is protected by law and the milk cheque is split at source by the dairy. In Britain, the farm owner gets all of the milk cheque, so it could be seen as a partnership with the associated liabilities if it went wrong. However, farming in Britain via the Law of Contract is over 115 years old and is protected by law.”

Contract farming is an agreement between a dairy farmer (you) and a contractor. You, whether an owner-occupier or tenant (tenants in a JV are still farming, not sub-letting), provide land, buildings and all or some of the livestock.

The contractor supplies labour, management and machinery, and all or some of the livestock.

They must be self-employed and demonstrate they are running a business by their ownership of equipment. “Otherwise the tax man could view labour-only input as being an employee,” Tony adds.

The contractor isn’t simply a replacement herdsman, they should be able to make a difference to the business and work together as a team with you. Similarly, you have to accept that you are no longer solely in charge. Even with the focus on profit and a sound business structure, real success requires sensitivity. “It’s all about considering what the other party wants. A younger contractor needs to emphasise that if they want to work with an older owner, it’s not a takeover bid. Both parties also need humility and confidence, rather than arrogance,” he explains. “Good communication is essential between the owner and contractor (usually through weekly meetings) to stop the owner from misunderstanding. When a mistake is made, just blaming the contractor isn’t acceptable. Often the younger person will have to be mature and tackle the issues, as the older partner might not realise what has happened and on a really bad day, might resort to saying ‘this is still my business’.”

Clear communication and managing expectations is important from the outset. Tony is convinced that JVs are the way to keep more profitable farms in business. “This is good for the whole industry and keeps rural communities alive and what we usually see is that the farm owner gets a new lease of life and they become motivated about dairy farming again.”

If you would like further information on Joint Ventures, the AHDB website holds a Business Structures report and templates for different structures are available upon request.

This is one of a series of articles on mindset.  Read more on this and Decisions4Dairy – an industry-wide initiative to support farmers in challenging times so they can become more robust for the longer term at dairy.ahdb.org.uk/d4d.