However, due to the instability of agriculture and the unpredictability of maternal nature and markets, agriculture is going through boom and bankruptcy cycles. To compensate for these cycles, landowners and farmers can incorporate these variations into the price of the land and set a variable rate for the lease. This means that the farmer can pay a little less in recent years, but it also means that he pays a little more with a bumper crop. The lessor could also be considered a farmer if the lease is structured as a detailed crop plan in which the landowner retains control over land use, crops, fertilizer rates and pesticide use. Another simple method is a percentage of gross yields. Compare cash rents in your area over the past five to ten years with the gross income of crop crops. In many areas, cash rent is about 20-24% of gross return. In most cases, the Canada Revenue Agency estimates that a portion of the crop received by a landowner is rental income and not farm income. However, the landowner could be considered used for agricultural purposes if the "sharecropper" is a worker who takes back a portion of the crop instead of the salary. Merle Good, a tax specialist for Alberta Agriculture, proposes to use plant insurance to determine the basic rental rate. It proposes that 20 per cent of the gross value of the crop, as determined by plant insurance, be a fair base rate.
For example, if a farmer`s normal yield is 40 bushes of wheat and crop insurance prices for the coming year is $5.50, the gross harvest value is $220 per hectare. Then, 20 per cent of that is $44 per hectare. The Canada Revenue Agency verifies whether the owner is involved in the risks and benefits of the farm business when determining whether he is involved in the agricultural activity rather than exploiting rental property. The basic cash rate could reflect local fair value or be determined exactly as the cash rental rate is agreed. It could be defined by welcoming a percentage of the yield and price of the crop. Since payments are not a fixed amount, the contract for participation in the harvest must expressly provide for the method of determining rent. This should include the question of whether and to what extent the landowner will assist in input compensation and what is the decision-making power of each party. The agreement can specify which crops are allowed in the field. The price adjustment factor can be determined by reports comparing the current year`s prices with those of crop insurance.
For example, if the price of wheat rises by $1 to $6.50/bu. The basic interest rate is revised upwards by 6.5/5.5 times the base rate of $44, or $52 per hectare. Both landlords and tenants benefit from higher prices. If the price had dropped by 50 cents, the rent would be reduced to 5.0/5.5 times $44, or $36 per hectare. Purdue University`s website goes even further by offering a table that allows a breeder to compare the rents he would pay for various income, costs and prices under a cash lease, Crop Share and Flex Cash. While this table is designed for U.S. breeders, it can be easily adapted to Canadian crops. This table is just a link on a website with a wide range of information about land leasing. www.agecon.purdue.edu/extension/pubs/farmland_values_resources. asp A plant share lease may be correct for a farmer by sharing the fruits of her labour in exchange for increased protection against economic and weather factors beyond her control.