"Contributions Approach" Offers
Practical Method to Determine
What Is Fair Rent?
By M. E. QUENEMOEN
Extension Farm Management Specialist
SHARE OR RENTAL agreements are
a must for many young farmers get
ting started today. Even well estab
lished farmers are turning more to
leasing as a means of getting control
of additional resources.
This is not surprising when we con
sider that it now takes four times as
much capital to start farming or ranch
ing as it did 15 years ago.
With increased emphasis on renting,
many questions are raised regarding
fair" rental rates. What is a fair
division of income when the tenant
furnishes a tractor and equipment?
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What should be the cash rent for irri
gated pasture? Who should pay for
fertilizer and seed? What should I
charge for taking in cattle on shares?
What is Customary
In the past the answers to these ques
tions have usually started with a con
sideration of local custom. However,
customs are slow to change while
farming has been changing rapidly. It
Is becoming increasingly difficult to
identify the "typical" or customary
situation. For example, sprinkler irri
gation and new forage harvesting meth
ods, in some cases, have changed the
production patterns for hay so that
customary" share arrangements used
In the past are no longer applicable.
After considering local custom and
engaging in some bargaining, a rental
rate is usually agreed upon by the two
parties.
4 €
Contributions Approach
An alternative approach is to start,
not with "what is customary," but with
an appraisal of the contributions made
This Land of Ours , .
Cactus Has Its Problems
(As Well as Its Points)
By JESSE GREEN
ONLY THE PRICKLY pear and the
little pincushion cactus of the cactus
family have been able to move north
into Montana. With all their thorns they
have a more difficult time than is ap
parent.
Resistance to drought is the main vir
tue of the cactus family. The prickly
pear knows all about dry weather. It
may even be more wise than the dry
farmer, who keeps right on when the
dry years come, and will spend his
bottom dollar, whereas the cactus just
closes down all operations and waits
for rain. It can go from a feast to a
famine without an effort. A long ex
perience has taught the cactus to live
with drought.
Changes in temperature are another
matter. In the real home of the cactus
low temperatures are not the rule.
Those families of cactus that have ven
tured north have to face the new haz
ard of lower temperatures.
Hard Frosts in May
In 1946 there were hard frosts in May
following warm weather that had
broken the dormancy of the cactus. At
some stations along the Eastern Slope
there was frost every night for the
first 10 days in May, and on the night
8—APRIL 15, 1959
by each party. From an economic
standpoint this is the fairest method
of determining rental rates. It is based
on the assumption that an equitable
division of income results when income
is shared in the same proportion that
costs are shared. Costs include a charge
for all resources such as land, labor,
capital, equipment, livestock, etc.
To determine the rental rate by this
approach it is necessary to measure
the value of each party's contributions
in terms of dollars.
The contribution approach has been
Estimated Annual Cost
Whole Landlord's Tenant's
Farm Share Share
5,500 5,500
INVESTMENT COSTS:
Land and buildings $110,000 at 5%
Machinery and equipment $9,000 at 7%
630
630
5,500
6,130
TOTAL INVESTMENT COST ....
CURRENT FARM EXPENSES:
Allowance for tenant's labor.
Hired Labor ....
Repairs—building and fences ..
Repairs—machinery ..
Machinery depreciation ...
Building depreciation .
Fuel, oil and grease ..
Machine work hired....
Seed ...
Fertilizer ...
Insurance on buildings ..
Insurance on personal property.
Taxes on land and buildings..
Taxes on personal property.
4,000
1,300
4,030
1,300
300
300
700
700
1,500
1,500
500
500
1,200
1,200
500
500
100
50
150
1,200
900
300
100
100
150
150
600
600
100
100
10,450
11,080
12,300
18,430
100 %
1,850
7,350
TOTAL CURRENT EXPENSES . .
TOTAL INVESTMENT AND CURRENT EXPENSE
Proportionate share ..
60%
40%
of the 10th the temperature dropped to
10 degrees, or near that figure. We
well remember how the leaves of the
cottonwood trees were frozen, and fall
wheat was frozen to the ground. The
recovery of most vegetation was re
markable. We produced a crop.
The cactus family did not do so well.
There are no exact figures on the cac
tus crop, but some observations were
made. In a region between Harlowton
and Martinsdale of the Musselshell Val
ley, where the little pincushion cactus
had reached a high stage of develop
ment prior to 1946, the range was dotted
with the most beautiful flowers in June
and July, It was easy to find a cluster
of pincushion cactus 10 inches across
containing a dozen individual plants.
They all perished in the frosts of
1946. Only the carcasses were left.
10 Years to Come Back
The pincushion cactus did not appear
again for nearly 10 years. In 1956 some
single pincushion cactus were to be
found. In 1957 some doubles could be
found. These, no doubt, came from the
seed. The complete cycle from a freeze
out to full production of this family of
plants may be from 15 to 20 years.
In this same region the prickly pear
was almost exterminated in the freeze
used successfully by many landlords
and tenants. Investment items such as
land and equipment, must be given a
value and charged at a certain rate of
interest to determine the annual in
vestment cost. It is suggested that
present market value be used for estab
lishing a value on these assets.
Interest Rates
The interest rate should correspond
with what this money would return if
invested in another asset of similar
risk and productivity. It is a general
practice to allow a higher return on
working assets such as livestock, ma
chinery, and supplies, than on land
and buildings.
Current farm expenses should be
listed according to the cost of each
both parties. Obviously some of
these entries are subject to negotiation.
For example, the value placed on the
tenant's labor will have to be mutually
agreed upon.
or
Finally, both current and investment
of 1946. It is more hardy than the pin
cushion, which in some cases was ex
terminated, There were some living
plants left in every cluster, making the
comeback more easy. However, cactus
all over the state was damaged in the
hard frosts of 1946 and again in May
of 1947. Only now, following the warm
winter of 1957-58 and favorable springs
of 1957 and '58 is prickly pear reaching
its maximum production.
There appears to be only one variety
of prickly pear in Montana, the one with
the yellow flower. If we go south to a
line running east and west through
the approximate position of Pocatello,
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Cactus at its best, or the stockman may say, "At its worst.
99
expenses are totaled. These totals indi
cate the proportion in which the gross
farm income should be divided.
As an illustration, if the total cost
of the whole farm came to $20,000, of
which the landlord contributed $6,000
and the tenant contributed $14,000, the
proportionate shares of gross farm in
come would be 30 per cent and 70 per
cent, respectively.
Proportionate
Share
100 %
30%
70%
Cost
$20,000
6,000
14,000
Total ....
Landlord
Tenant ..
An Example
Let's see how this approach might
be used in practice. Mr. Landlord has
a 160-acre irrigated farm for rent. His
son-in-law, Mr. Tenant, has some capi
tal and a full line of machinery. They
interested in working out a rental
agreement that would be fair to each.
Together they agree on the estimate
of costs as shown in the schedule on
are
^j s p a g e .
From this analysis Mr. Landlord and
Mr. Tenant decided that a 40-60 division
of gross income would be equitable,
based on the contributions made by
each party. The actual division could
be made in several ways.
The crops could be divided on the
basis of bushels, tons and months of
grazing. Another possibility would be
to divide the gross income in terms
of dollars at the end of each year. Also
a cash lease may be agreed upon,
based on the normal gross income
from the farm. The important point,
from the standpoint of equitable distri
bution, is that the landlord receive 40
per cent of the normal gross income
and that the tenant receive 60 per cent.
For Part Farms
We have used a whole farm as the
basis for our illustration. The contribu
tions approach works equally well for
determining the lease of a pasture,
field, or other parcel of land. It can
also be used effectively to determine
shares for livestock agreements and
grazing fees.
Idaho, there are both yellow and red
flowering prickly pear. The red ones
never venture north of that given line.
There are two pincushion cacti in
Montana, one with a red and another
with a yellow flower. The red flowering
variety is the most predominate. Some
locations of the red variety are Twin
Bridges, Townsend, Harlowton and Sid
ney. In the Gallatin Valley only the
yellow pincushion occurs. Just why
some plants do not spread into other
regions is somewhat of a mystery. Also,
Why do such beautiful flowers as the
cactus come from such a thorny back
ground?
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