UK: Machinery Rings

In many cases farming businesses will have considered improving their financial position through benefits of scale.

• Frequently farmers will have sought to achieve benefits of scale by acquiring more land either through purchase or rental. However (and despite a depressed agricultural industry) the cost of land acquisition (whether in the form of freehold prices or FBT rents) in many areas has remained high; consequently if a farmer is not careful the cost of land acquisition can negate any benefit derived from economies of scale arising from an increased land area.
• An alternative approach to achieving benefits of scale is clearly to consider means of reducing production costs (without necessarily increasing the area farmed). Using machinery over large areas (either through the medium of partnerships, contracting arrangements or machinery rings) provides the opportunity to reduce labour and machinery costs.

The first machinery ring was formed in Scotland in 1987 initially by a group of fifteen farmers. There are now a number of machinery rings in existence throughout the UK. Co-operative arrangements for the sharing of machinery and labour between farmers are numerous and vary from the large machinery rings at one end of the spectrum to less formal arrangements being operated by, for example, members of the same family farming different farms in a locality, at the other end of the spectrum.

Whatever structure is adopted for the sharing of machinery and labour, essentially such arrangements have a common purpose namely:

• To match a shortage of machinery and labour capacity on some farms with surplus on other farms.
• To reduce the farmer’s machinery and labour costs.

Whatever the size of the machinery ring to avoid problems in the future:

1. the manner in which the machinery ring is constituted should be clear to all (and properly documented), and
2. for the arrangement to be a success the members have to be committed to the machinery ring (many of the large machinery rings are registered under the Industrial and Provident Acts).

The opportunity to share labour and equipment, and accordingly reduce production costs inevitably will be looked at by an increasing number of farmers; indeed machinery rings and sharing arrangements provide a real opportunity to reduce production costs.

However before a farmer enters into any such arrangement he should satisfy himself that a variety of issues are addressed in the sharing arrangement, and that the issues are properly documented, for example:

• How will the machinery ring be constituted, for example will be it be a company in which the farmer has a share? What will his rights and obligations be in respect of the company.
• Who will administer the machinery ring, will it be necessary to employ someone to do so or for example appoint agents to do so? Does the employee administering the machinery ring have a written contract of employment, or are the terms on which the agent is appointed to administer the ring properly documented?
• What are the tax implications so far as the farmer is concerned?
• Who owns what?
• How is the administration of the machinery ring funded?
• At what rates are machinery and labour charged out?
• What are the insurance arrangements (are both the individual farmer and the machinery ring adequately covered by insurance)? In the event of an uninsurable risk arising how will that be dealt with?
• What are the "terms of business" for both the farmers providing labour and machinery within the ring and also "buyers" of labour and machinery within the ring?
• How are issues such as the maintenance and breakdown of machinery dealt with?
• Is there a dispute resolution procedure in the event of a dispute between members? Is it documented?
• How are competing demands for the same piece of machinery at the same time dealt with (for example, if everyone needs the combine at the same time)?

A good machinery ring or sharing arrangement will address all the above points and particularly importantly document them so that there can be no misunderstanding in the future.