“I am a young agriculture graduate looking at starting share-milking. I understand that share-milking arrangements can commence from next year when milk quotas are abolished. What is likely to be involved?”

The current share-farming agreement published by Teagasc states that the structure of the milk quota regime at present does not facilitate the operation of share-farming arrangements in the dairying sector. Teagasc is currently developing a dairy share-farming agreement, but these cannot become operative until the end of the milk quota regime on 1 April 2015 due to the nature of the arrangement.

A share-farming system can provide an option for farmers to cooperate in the management and farming of their land. Share-farming is where two parties (the landowner and share-farmer) carry separate farming businesses on the same area of land. It operates on the principle that the share-farmer and landowner are separate businesses, on the basis that they have separate incomes and separate expenses and calculate their profits individually. The details of the arrangement are set out in a written contract.

Share-farming can be fully compliant with EU and Government support schemes. The Revenue Commissioners are satisfied that landowners participating in legitimate share-farming agreements continue to be classified as farmers.

Share-farming is a contractual arrangement between two independent businesses. It is not a partnership, is not a letting or leasing of land, and is not an employer-employee relationship. The parties to the arrangement must ensure that the arrangement as implemented in practice cannot be construed as some other legal structure. For example, there should be no fixed payment for the land, otherwise the structure may be construed as a letting.

Whatever arrangement is entered into, it is essential that the agreement records what is to happen in practice and that the parties stick to those arrangements. Otherwise there is a risk that a partnership or a tenancy will in fact have been created, which could give rise to serious legal or tax implications for the participants. The share-farming concept should not be confused as conacre in another guise, or a retirement mechanism for landowners, and neither party should go into share-farming with this in mind.

A typical arrangement will involve both parties as follows:

  • A landowner provides land, buildings, fixed equipment, major upkeep and repairs. He also provides management and farming expertise.
  • A share-farmer provides mobile machinery, his labour, management and farming expertise.

    • Either or both parties may provide stock and milk production rights. However, responsibility for the herd will likely fall on the share-farmer. Both parties will agree the division of sales such as milk sales, stock sales, fodder sales, and division of scheme payments such as basic payment scheme, REPS/AEOS/GLAS. The share-farmer and landowner, on the basis of a budget, agree to divide income and expenses along certain percentages.

    There is no guaranteed return to either party. Each of the parties is a risk taker, with the percentages in which the fixed and variable costs allocated to each party are set out in a written contract entered into before the venture commences. Variable costs such as fertilizer, feed and parlour expenses could be carried on agreed percentages. However, major once-off costs such as reseeding, reclamation work and major repairs on parlour/bulk tanks will most likely be borne by the landowner. Fixed costs such as labour and machinery repairs can be carried by either or both parties in agreed proportions. As each party is running his own business, it is essential that separate insurance policies are taken out.

    Calculating a budget for the dairy farming enterprise will form the cornerstone of the arrangement. A cost calculator template will assist the parties in drawing up this budget. The specimen share-farming agreement can serve as a prompt for aspects of the arrangement which should be agreed between the landowner and share-farmer as follows:

  • The duration of the arrangement.
  • The lands to be provided by the landowner to include the area and LPIS numbers.
  • Any machinery necessary and who will provide it.
  • If livestock are involved, who should provide same. The local DVO will advise on the herd number situation for a particular case. Normally the local DVO will insist on one herd number if the landowner has stock that are going to be with the share-farmer’s stock.
  • A basis for the division of costs and produce.
  • If EU/Government supports are being made part of the agreement, those being contributed by each party should be listed.
  • How produce is to be stored, marketed and sold.
  • Procedures for resolving any disputes between the parties.

    • It has been documented that the viability of Irish farming will depend, among other things, on farmers being able to increase their operations. Share-farming should be assessed in selecting the right structure for your farming business.

    Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan Agricultural Solicitors does not accept responsibility for errors or omissions howsoever arising.