Farm Ownership & Succession 2021 - Country-Wide by NZ Farmlife Media

A Country-Wide special publication

PART ONE

Farm Ownership & Succession 2021

There’s no time like the present to sort the future of your farm. 57% of kiwi farmers are considering succession planning. Are you one of them? Chat to one of our ASB Rural team today to see how we could help get your farm one step ahead for the future. 0800 787 252 ASB Rural Research, March 2021

asb.co.nz/rural ASB Bank Limited 56180 23594B 0621

Welcome

CONTENTS 4 Research shows succession questions cut to the core. 6 Get started early on succession journey advises rural lawyer. 7 Change the mindset to see succession as an opportunity says ASB's Ben Speedy. 8 Case study: Livestock equity partnership built on shared values. 12 Case study: Leasing land creates pathway to farm ownership in Canterbury. 15 Government recognises succession challenges for farming families.

to the first in a three-part series on farm succession produced by Country-Wide with support from ASB. Over the next three issues, our editorial team will examine farm ownership transition from all sides. We’ll profile several farming families who are on the journey towards moving ownership of their business to the next generation. Our team will also look at how talented and committed farm managers, often with limited equity, are hoping to achieve their goal of farm ownership. Finally, our writers will talk to the experts from the advisory sector and investigate some of the new opportunities in front of farmers trying to diversify their farm business to open up new revenue options for a smoother succession journey. We recognise there is no ‘silver bullet’ for success when it comes to farm succession. Our series aims to deliver pathways, advice and some inspiration to guide farm owners along the journey. We welcome your feedback. Tony Leggett Publisher, Country-Wide

COVER: Partners Tom Magill and Stella Bauer mustering on Orton Bradley Park, one of several hill country properties they lease on Banks Peninsula. They’ve achieved a goal of farm ownership with a small property at Greenpark south of Christchurch. Photo by: Johnny Houston, Red Box Photography.

Farm Ownership & Succession 2021 is produced by NZ Farm Life Media, publisher of Country-Wide and NZ Dairy Exporter. Visit nzfarmlife.co.nz for details of how to subscribe to each magazine. Publisher: Tony Leggett, tony.leggett@nzfarmlife.co.nz, 027 4746 093. Contributors: Tim Fulton, Phil Edmonds, Johnny Houston, Steve Wyn-Harris. Designer: Emily Rees.

www.nzfarmlife.co.nz

Succession questions cut to the core BY: TIM FULTON

arm succession can feel like an admission of mortality so it’s no wonder so many farmers delay big decisions until it’s too late. If farms were any other asset, a property owner might delegate the job to an agent. If it was a bundle of shares, cash might move with barely a blink. But farms are bound up in flesh and blood, so farming is different. Farm succession is often described as a planning process, but less often as a ‘people process’. Lincoln University researcher Peter Nuthall puts it plainly in a 2016 paper, citing “reluctance to accept ageing” as one of the stumbling blocks for family-owned farms.

Nuthall and his Lincoln colleague Kevin Old found that despite the growth of modern agriculture and farm size, family ownership, as has been shown in many studies, continues to dominate. In a 2014 survey they found that in New Zealand, all but 9% of farms’ assets were either held personally and/or in conjunction with a spouse, possibly through partnerships or private companies. They also found that farmers over 65 years had only started transferring assets 10.4 years earlier. For farmers between 56 and 65 years, the asset transfer only started 5.9 years ago. Like other observers, Nuthall and Old concluded that farmers move slowly on farm succession because they associate it with

retirement, a loss of influence and, ultimately, their own mortality. Nuthall says some of the tension arises “where a farmer holds up progress to avoid loss of control. Sometimes “death dramatically solves this problem”, but just as often a farmer and family members simply “exhibit denial over the whole issue”. One of the most serious problems arises when one part believes there is an implicit understanding of what needs to happen. Unfortunately, sometimes the process is manipulated, Nuthall says. “Sometimes denial allows escape from uncomfortable situations. Another ploy is to segment the overall situation and move ahead in some areas but not others, thus maintaining control in key areas.” Nuthall says the priorities for succession should be efficient and fair distribution of assets to the next generation, smooth management transfer, looking after family relationships and providing for retirement. Hayden Peter studied farm succession for a Kellogg Rural Leadership project: Conversations should start early and be maintained; particularly as young people’s

www.nzfarmlife.co.nz

interest and capabilities change over time. Avoid making assumptions, as these can turn into expectations. Avoid devising a strategy at short notice, as a poorly planned and poorly executed strategy can harm family relationships. But do give praise: “Everybody likes praise, but farmers are very reluctant to give any sort of praise. Acknowledgement during succession planning can go a long way to building stronger family relationships.” Like other analysts, Peter urged farmers to focus on profitability as a bottom line for succession: “If a business isn’t profitable, the question has to be asked, ‘what is being achieved from succession?’ he asks. In his 2016 study, Peter points to a study of the sheep and beef sector by UMR on behalf of the Red Meat Profit Partnership, looking at the traits and motivations of high performers. “While profitability is critical, when it is boiled down, profits allow top performers to provide opportunities for their families to live the way of life that appeals so deeply to them.” Opportunity is widely seen as critical to farm succession. It may be that certain family members ‘getting the farm’ is not the fairest, best or most desirable result. Nor is the fairest result necessarily the most even transfer or distribution of assets. In other words, fair does not always mean equal. “Entrepreneurial family businesses are successful because they maintain the best of history, the foundations and the success of the family business legacy and adapt, change and capture new opportunities across multiple generations,” Peter finds. A legal specialist in succession planning, Henry Brandts-Giesen, suggests family business owners and their advisors overlook the importance of human elements. “Make no mistake, this is not a science, it is all about human behaviour around money which is often irrational. Sometimes intellectually brilliant succession plans are formulated but never see the light of day. A consequence of this can be that even the most diligent business owners often neglect or avoid having meaningful succession discussions. By the time they really need to engage their position may be weakened and valuations compromised.” Brandts-Giesen, head of private wealth

“MAKE NO MISTAKE, THIS IS NOT A SCIENCE, IT IS ALL ABOUT HUMAN BEHAVIOUR AROUND MONEY WHICH IS OFTEN IRRATIONAL...”

Henry Brandts-Giesen.

www.nzfarmlife.co.nz

for Dentons Kensington Swan, said the best results in his experience were based on a simple, documented and agreed game plan before any major moves were made. The steps should not be “tax driven” but should be predicated on independent valuations and reporting. Decisions should also be based on free flow of information between lawyers, accountants, bankers and other relevant professionals who work together from the outset. He recommends business owners and advisors consider financial products such as insurance to manage risk and annuities to manage cash flow and services such as wealth management, where there is liquidity. At a top level, business minders also need to distinguish between the different functions of advice, management and governance, and recognise the value of independent governance. Brandts-Giesen said in this regard the family lawyer and accountant may not always be independent and perhaps should concentrate on advice rather than governance, which involves a different and much wider set of fiduciary responsibilities. Rural law specialist Richard Parkes at Cavell Leitch said parents needed to put their own interests first when starting a succession process. Talking to the children was “consultation not permission” but their feedback had to be considered carefully, including discussion about the farm’s profitability. It was helpful to have off-farm assets and low debt, so succession was viable, he said. Beyond the farm, other rural industry professionals are also marshalling their resources. Workshops run by the NZ Institute of Primary Industry Management have been trying to meet growing demand for governance and succession advice, NZIPIM chief executive Stephen Macauley said. On-farm ownership was changing more rapidly within the primary industry as farm owners considered various governance structures and/or exit strategies. Traditional models of passing the farm on to the next generation had become increasingly difficult through the lack of capital or in satisfying multiple interests of other family members involved in the farm. A growing number of rural professionals are being asked to help navigate their clients through increasingly complicated transitional family arrangements, Macauley said.

Save early, take nothing for granted BY: TIM FULTON

ate to say it, but farmers are too lax when it comes to farm succession, rural lawyer Richard Parkes says. Parkes has worked with many South Island farmers, particularly in the high country, and has a particular interest in assisting farming families with farm succession plans and “asset protection structures”. He has seen plenty of good plans and good results, but also plenty of farming parents that delay with all their might on the question of succession. And some of it comes down to reluctance to pay for advice, he says. “It’s not so much that they can’t be bothered, it’s just that they don’t want to have to think about it. And I don’t think it’s about mortality, I just think they think ‘oh, that’s a long way off. I’ve got other things to be worried about right now.” So, even though the universal advice is ‘get onto it early’, many farmers are just lackadaisical about it, he says. Then again, Parkes sees a farming demographic that’s shedding sentimentality about succession. “I know plenty of farmers, especially those in their 40s and 50s, who are of a new

generation who don’t think that they need to be a caretaker and hand the farm over to the child. They’re telling their children now, while they’re at school, ‘listen, we are farming now but we are going to sell this farm and enjoy our retirement. Don’t expect to come back to the family farm’.” Other farm owners may decide that since none of their kids are ‘looking likely’ to take over, they’ll look at bringing in equity partners. “Some young person who is capable buys in five or 10 percent, and then over time that person buys more and more. And everyone knows that eventually they’ll either buy it out, or the farm will be sold. And everyone gets their shareholding.” If more traditional family succession is on the table, Parkes strongly recommends families create a company to hold shares in trust. Children should start building wealth early – straight after school is best - so that parents or a trust can progressively sell shares to succeeding offspring. “You have to start with that, because if you don’t start with that, you’re really nowhere. Even though [a takeover] is not going to happen for several years, at least it’s there on their radar as to how it’s going to eventually happen.” If there are three kids on the family farm, for instance, the eldest child might spend their first few adult years at university or take up farm work. “At that point in time, when that kid’s 18 or 19 years old, then that kid should be thinking about how they can develop some wealth to be able to possibly buy shares off their parents.” Shepherding or other jobs should be a first step to that equity-building, rather than simply part of CV-building or even biding time till a return to the home farm, Parkes says. “Maybe he or she goes out as a mechanic, it doesn’t matter, because they’re in a job. And what they should be doing is

“AT THAT POINT IN TIME, WHEN THAT KID’S 18 OR 19 YEARS OLD, THEN THAT KID SHOULD BE THINKING ABOUT HOW THEY CAN DEVELOP SOME WEALTH”

Richard Parkes.

buying a house or buying a dairy herd as a sharemilker. They should be borrowing money, based on their salary, to try and build their wealth.” Farming kids may be better positioned to build wealth at a young age than a debt-laden university student chasing a white-collar career. Even if a farming son or daughter needs help with a deposit on a house, they have an asset that’s increasing in value. After a decade or so, the children might be able to get serious about buying into the family business. By then, parents should have “a semblance of a plan” for succession, including figuring out the next step in their own lives. “Even if it doesn’t pan out, at least they’ve got the start of a plan because they’ve got the company, they’ve got the shareholding and they’re saying to their son, daughter or whoever it might be ‘this is the rough plan and this is how it’s going to work’.” The best decision may be that succession isn’t realistic because the farm isn’t profitable enough, or the kids aren’t ready and able to take it on. Inevitably, relationships and plans come unstuck. Parkes said in this situation, his inclination would be to try to keep pushing on with talks after perhaps “letting the dust settle for a few months while people get themselves together”. He recommends farmers appoint an independent facilitator – not a rural professional and not a lawyer, though he had facilitated talks himself when he knew a family well. “It’s got to be somebody who has a reasonable relationship with the family and has the skills to be able to get information out of each of the parties, in a way that gets it all out on the table. There needs to be a lot of trust,” he says. Often, agreeing on a plan comes down to seeing another person’s point of view. “The son might be saying ‘I want to be able to get on the farm and the parents are saying ‘that’s all well and good, but you’ve got no money to start buying in and we want to be able to retire from the farm and live a reasonable life’.”

www.nzfarmlife.co.nz

Succession plans are high on the priority list, says Ben Speedy.

PHOTO: BRAD HANSON

Opportunity amid change BY: BEN SPEEDY, ASB GENERAL MANAGER FOR RURAL

he primary sector has always been and will continue to be vital to New Zealand’s economic prosperity. So it’s important, as the current cohort of farmers retires, that we ensure a successful transition to the next generation. We recently conducted research with Kantar and spoke to Kiwi farmers throughout the country and across industries to understand the key issues keeping them up at night, and what’s on the horizon for them. Sixty per cent said succession planning was on their minds which shows there is a lot that can be done, and conversations that can be had, when it comes to thinking about ‘what next’ for the farm. Like any good business owner, food and fibre producers must have a plan for the future of their business. Succession can be hard for farmers and horticulturalists, and in fact bittersweet. In our experience, many of our customers who have put their whole adult lives into ensuring their farm is a functioning, profitable business have mixed emotions about the idea of selling or passing it on. In ASB Rural we work with clients by asking

www.nzfarmlife.co.nz

questions and getting them thinking about what a succession plan could look like for them and their business, then using our expertise and relationships to help make that happen. No two farms, farm owners or families are the same and farm succession plans won’t be either. Handing over the farm is a process that often takes time; we’ve worked with clients who have set their succession plan in motion over decades. It’s important to have independent, trusted voices at the decision table including your lawyer, accountant, or an independent facilitator such as your banker. Working with many different rural customers, with diverse backgrounds and interests, our rural bankers have been involved in supporting many succession plans and have a broad range of experience in the different options that might be available. We believe effective succession plans are bound together by a solid plan, with all parties communicating openly and remaining flexible. If you’re looking to hand the farm over, the best place to start can often be asking yourself two questions: what is the most important thing to you? and where do

you want to be at the end of this process? It’s true generational succession is common in New Zealand because, as we’ve seen historically, it generally offers the best result and for a long time was simply what was always done. But today, not every farm has a natural successor within the family and that’s where equity partnerships, leasing parts of the farm for different purposes, or selling to an independent third party entirely come into play. Diversification is another avenue to think about when it comes to planning your farm’s future. At its core, diversification is building additional revenue streams within your business today, while futureproofing it for the next generation. Historically New Zealand's farms have mainly engaged in sheep, beef and dairy farming but in recent years we’ve seen customers divesting sections of land traditionally used for grazing to forestry or horticulture, while others are seizing the opportunity for development and diversification for themselves. In fact, the same research we carried out showed 58% of farmers were considering adjusting their farming practices to further cater to changing customer demands or supply premiums. Sustainable farms and orchards continue to be sought after and significant work is being put into achieving more environmentally-friendly practices. While diversifying may come with additional cost up front, it can help with enduring business sustainability and make your farm more attractive to prospective buyers or even provide an income stream in retirement. Diversification is hugely varied: we’ve seen farmers get creative in a range of different ways through adding mountain biking tracks or opening up walking trails on the farm, to investing in hives for honey production to changing their farming operation entirely. We’ve also seen examples of customers leasing unproductive parts of the farm for carbon farming which can provide both financial and environmental returns. Diversifying is not without risk, so do your research and talk to experts, but we’ve seen how it can really pay off for farming families. Remember it’s never too early to start thinking about succession and it is never too late. There’s no blueprint on how long it should or will take to transition farm ownership successfully, so take your time, do your research and who knows, you might find opportunity amid the change.

ONFARM

Lease hunger rewarded with ownership BY: TIM FULTON PHOTOS: JOHNNY HOUSTON

easing has helped Canterbury lease-holder Tom Magill into a first farm and he’s hungry for more in a red-hot property market. Tom had a start in life at port-side Lyttelton, where he’d head across the harbour on weekend trips with his father to help friends with tailing, odd jobs and a spot of shooting. He soon picked up the farming bug, spurred on by family moving on to a lifestyle block near Lincoln. Barely a teen, Tom started buying and fattening 30 to 40 sheep at a time on nearby sections. At 17 he left school and went building then tried milking cows, but neither pushed his buttons. His spark came from his first hill country job at Purau, back on Banks Peninsula. As a casual musterer Tom met a couple of ex-shearing and fencing contractors who taught him their priceless skills: whenever there was no mustering work around he took to the shears. Helped by his partner on the boards, ex-pat German national Stella Bauer, his best shearing year while farming was about 6000 head. By the time he was 19, Tom had his first farm lease – one of many that have helped him to now run 11,000 stock units on 1650ha with the help of two staff. The market for lease properties is much more competitive than when he started 18 years ago, he says. “Every man and his dog wants to have a crack now. Especially on the Peninsula there’s a lot of people trying to add scale to their businesses to make them more viable. People who’ve been farming for quite a long time feel like they want to keep going so there’s quite a big demand for leasing properties – and they’re willing to pay the money for it.”

It’s a concern for Tom, who has always been careful with his capital and says the key to leasing is cost-control. “You have to do as much as you physically can yourself until you get to a scale where you can start employing contractors. So, in the early days we were just flat knacker, doing everything to keep costs down.” And over time he has become more discerning about the property he takes on. “I think you’ve got to watch that. You’re not going to do it just for the sake of doing it. As we got scale I wanted to make sure that what we were doing, we were doing properly.” Whatever the property and no matter the return, Tom never loses sight of his ultimate goal: farm ownership. He sweats over real estate listings and keeps his ear out for all sorts of propositions, but there’s a real lack of suitable properties for first-time buyers, he says. “They’re either too big or they’re chased by some other farming sector with money – like pine trees. Dare I say, it probably is getting a bit harder but you just don’t want to give up. There are always opportunities – and we will get there. And we’re building ourselves into a position now where it’s getting closer.” He secured his most recent leases by public tender, benefiting from a reputation as a careful, diligent type. “I was fortunate to have opportunities come my way but I do believe that if you’re hard working and you’ve got the ability then people back you a bit more. The real key for me is to treat places like you own them. The people that you lease from appreciate that; they can see it – the weeds, the fences, everything. And it makes life a lot easier when

www.nzfarmlife.co.nz

you’re running farms anyway.” Tom always looks for long-term leases so he can stamp his own mark, from fencing to fertiliser and pasture. His longest lease so far is five-plus-five-plus-five; a lease on Orton Bradley public recreation reserve, on the eastern side of Lyttelton harbour. Before Tom and Stella took on Orton Bradley they had a three-year lease on a privately-owned 640ha property at Port Levy, a fill-in while the owner’s son was away getting more experience. It turned out to be a mid-career breakthrough, with Tom agreeing to a balement, whereby he took charge of the owner’s sheep on condition he returned them in the same state three years later. “We knew there was no point buying all his stock, because his son was coming home and he’d built up that genetic pool in the stock over the years. So, we just valued and counted the stock on the day, then at the end of the lease I had to present those age

groups and numbers of stock back to him. And I paid bank interest on the value.” Meanwhile Tom bought the cows and trading stock on the property because the owner wanted to introduce fresh genetics once the lease ended. In some ways, the balement agreement was a one-off arrangement. Tom owns the stock on all his other lease blocks “and it’s been good, because that’s where I made my capital gains.” Less tangibly, but just as importantly, the lease also helped Tom to get experience running stock on a bigger property. For the past five years, Tom and Stella have called Orton Bradley Park home – a steady base as they build equity for a breakthough property purchase. Tom says scale is vital to a farm leaseholder because it usually indicates equity, which in turn can open doors for bank finance. He and Stella now have a small property of their own at Greenpark, near

Lincoln, courtesy of the equity they built in their 11,000 stock units across various properties. “That’s the biggest issue we’ve had. If you want to borrow money from the bank, livestock’s not actually a very good proposition for them to lend on. But over time as we’ve built scale, we’ve managed to build equity within our stock. The key for me is that because we’re largely a breeding unit, we have to buy the best genetics we can, so that we’re building a line of breeding stock that’s really saleable if one of the leases expires.” The Greenpark block has helped his farming system too, balancing drought risk on his Banks Peninsula leases. “I was getting sick of having to bale out of my store lambs off our dry hill country. We’d lose sight of them and never really get any feedback as to how well our genetics were actually performing, so we wanted to go through the whole supply chain, from store to finished

www.nzfarmlife.co.nz

FARM FACTS product. We’ve just been through a hell of a dry on the peninsula and this place [at Greenpark] really proved its worth. It might only be 26ha irrigated but it’s just been amazingly productive.” Thanks to Greenpark he still managed to finish 5000 lambs this year. Tom would love to have his own place on the Peninsula, which has traditionally lent itself to lowstocking, low-cost farming. Trouble is, the oceanside hills with a smattering of bush are ripe for high-value subdivision so property prices are rich for a would-be first farm owner.

“THE KEY FOR ME IS THAT BECAUSE WE’RE LARGELY A BREEDING UNIT, WE HAVE TO BUY THE BEST GENETICS WE CAN...” “I think we’d probably settle for two or three thousand stock units with leases to support it. Unless we can get some sort of equity partnership going – just being realistic with ourselves – I don’t think we’ll be able to go out and buy a 10,000-stock unit farm. There’s a lot of people trying to buy properties now other than just your Joe Bloggs farmer. I’d love to say it is going to be the Peninsula but who knows? Like I said, opportunity comes up.”

• Tom Magill, Banks Peninsula leaseholder. • First lease 2003: 35ha, 200 ewes, age 19. • 2006 increased to 150ha, running 500 ewes and 15 cows. • 2007 leased Camp Bay (Banks Peninsula) 330ha, now running 1500 ewes. • 2007 went into 50:50 partnership with 1600su on 260ha at Cashmere, Christchurch. • 2010 bought out partnership, now running 140 cattle and 3100 sheep including hoggets and trading lambs. • 2011-2014 leased Port Levy 640ha, 3800su. Tom and Stella owned the cattle, sheep on a balement system. Also bought house, renovated sold on a capital gain but only recovered costs and still in compulsory saving mode. • 2014 leased Living Springs on Banks Peninsula 220ha. • 2015 leased Orton Bradley Park 440ha. • 2017 leased Witte’s 220ha. • 2019 bought 26ha of irrigated land and a 25ha dryland Environment Canterbury lease. • Today running 11,000su on 1650ha . • Stella is studying for a Bachelor of computer sciences qualification, majoring in computer networking.

Above: Investing in top genetics is helping Banks Peninsula farmer Tom Magill grow capital through the improved performance of his livestock. Right: Tom Magill and Stella Bauer have been farming together for the past decade.

www.nzfarmlife.co.nz

Farm owner and ‘senior’ equity partner Sam Robinson says having aligned values with your ‘junior’ manager-partner is critical to the success of any equity partnership.

ONFARM

A ‘North Star’ approach to partnership Writing down a ‘North Star’ of guiding principles has worked for Hawke’s Bay sheep and beef farmer Sam Robinson when it comes to equity partnerships. BY: TONY LEGGETT

inding the right equity partner is like finding a spouse, says Hawke’s Bay sheep-beef farmer Sam Robinson. It can happen unexpectedly and there are risks on both sides, especially if trust fades for any reason. Robinson’s family owns 100% of their Central Hawke’s Bay property and leases it to a joint venture which owns the stock and plant. The joint venture runs the farm business and comprises Robinson and his equity partner-manager Jason Wyn-Harris. It is Robinson’s fourth equity partnership in just over 10 years and started four-and-half years ago. Wyn-Harris started with 33% of the shares in the partnership and has acquired more using dividends from his share of the profits generated by the business. Robinson refers to the initial phase of finding the right partner as the ‘hook-up’. “You could do this informally, and a lot of it is informal, or formally. And we’ve done both, in our business.” Robinson talked through equity partnership structures with accountants, lawyers, real estate agents, and farm consultants in a formal setting. At the same time, he put effort into networking

www.nzfarmlife.co.nz

and using informal channels to find potential partners he could work with. “It doesn’t come through the mailbox saying, ‘here’s an opportunity’. You’ve got to go and seek it and that can be hard to do.” Once a potential partner has been found, Robinson says the parties then enter an ‘engagement’ phase where confidence is built and the relationship develops. “This bit is a big call because this is where you form a relationship which is enduring, which is going to go through good times and go through bad times.” “You’ve got to get it right. So, you spend a lot of time assessing who you’re dealing with.” Robinson says any equity partnership agreement must include clauses to cover how each partner exits the partnership, either at the agreed date or earlier through disagreement, disablement, death or divorce. He’s spent several thousand dollars on external advice but says it was a great investment because it establishes certainty for both parties. “A thing that Jason and I were advised to do was to write down your ‘North Star’ (guiding principles or values). Both of us wrote down what we wanted out of this partnership, and fortunately, we were closely aligned. You’ve got to have alignment between what you are seeking, roughly anyway.” As they near the end of their initial five year term, they have agreed to refresh their ‘North Star’ view which may help steer them into a future partnership.

Robinson says a partnership’s shareholder agreement is the most important document. “That’s your rules of engagement.” In their case, decision making is shared between the partners. “It’s a joint venture and while the equity levels may be different, if directors vote equally and if you’re having a scrap over something, you’ve got a problem.” “But we have got remediation or an option for an independent to come and help us sort it, if required.”

• • • • • •

GOLDEN HANDCUFFS

The shareholders agreement covers the duration of the partnership, dispute settlement, exit clauses and what any dividends will be. “We have a golden handcuff in our agreement so someone can’t get halfway through and say they have changed their mind. It’s punitive on either of the parties,” he says. The lease agreement is the second most important document. Robinson says this is where the farm owner has some control over the equity partnership that runs the livestock partnership. Their agreement has all the usual clauses regarding fertiliser applications, good husbandry and the type of stock the farm is permitted to run. Robinson says setting the rental fee is tricky because there could be a temptation to set it below market levels. “And, the confusion for me is I’m effectively the lessor and a partner in the lessee company which is paying the lease. So,

As the managerpartners, Jason and Rosa Wyn-Harris are focusing on improving livestock performance to maximise their dividend from the equity partnership.

www.nzfarmlife.co.nz

FARM FACTS

• •

Te Maire, central Hawke’s Bay Running about 8000 stock units Land owned by Robinson family Joint venture owns the livestock and plant and runs the business Joint venture partners are Sam Robinson and Jason Wyn-Harris Stock and plant valued and sold to the joint venture at outset Jason entered partnership at 33% equity and will soon be at 50% Partnership now 4.5 years duration

whatever rent I get, I’m paying a proportion of it anyway.” Another important document is the employment agreement. Wyn-Harris has contributed some capital but he is also the farm manager. “It’s his life. He’s got to be rewarded for his labour and managerial skill for running the business. And that’s only fair.” Jason’s employment agreement also has incentives for him to strive for higher performance and profits from the business. As profits rise to agreed levels, he receives a higher percentage of the extra profits from the joint venture livestock business. As the landowner, Robinson said the responsibility for dealing with any deferred repairs and maintenance rests with his family and it was documented before he and the Wyn-Harris’ signed their partnership to farm together. He also advises parties to take death and disability insurance for the farm manager and says it should be noted as an annual commitment in the shareholder agreement. “This is for the benefit of both parties, of course. If Jason was incapacitated for some reason, we both need the business to go on. He needs it to go on because he’s got shares in it as well. “ Robinson says one of the most challenging aspects of day to day activity is being confident enough to allow his manager-partner to have the right level of control. “It’s a great credit to Jason that he puts up with my peculiarities.” “I think the senior shareholder needs

“WE HAVE A GOLDEN HANDCUFF IN OUR AGREEMENT SO SOMEONE CAN’T GET HALFWAY THROUGH AND SAY THEY HAVE CHANGED THEIR MIND.”

ROBINSON’S LIST OF CRITICAL SUCCESS FACTORS • Ensure clarity of expectations for both partners • Ensure alignment of values (North Star) • Ensure compatibility between partners • Develop a robust shareholders agreement with exit clauses for both parties • Be prepared to pay for advice from experts, especially when setting up agreements • Maintain goodwill and open communications at all times • Allow freedom for farm managerpartner to lead on decisionmaking • Allow the farm manager-partner to acquire more shares over time • Create a robust employment agreement that encourages higher performance and profits

to just take a back seat and allow the junior shareholder to share the control, if not take the lead. I mean, they’ve got the energy and the enthusiasm. They’re very quickly going to get the experience.“ Robinson says he accepts that restricting the manager-partner to just the livestock business, and not allowing them a stake in the land, is denying them the opportunity to build equity from any increase in the land values. They still have the potential for equity gain from improving stock values and higher dividends from lifting overall profitability, but land prices have increased substantially over the past four and half years since the partnership was formed. “That’s a vexed question for us. That’s an itch which has got to be scratched. All real estate, be it houses or property, in New Zealand has gone up, and that’s pretty gutting if you’re not exposed to it. So, I feel for Jason on that.”

LEASE OPTION KICKED OFF FIRST PARTNERSHIP

Sam Robinson experienced initial success then two early exits with previous equity partnerships he’s been involved in. His first equity partnership was about 10 years ago when he and an employee successfully tendered for the three-year lease of a neighbouring 4000 stock unit property to the home property, Te Maire, in central Hawke’s Bay. “It was quite simple, because we were both lessees. There was no tension about who owned the land.”

The managing partner was paid to manage the property, the pair had regular monthly meetings and kept detailed minutes of each meeting. Later, as the business began to perform well, the meetings became less formal. “But we still had the documents all there to fall back on if we needed them.” After three years, when the farm’s owners decided to take over the farm again, Robinson encouraged his partner to look for another joint venture property nearby. “He found one about half an hour from the home property. Unfortunately, the takeover date was six months before we lost the next door lease, so for six months he was running two plots of 4,000 stock units. He was a busy boy.” After three years, they renewed the lease of the new property a further two years until the owner sold it. At that point, by agreement, they ended their partnership. “He is now on his own farm at Makuri (in Tararua). He came in with $20,000 and left with enough to get a start in his own farm business.” Before signing with current equity partnermanager Jason Wyn-Harris, Robinson says he had two partnerships that didn’t last the agreed term. The reasons were complex but are best described as lack of alignment. “It’s the people, it’s the people, it’s the people. This is relationship-based and only works with complete trust and in most cases, a lowering of expectations.” • Next issue: How one Wairarapa farm manager is building equity through a stake in part of the farm.

Surprise at seminar turnout Organisers of an equity partnership seminar in Hastings last month were surprised when 240 people registered or showed up to hear a range of farmers and experts. Bayleys real estate agent Kris August says he and his colleagues originally tried to run the event in 2020 but Covid-19 lockdown rules prevented it. “We originally thought we might get 30 or so people to attend, but to get about 240 shows that people are hungry for advice and opportunities to pursue,” August says.

One reason offered for the surge in interest from sheep-beef farmers is the widely acknowledged view that a ‘bubble’ of farm owners will be reaching retirement stage in the next decade. About a third of those attending were aspiring farm owners, keen to find out if equity partnerships might be a pathway to their long term ownership plans. Another third were existing farm owners, mostly older, looking for advice to develop a succession plan. The remaining third were a

cross section of real estate agents, bankers, farm consultants and a smattering of ‘city investors’ looking for an investment in farm businesses. August says the feedback to the company was clear. Demand from both sides of the equity partnership model – farm owner and manager-partner – is enormous. The challenge is providing sensible mechanisms for putting people with the same goals and aspirations together. • More from this seminar next issue.

www.nzfarmlife.co.nz

Lax planning concerns Government BY: PHIL EDMONDS

he challenges associated with farm ownership transition have not gone unnoticed by the Government. MPI research shows over half of New Zealand’s farmers have identified succession planning is an issue for them, their family, and their farm businesses. It’s a pressing concern and one it has been proactively trying to address – albeit indirectly. Poorly planned or even non-existent farm succession might not sound like a significant inhibitor to the growth aspirations the Government has for the primary sector, but failure to deliver straight-forward ownership transition will at the very least stifle the ability to optimise land use. MPI’s acting Director of Rural Communities and Farming Support Peter Ettema says the Government’s food and fibre sector roadmap, Fit for a Better World – Accelerating our Economic Potential, includes a target of employing 10,000 more in the food and fibre sector workforce over the next four years. But Ettema says the target will be difficult to achieve without clearly marked and enticing career pathways that progress to farm ownership. A key part of the succession process is ensuring young people or career changers see farm ownership as achievable. If not,

then there’s the potential to see those who are best placed to take leadership roles (those who have grown up in the sector) look for alternative careers. So, what is the Government’s role in making sure the obstacle of farm succession is overcome? It can’t directly fund and facilitate decision making that safeguards family relationships through farm asset transfers. It has however been active through enabling industry bodies and rural professionals – those organisations already providing services to farmers – to become stronger advocates for the importance of succession planning. Ettema points to the Red Meat Profit Partnership programme (RMPP) co-funded by MPI from 2013 as an example of its interventions. “The RMPP worked closely with farmers and an industry advisory group to develop resources for pathways to farm business ownership. Lawyers (who pulled together examples of agreements) and consultants with experience of working with entry into, and transitioning of, farm businesses were involved, and that generated case studies, videos, fact sheets, guides to necessary legal

FIND OUT MORE Beef + Lamb NZ Knowledge Hub – www.beeflambnz.com DairyNZ – www.dairynz.co.nz/business/planning/succession-planning/ www.dairynz.co.nz/publications/dairynz-podcast MyMilk – www.farmsuccession.co.nz/ Passing it Forward – CMK accounting – cmk.co.nz/publications-resources/ A legacy or a liability – how to master farm succession – search ‘succession’ under Podcasts at www.sarahscountry.com

www.nzfarmlife.co.nz

documents, and a resource book.” The wide range of material is easily accessible on the Beef + Lamb NZ Knowledge Hub website. Resources targeted at dairy farmers have also been developed from projects connected to the Transforming the Dairy Value Chain PGP and are available on the DairyNZ website. More recently, MPI’s Sustainable Food and Fibre Futures (SFFF) programme has funded the New Zealand Deer Farmers’ Association to lead workshops helping deer farming families across the country talk about succession planning. MPI acknowledges that while the red meat industry is often the focus of succession challenges with the owner profile markedly skewed toward older age groups, other primary sectors are as much at risk of not enabling easy exits and entries. MPI targeted the horticulture industry last year by funding a report on business succession, that investigated financial and business mechanisms in horticulture and agriculture that can facilitate the incoming generation succeeding to horticultural businesses or building equity in horticultural careers. To make sure its reach goes beyond (and across) individual sectors, succession planning also has the potential to be supported by start-up funding through Rural Community Hubs. Ettema says the Hubs, established by MPI to help rural communities respond to the challenges they face, could deliver workshops by suitable rural professionals if it was deemed to address a local aspiration. To some extent creating the resources and making them available is the easy part. Getting farmers to engage with it, and act on the advice is the most important challenge.

BACKING FARMERS

NEW SUBSCRIBER OFFER

C R IB E

AND

WIN!

SUBS

We've got five copies of the Kiwi Farmers' Guide to Life to give away to five lucky new subscribers to Country-Wide this month. Written by Canterbury journalist Tim Fulton, this book tells the stories of New Zealand farmers, agribusiness entrepreneurs and even a couple of scientists.

If you’re a new subscriber this month (to September 30) you’ll go in the draw to WIN! Full terms and conditions available on our website, www.nzfarmlife.co.nz

BACKING FARMERS

SUBSCRIBE TODAY 6 12

MONTHS

Isolation

buzz

s Shepherd Mikaere Matthew works on Taranaki’s remote Makowhai Station, a sheep of hub the and farm, beef and p38 a major honey operation,

MONTHS

61 $ 115 $

SAVE 15% OFF RRP SAVE 20% OFF RRP

IRRIGATION SPECIAL: Schemes, consents and new technology

0800 224 782

GREEN MONEY: Banks sustainable finance offers

subs@nzfarmlife.co.nz • www.nzfarmlife.co.nz

$12.00 incl gst

AUGUST 2021

Country-Wide

August 2021

24 36

MONTHS MONTHS

219 $ 310 $

SAVE 24% OFF RRP SAVE 28% OFF RRP

A Country-Wide special publication

PART TWO

Farm Ownership & Succession 2021

asb.co.nz/rural ASB Bank Limited 56180 23594B 0621

Welcome

CONTENTS 4 Start now on your succession plan says experienced consultant 6 Stamina required to last the marathon, says expert adviser 8 Tips for growing equity from a young manager couple who are on the ownership ladder 12 Passive farm investments options offer comfort without the slog 13 Ticking off the legals first - where your lawyer fits in 14 Carbon offers chance for on-going income for succession

to the second of our three-part series on farm succession produced by the team at Country-Wide with support from ASB. We’re continuing to examine farm ownership transition from all sides with advice from experts and case studies on farming families who are on the journey towards moving ownership of their business to the next generation. Thanks for your feedback on the first part, published with the September issue of your CountryWide. Most of you were keen for more examples of farm succession. Others were after more advice from experts from the legal, accounting or consultancy sector, to start them on their own journey. Our future plan is to package up all the content published across the three parts and create a single digital publication that we can make available for you to download for yourself or share with friends and families. Next month’s issue of CountryWide will contain the final part in our series, so the digital version will be available soon after. Meantime keep the feedback coming and call 0800 224 782 if you want extra copies of the series sent out to you or members of your own family. Tony Leggett Publisher, Country-Wide

COVER: Young managers Kurt and Lisa Portas have a start on building equity at Palliser Ridge Station in South Wairarapa. Find out more, page 8. Photo: Rebecca Kempton.

www.nzfarmlife.co.nz

Start early on shared vision BY: TONY LEGGETT

xperienced succession adviser Sean Stafford regularly sees farming families divided over how to move farm ownership from one generation to the next. Without a shared vision embraced by everyone from both generations, the lack of transparency inevitably creates tension and weakens the success of any future outcome. Developing a shared vision needs to start early. “Too many people trying to solve succession have put no thought into it until the point where it’s staring them in the face,” Stafford says. The former rural bank manager says

farmers need to start developing that long term vision on the day they go into business. “If you actually have a vision where one of the objectives is to provide children with something at the end, the sooner you can start building your plan to achieve it, the better,” he says. He believes farming families are increasingly moving away from the ‘fair is not always equal’ approach, where the oldest son gets the farm and other siblings receive less and wait for longer to get it. “When I look into the old model for succession, I see an emphasis on a transaction that happens on a particular day in time, and I also see an uneven assigning of capital to ensure the farm stays in the family.” “I’m pleased to say there is an increasing emphasis on equality, and that is reflective of

what is happening in society generally.” Stafford says every situation is unique, but there are recurring key factors which he feels add to the likelihood of success. Shared visions that include a focus on growing the capital base of the farming business should be a priority he says. “If you have a growth strategy, either onfarm or off-farm, you have a much better platform for succession because you’re growing your business to the point where you can satisfy more than one sibling or in some cases, the whole family.” Lack of capital growth is the biggest single issue preventing equitable succession outcomes, Stafford says. He often meets farm owners who have left succession discussions with the wider family until they are close to retirement, when it’s

www.nzfarmlife.co.nz

‘I’M PLEASED TO SAY THERE IS AN INCREASING EMPHASIS ON EQUALITY, AND THAT IS REFLECTIVE OF WHAT IS HAPPENING IN SOCIETY GENERALLY.’

Sean Stafford is an advisor at rural accountancy and consultancy, MCI & Associates in Pahiatua, Tararua.

www.nzfarmlife.co.nz

too late to focus on growing the business. “You end up with an asset that is barely supporting Mum and Dad, so the platform for succeeding to one child, let alone more children, is pretty limited.” “My advice is to think of a vision as something that is worked on constantly, it should focus on growth and build an inter-generational trajectory. Everyone should be proactive,” he says. When succession is handled as a gradual transition, daughters and sons are usually treated more equitably. “I see a lot of examples where daughters are actually the successor, and not necessarily just in an active farming role. For some it’s more in governance and ownership roles.” Succession discussions in the past often focused heavily on the operational side of the farm business but Stafford says it is more likely now to include more on the governance and ownership aspects. He recently completed an ownership succession plan involving three siblings one brother who currently runs the farm business, and two sisters who live elsewhere. Only one of the sisters can have children so the siblings decided to create a trust that owns the land and the beneficiary of the trust is the sister who can have children. “The farm connects them all, brings them all together. They decided not to split the asset up and the farming brother isn’t letting his ego get in the way of a solution.” Clarifying roles and responsibilities is starting to receive more emphasis. So is the identification of gaps in skills or experience, especially for the incoming person responsible for running the operational side of the farm business. “This skill development doesn’t get enough time and effort in my view because ultimately professionals can’t earn fees off that space as easily as say, from a transaction. “I want to see my clients avoid tension when the transaction does take place because we’ve spent the past 20 years preparing for it through a transition of roles and responsibility, and through growing the asset base to create options,” he says.

He is working with one family farming business where a 28-year-old son is the designated child to take over the business and Stafford is actively working on lifting his ‘CEO skill set’ so he’s ready in five years to run the business effectively and continue to grow it. “If we do that well, the transaction will naturally fall out of that work and we’ll have a lot more fun. “Dad gets to work with his son over a longer period of time, upskilling him and mentoring him, supported by a professional, and through that process he is better able to deal with the emotional side of handing over the farm in a few years’ time.” When the ‘keys’ to the farm are just handed over to someone in the next generation on a particular transaction day in the future, it’s often a case of sink or swim and the farm business usually suffers a performance dip. “Unless that individual is a very special person, the business will take a dive for a few years.” He says the ‘sink or swim’ approach just adds unnecessary risk. In low-debt farming businesses where succession transactions are focused, Stafford says the business usually survives. “But that’s only the case in some very unique intergenerational businesses where significant amounts of capital are being gifted to support the business. But where there are significant amounts of debt, the need to uplift performance is critical.”

Differences in sheep, beef and dairy Dairy farm businesses are more likely to be one or two generations ‘deep’ and focused more on running a profitable business than creating a legacy. By comparison, adviser Sean Stafford says many of the sheep and beef farm owners he’s dealing with are the fourth or even fifth generation owners of the property, so extending that legacy is usually more important to them. He sees growth-minded owners in both sectors but acknowledges dairy farming has historically offered more options

when succession is being discussed, including share milking, contract milking, and leasing arrangements. When working with his sheep and beef farmer clients, Stafford is increasingly encouraging them to separate the operational side of the farm business from the ownership of the land as a first step towards an ownership transition plan. “Then we ask how we can use the operating entity to create opportunities for ownership transition for the future generation.” “Step one is about building capability in the next CEO, then selling them a piece of the operational revenue. Stage three is talking about how we transition the ownership of the land.” He knows of situations where a farming couple exit the operational side of the farm in their 50s, especially in well-established intergenerational businesses that are three-five generations deep. It gives the next generation an early start the operational and ownership but it often demands using the more outdated ‘fair is not always equal’ approach. At the other extreme are 60-plus year-olds not ready to give up active farming. It’s become their life’s work, building a business often with scale, but they have forgone plenty over the years to achieve it. “These are the owners who are just so passionate about farming. Even though they are well into their sixties, they are just not ready to give up.” In these cases, you often have children in the business who don’t understand their father’s vision, they want to be a contributor but don’t see how they fit, and the principal doesn’t even see a problem because they are enjoying themselves so much. “That is where coaching the incoming CEO is so critical, along with some hard questions,” Stafford says. “That’s where you have to ask the incumbent farmer if they want to keep doing what they’re doing and throw the next generation under the bus, or do they want to start to step back, mentor the incoming CEO and have some fun?”

Mandi McLeod: ‘In farming, families go into business together simply because they share DNA.’

Succession is a marathon, not a sprint BY: KATE TAYLOR

here is no one-size-fits-all solution for farm succession but it’s important to ask the right questions at the start of the process, farm business consultant Mandi McLeod says. Many people start succession planning with someone with the hard skills of accounting or law, but they’re talking about structure, and not genuinely figuring out what the family wants, she says. “People shouldn’t underestimate the emotional journey they will go on, but at the same time, they shouldn’t be afraid of it. “The worst thing we can have is people going in with the best of intentions and failing because they don’t have the soft skills to deal with the social issues. None of

it works unless you understand the family dynamics before even looking at solutions. If you haven’t dealt with individual family communication, it doesn’t matter how good the accounting or legal solutions are; they won’t keep your family intact.” McLeod set up her own consultancy, Systems Insight Ltd, in 2002, which included work on farm/family business strategy, inter-generational transfer and governance coaching. Her 2009 Nuffield scholarship also concentrated on those issues. “I’d realised two things: one was that succession was focused on asset transfer, pretty much at time of death, and there wasn’t a focus on transitioning management skills with succession. All the research was non-agricultural, non-rural; farm businesses had quite different needs that didn’t fit the

www.nzfarmlife.co.nz

BUILDING BETTER OUTCOMES Real communication Process driven Transparent management Accountability demanded Governance expected NO LEAKS

Leaky systems result in: • No process • No accountability • No governance

Family

Individual

“...NONE OF IT WORKS UNLESS YOU UNDERSTAND THE FAMILY DYNAMICS BEFORE EVEN LOOKING AT SOLUTIONS.”

box. When you’re on a farm, you don’t get to drive home after work. If you’re in another business and you employ family, they’re generally not living on the work site. You’re not looking into each other’s lives.” She says there can be pressure on people who aren’t ready to abdicate power or control, and nothing will work until that happens. “People who start successful family businesses are entrepreneurs and they get there because of power and control, so there’s a sense of loss of identity in giving that up. Then we have a generation of people who haven’t learnt patience. They want it now. But it takes time to work out what all family members want, and need, and expect from the family business.” Both generations must be ready for the change. “Mums and dads shouldn’t have to compromise their lifestyle for the second generation coming in, just to give them an opportunity. They have to be ready for a partner in the business and the successor

www.nzfarmlife.co.nz

Ownership

Ownership Family Management

has to have the necessary management skills or willingness to learn.” McLeod bought into her parents’ 300-cow dairy farm in Waikato, but it was sold six years ago when she realised she couldn’t afford to expand or buy out her four siblings. “I wanted my parents to have the life they earned, and it also gave them the opportunity to help other family members. We kept a third of the land, where they still live.” Before that, McLeod says she had the triple whammy of living and breathing her own succession journey, researching with international colleagues to translate nonfarming succession stories into farming, while also working directly with farm businesses. “It made me a bit unique, because my international colleagues were either running workshops or working in the academic field, they weren’t actually at the coalface of sitting with families and sometimes working through generations of trauma.” Emphasis on the word, trauma. “There are a number of family businesses where someone got the farm from gender or birthright. There were families where previous generations had not dealt well with succession so they had generations of family members not speaking to each other. I have knowledge of successors who had suicided or had breakdowns because they were put in positions of responsibility they were not equipped to deal with.” She uses a diagram with interlocking

Business operations management

circles – family, management and ownership – to show the complexity of a family farming business. Traditionally they were viewed as discreet silos, but the greatest challenge lies when the three circles intercept, i.e. family members involved in management and ownership. “Asking who needs to be where and what needs to be done to shift people through the different circles, while also acknowledging the emotional content. In a successful business, the lines on those circles are thick, but in a leaky circle, there’s no governance, no accountability. “People need to ask, ‘Is that someone I would employ if they weren’t my son or daughter?’ or for the younger generations, ‘Would I work for them if they weren’t my parents?’ In farming, families go into business together simply because they share DNA.” People need process and a clear structure for introducing family members to a farming business, but she says many still want the end result without doing the work in the middle of the circles, which is communication. “Genuinely understanding what family members want from the process; those expectations, more often than not, will derail the process if they haven’t been met, managed or mitigated. The equation should be for fair, rather than equal, and everyone being on the same page. Fair is sometimes equal but equal is very seldom fair.”

ONFARM

Land stake ideal next step for young managers An innovative equity arrangement has allowed a young farm manager to achieve land ownership, Tony Leggett writes. Photos: Rebecca Kempton.

www.nzfarmlife.co.nz

Left: Lisa and Kurt Portas share a wander with sons Axel and Beaden on Palliser Ridge, the 1500ha station they manage. Below: Fencing off waterways and planting riparian strips is all part of the sustainability and biodiversity programme on Palliser Ridge.

alliser Ridge Station stands proud like a guiding beacon of sustainability overlooking the picturesque South Wairarapa coastline south-east of Pirinoa Village. It’s not just the planting of thousands of native trees and immaculate infrastructure that feature on this 1500-hectare hill country property. Its owners, board and staff all share a vision to build a multi-faceted, sustainable farming business, embracing opportunities that link together under the Palliser Ridge brand. Growing up in Wellington, co-owner Jim Law always had a yearning for the land but spent 30-plus years working offshore, mostly as a senior executive in the oil industry. When he returned to New Zealand several years ago with his wife Marilyn, it was time to fulfill his farming dream and he bought the original property, then added more. Recognising the challenge of retaining good management staff to run the property and help lead further business growth, the Laws took the bold step of offering their young

www.nzfarmlife.co.nz

farm manager Kurt Portas and his wife Lisa an equity stake in a newly acquired, neighbouring block in 2013. Kurt had been given the opportunity to take on day-to-day management of Palliser Ridge four years earlier at just 23 years old. Even for an ambitious Smedley graduate, it was earlier than he expected to step up to a management role. He hadn’t long been employed on the station as a 2IC, but admits he made the decision to step up without too much thought. “Jim approached me just before I was about to run out on the rugby field. All I could think about was the game that was about to start, so I just said ‘yep, that would be great’.” Less than five years later, when the Laws offered Kurt and Lisa the chance to invest in the ownership of a 287ha neighbouring block that had come on the market, they were keen but like most young couples, cash-strapped. To seal the deal, the Laws provided an interest-bearing loan so they could contribute 40% of the purchase price for the new block, now called Palliser Terraces. It is leased back to Palliser Ridge and the lease payments provide Kurt

and Lisa with a dividend stream to help service the loan their employers provided. Kurt says the ownership stake gives them the benefit of equity growth through any increase in land values while they work at repaying the loan principal and covering the interest. The equity partnership with the Laws means they have a couple wanting to stay with them for a long period of time and be involved in the wider farm business. “If you’ve got someone that’s here long term in the business who wants to help grow and build it, that is always going to be a more sustainable, better business,” Kurt says.

‘JIM APPROACHED ME JUST BEFORE I WAS ABOUT TO RUN OUT ON THE RUGBY FIELD. ALL I COULD THINK ABOUT WAS THE GAME THAT WAS ABOUT TO START, SO I JUST SAID ‘YEP, THAT WOULD BE GREAT’.’ Details of the ownership structure are covered by a Shareholders Agreement. It sets out the term of the agreement, commitments and procedures plus any obligations between the parties. In their case, in spite of the minority shareholding held by Kurt and Lisa, all decisions must be unanimous. If they want to exit the partnership before its term is up, they have to offer their shareholding back to the Laws first, and vice versa. The partnership is also a vehicle for possible further acquisitions. Four years on, Kurt and Lisa were invited to join the Palliser Ridge board as directors, so they have input on the wider strategic direction of the overall business. Kurt manages a team of three farm staff and two cadets while Lisa leads the expansion of the businesses all linked to the Palliser Ridge brand, including a popular farm stay, events and an online shop selling wool blankets and knitting wools and lamb and beef all grown on the property.

Another new fencing job completed. General farm hand, Bruce Wendon, manager Kurt Portas and shepherd Caleb Jones admire their work.

ADVICE FOR ASPIRING FARM OWNERS Successful farm manager Kurt Portas has some good advice to other young farmers keen to get a start in ownership. Invest time in their local community, build a strong network and keep an open mind when opportunities come up. “To any people that are looking to get into an equity stake in a farm, get amongst the community and help out and create a good name for yourself. People recognise that and it helps with future opportunities.” His enjoyment of rugby has opened doors and created enduring relationships within the local community. Being prepared to put the hours into joining committees to run events or helping with local activities has paid dividends, often forming useful relationships that have led to grazing or

leasing opportunities. “So, it’s just work hard, be a trustworthy person, get involved with a local sports club, community, local church or whatever. You’re not getting paid for it, it can feel like it’s a waste of time, but if people are watching and if you are committed to helping, people will pick up on that and opportunities will come,” he says. Another positive aspect to his relationship with Palliser Ridge owner Jim Law is the generation gap between them. “There’s a respect between us, I admire Jim and his wealth of knowledge and experience in business, and he in turn enjoys my passion for the business we’ve ended up developing together over the last 13 years.”

www.nzfarmlife.co.nz

Jumping across the balance sheet BY: CHRIS TENNENT-BROWN, ASB SENIOR WEALTH ECONOMIST

f you’ve spent your life working and building a profitable business in the primary sector, it’s likely your relationship with your bank has been tipped towards the debt side of your balance sheet. Your bank has been there to help fund your investment plans, help with your cashflows, and help deal with the ups and downs of working off the land and selling your products on the world stage. ASB Rural has a solid history of working with clients to help grow their business, whether it’s a sheep, beef, or dairy farm or a business in forestry or horticulture. Regardless of which part of the primary sector your business is in, a succession plan for the future can involve a jump across the balance sheet as your relationship with your bank changes from helping you invest in your business to providing advice and helping to protect your assets. This can be a significant change in mindset. In many cases, particularly in the rural sector, deciding how to invest the proceeds of a successful succession plan is your ‘what next?’. The ASB Rural team works with clients by asking questions and getting them thinking about what a succession plan could look like for them and their business, then using our expertise and relationships to help make that happen. As farmers ‘jump’ across the balance sheet following the sale of a farm or primary sector business, the family often winds up with significant funds that they want, and need, to get working hard to support them for the next phase of life. Some of ASB’s best kept secrets are our skills in Private and Premium Banking, as well as investment management and insurance - helping hard-earned savings to grow, providing protection, and making everyday banking easier. Private Banking is an exclusive service that offers the highest level of personalised banking. With this service, customers are assigned a dedicated private banker and associate who are on call to assist with any banking requirements. This could include

www.nzfarmlife.co.nz

Investment advice is available from the banking sector after a succession plan has been completed.

managing your private wealth, arranging home and investment loans, protecting your lifestyle and assets, and managing your everyday banking. Our Premium Banking team is also responsible for helping our customers manage their portfolios. The main pillar of the Premium Banking proposition is a dedicated premium manager delivering

Chris TennentBrown.

personal solutions that meet your financial goals and needs via a quality financial review. Similar to Private Banking, premium bankers provide access to specialist partners at ASB to help with all your banking requirements. Working alongside our Private and Premium Banking teams, ASB has wealth managers (who are all Accredited Financial Advisers) across New Zealand. Wealth managers provide detailed personalised financial advice and tailored investment solutions to our customers. ASB also has insurance managers located throughout the country who can help ensure that you and your family have the right protection for what’s most important to you, particularly at times of significant change. Succession is a big transition for all business owners, and it can be even more complicated for those in the primary sector when the business is more often than not also the family home. There’s no blueprint on how to transition from a farmer or business owner to the next stage in life because every situation is different. The ASB Rural team has the dedication, experience, and the relationships into all parts of the bank to work with customers and help ensure a successful transition as you jump across the balance sheet, no matter how big or small that jump might be.

Rural investment catering for long-term planning BY: PHIL EDMONDS

he current low interest rate environment is forcing everyone holding cash assets to sharpen their investment thinking. But for those facing a prospect of dividing assets, such as in a farm succession, being an active rather than a passive investor is becoming even more important. There will be a cohort of farmers contemplating retiring and facing the prospect of paying almost 25% more for a house in town than they would have paid this time last year. And according to property analytics provider CoreLogic, if house prices

continue to rise in line with the trend evident in the past three months, they’ll be 29% higher again next year. All this means there will potentially be a lot less available for farmers to invest elsewhere or distribute to the next generation from a farm sale. The lesson of the house price explosion is that if you do have funds available, be prepared to act in your interests, and importantly, for those who will benefit from your actions. Until relatively recently, farmers acting in their ‘interests’ has not been easy. Farmers have typically preferred to invest in what they know and understand, either other farms, or at least land-based food-producing assets. This approach to investment is not unlike

New Zealanders in general, who love land above any other asset class. But buying farms has meant taking responsibility for every aspect of its value – the land itself and the farm business operation. For farmers at or nearing the end of their careers and looking for avenues to retreat from farm work without abandoning farm ownership this wasn’t necessarily an attractive option. There has always been the possibility of bringing in a next generation family member as a sharemilker, for example, but this didn’t make the farm asset any more liquid to serve the interests of others, nor did it release capital required to fund a move off the farm. Ross Verry, chief executive of private

www.nzfarmlife.co.nz

MyFarm’s Con Williams sees new succession opportunities where farmers stay involved in their farm property as part of a syndicate.

www.nzfarmlife.co.nz

capital market platform Syndex, says the good news is that for farmers who feel most comfortable contemplating investing in what they know and like, the opportunities are expanding and becoming more attractive. “Farmland has definitely become more investible with lots of different structures now available to appeal to investors with different risk profiles.” MyFarm general manager for investments Con Williams says MyFarm is looking again at partnerships in dairy and sees new succession opportunities where farmers stay involved in their farm property as part of a syndicate. If the syndicate is based on a land lease, it will receive a lease rate without the syndicate participants having to worry about any of the operation. This type of ‘leased property’ structure fits with the conventional wisdom that retirees should look for steady or safer investments with a passive income which should be more reliable and free of management risks. The syndicate model also presents opportunities to exit if your priorities change. Rather than needing to sell the farm, divesting proportional stakes can be enabled though the likes of Syndex markets. The creation of investment products that bring more flexibility in the ownership of farm assets also offers opportunities for farmers to diversify their investments into ‘adjacent’ food producing assets. Both Verry and Williams have seen strong interest among older farmers in syndicates owning horticulture, and particularly kiwifruit land and operations over the past couple of years. Additionally, investment products are increasingly available to enable farmers to share in the growth potential of farm land development – something that in the past would have required investors to take a hands-on/boots-on role in realising that potential. Verry notes that while farming may have become more complex, farm succession planning has in many ways become easier with far more options available. The desire for New Zealanders to own land has shown no signs of changing, and farmers can now more readily participate in that, earlier, rather than later.

What if things go wrong? BY: KATE TAYLOR

eing the pessimist at the table is a role Waikato lawyer Sue Garmonsway doesn’t take lightly when helping a farming family in the middle of succession planning. “People have to think about the ‘what if’ questions. Things can and do go wrong and the unexpected can crop up.” Managing expectations can be hard and everyone’s perspectives need to be considered. “For the person leaving the farm, it’s about ‘how much do I still want to earn as a living,’ and for the ones coming in, it’s a question of ‘what can I afford to pay?’ I’m like the pessimist in the equation. I come up with everything bad that could happen that could derail the outcome they want and force people to think about those what ifs – what if your marriage ends? What if you die unexpectedly? What if there’s a family falling out – these are all relevant to the succession equation.” Some people are happy to take risks, and others want to mitigate every risk possible and don’t care what it costs, she says. “There’s a fallacy around what it costs to do succession. You can pay X amount and do it properly now, or do it badly and cheaply and face possible litigation costs later. You’re better off to get in there and get talking about it.” Garmonsway has extensive experience and knowledge in the area of rural law and agri-business succession. She has been working at the firm Gallie Miles for 17 years with mostly rural-based clients in the Te Awamutu and Otorohanga areas. She has two main pieces of advice: first, people should ask their professionals to work through succession planning together. “What I think of as a fantastic plan may have disastrous tax implications, what your accountant thinks will work might not be legally robust, and what your accountant and lawyer come up with, the bank might

‘When you look at the individual farm succession transactions in isolation, unless you have context, it’s really hard down the track to look into the reasons behind each decision made.’ Sue Garmonsway: Everyone’s perspectives need to be considered.

not finance, so it’s really important to have all those professionals involved at the outset to try to make a difficult process easier.” Trusts add an extra level of complexity and were often drafted for specific reasons at a given moment in time, she says, but they are still a useful way to achieve succession. However the farming business is being operated, documentation such as wills and shareholder agreements will also need careful consideration. “The second thing, one I can’t stress enough, is the need for a really well documented plan. A lawyer is crucial to that. When you look at the individual farm succession transactions in isolation, unless you have context, it’s really hard down the track to look into the reasons behind each decision made. Also if someone dies during the process, you need a legally enforceable document.” Another issue is when a fair decision is made at one point in time, that sees one person get an asset with big increases in value over a longer period. “The non-farming person doesn’t see the freedom they’ve had; they often just see the other person’s $5 million asset.” Garmonsway tells the story of a good

friend who had taken over a farm from his parents some years ago. The parents had transferred the farm to the client and allowed cash reserves of the same value to be left to the non-farming child. One lawyer acted for all parties, and it was difficult to subsequently work out why certain decisions had been made. What followed was a protracted argument between the client and a family member after the farm substantially increased in value, leading the family member to believe they had received ‘less’ from mum and dad. Garmonsway subsequently worked with the client’s family to transfer the farm to the next generation. With one child onfarm and several off-farm it was vital there was a clear Heads of Agreement or succession plan that recorded in writing the overall intentions of all parties. “Making provision for mum and passing the farm on to the next generation in a way that takes the interests of everyone – both on and off farm – into account; I’m confident it is as robust as it can be for when Mum dies. Coming into a situation that was such a mess with a lot of cost and drama, to then help the family through, was satisfying.”

Following the tree line BY: PHIL EDMONDS

he conversion of farmland to forestry to capture carbon credits has become an unsettling development in rural communities, with concerns around whether forestry planting is in fact adhering to the promised ‘right tree in the right place’ strategy. Unease about the threat to ‘productive’ land and the implications for existing rural communities is widespread. But forest owners have also been strident in defending the expansion of tree planting, in part, by drawing on the awkwardly irrefutable notion that farmers should not be told how to make economic decisions in their own interest. And there’s a compelling case to suggest that, individually, farmers will benefit from forest planting, with those in the business of enabling this focusing squarely on it being a perfect solution to address farm succession. Dryland Carbon was established to match its investor partners’ (including AirNZ, Contact Energy, Genesis Energy and Z Energy) need to source carbon offsets with farmers’ potential ability to provide them. In order to achieve that, general manager Colin Jacobs says rather than buying land, Dryland Carbon works in partnership with existing landowners. Having identified suitable non-productive or ‘least’ productive land on a property, they undertake all the planting and deliver the landowner an annual cash payment akin to a lease for 16 years – aligned with the ETS determination of a forests’ average age. The landowner will then get a 50% share of the timber harvest and the land will be replanted with a new forest. In return, Dryland Carbon gets the carbon credits from the plantation. Jacobs suggests it is tailor-made for farm succession – a diversified, and known annual revenue stream for 16 years, a timber asset at the end, a replanted forest, and what should equate to an overall increase in the

www.nzfarmlife.co.nz

value of the property. NZ Carbon Farming, provides similar services, although it is dedicated to land ownership as well as leasing. It owns and leases nearly 90,000 hectares of forests. Managing director Matt Walsh says NZ Carbon Farming’s lease solution is an ideal way for farmers to retain their land, get a better return off marginal land and benefit from the forest investment. “Farmers can ring fence the ‘engine room’ of the farm – its most productive areas – for the next generation. In doing so, they can create less of a debt burden for their kids. The passive income from a carbon lease can then help create an income stream for the current farmers to comfortably retire, helping enable the succession.” Dryland Carbon’s Jacobs says there is also potential for farmers with forestry earning carbon credits to approach banks to reevaluate the overall value of the farm based on a new long-term revenue stream.

www.nzfarmlife.co.nz

“Banks have been nervous about investing in carbon credits, but the quality of our investors (some of NZ’s leading carbon emitters) means they should have more confidence to lend against it.” This may present further opportunities to invest on or off-farm to enable succession. Jacobs says the emerging opportunity to capitalise on land that has typically generated low if any return means young farmers can more easily start their succession plan as soon as they take ownership. “It means looking at the whole farming system, and how it will develop over the long term. There will inevitably be areas that suit different uses whether it be horticulture, honey production, or forestry. We’re presenting one opportunity to help with that.” One lingering thought farmers might have is, if the price of carbon continues to increase over the coming years, as is currently expected, why engage the likes of Dryland Carbon and NZ Carbon Farming, and

in so doing settle for a CPI-adjusted fixed annual cash payment, and a portion of the timber cheque at the end? Matt Walsh says anyone looking to enter the carbon market on their own would need to do their homework. “Working out what land is eligible is very technical. On average, 20% of trees planted are deemed by the Government to be ineligible to enter the ETS. Other issues to consider are the costs of establishing a new forest – and even getting access to the supply of trees required to plant successfully.” Both providers stress their services eliminate risk for farmers by doing the research into the sites, ensuring they are ETS eligible, and developing best management practice for the particular site to maximise its potential returns. Jacobs says that in any case, landowners should always seek good advice before making any moves.

A Country-Wide special publication

PART THREE

Farm Ownership & Succession 2021

asb.co.nz/rural ASB Bank Limited 56180 23594B 0621

Welcome

CONTENTS 4

Start on succession before your children know if farming is for them, advises Rural Coach Sarah Barr.

Don’t let youthful enthusiasm go to waste, says farmer and consultant Derek Neal.

Diversification could be a good option for sheep and beef farmers, says ASB Rural General Manager Ben Speedy.

Clever planning by Tom Hargreaves’ parents Gerald and Sue, has paved the way for he and his wife Anna to take on the family’s diverse farming business, Kakahu, in South Canterbury.

12 Leasing has allowed Edward and Jenna Harrington to build up equity in their livestock over the past decade in Canterbury. Their next goal is to buy a house or lifestyle property.

to the third and final part of our Farm Ownership & Succession 2021 series, delivered with your copy of CountryWide magazine. In this part, you’ll read two farmer case studies and more advice from experts in the challenging succession planning advisory sector. The experts offer words of wisdom and, in some cases, warnings about what not to do when farming families start their own succession journey. Positive succession outcomes are not always easy and both experts have seen their share of disasters. This issue’s two farmer case studies chart the careers of two ambitious farming couples. One is taking a diverse family farm to new levels of scale and performance, and the other is building equity through leasing and high performing livestock systems. Finally, our plan is to pull all the content together in a single e-book and make it available free of charge for anyone to download from our website. This will be available from late October, so keep it in mind. Once again, we want to recognise the support of the team at ASB Rural. Without their support, this series would not have happened. All the best with your own succession journey. Tony Leggett Publisher, Country-Wide

COVER: Kakahu is a multi-generational farming enterprise in South Canterbury. Under the management of Tom and Anna Hargreaves, pictured with their two children Francesca (now six) and Louie (now two) at the entrance to the property a couple of years ago, the business has been substantially expanded. Photo: Supplied.

Farm Ownership & Succession 2021 is produced by NZ Farm Life Media, publisher of Country-Wide and NZ Dairy Exporter. Visit nzfarmlife.co.nz for details of how to subscribe to each magazine. Publisher: Tony Leggett, tony.leggett@nzfarmlife.co.nz, 027 4746 093. Contributors: Kate Taylor, Karen Trebilcock, and Stu Jackson. Designer: Emily Rees.

www.nzfarmlife.co.nz

Adaptive plans should be the goal BY: KATE TAYLOR

t’s never too early to start thinking about succession, even when the next generation are too young to know they want to have a farming career, says Rural Coach consultant Sarah Barr. “What if you plan for it and it doesn’t happen, what have you lost? Starting early

helps to get the business into a position where succession is possible, even if it doesn’t occur. No one regrets making their business more transparent and more profitable.” Sarah has worked with families that changed their plans multiple times and ended up in a stronger position than the original plan. “Plans are not fixed in stone and should be adapted as things change, but you don’t have that luxury if you wait until the bitter end.”

She has been with Rural Coach, previously known as Coach Approach Rural, for about 10 years working predominantly with sheep, beef and dairy properties in Canterbury, Otago and Southland. “I have a real passion for helping people achieve their dreams. I had my own family succession that didn’t quite go the way my brother would have liked it, so that was an interesting background starter, but I enjoy working with people to see where they’re heading and helping them navigate there.

www.nzfarmlife.co.nz

Rural Coach Sarah Barr advocates getting on with succession planning even before the next generation has decided if they want a farming career.

“SO OFTEN, THE OLDER FARMERS FEEL LIKE IF THEY START THIS CONVERSATION, THAT’S THEM HANGING UP THE BOOTS.”

www.nzfarmlife.co.nz

“I’ve also done some contract work helping farmers through disasters – droughts, earthquakes and mycoplasma Bovis – and it has become clearer and clearer for me how important it is for people to have support around them; much better outcomes are achieved with a team approach.” She says there are three things that enable people to achieve their aspirations and to cope with what life throws at them – a purpose, a plan and a team around them. “If I had to boil the advice down to just one thing, I would say to start the conversations early. So often, the older farmers feel like if they start this conversation, that’s them hanging up the boots. But that’s the joy of starting early; get the family around the table, start the discussion and have annual reviews. Even if they’re not going to be a succeeding farming partner, the next generation will be learning valuable financial skills and business knowledge. If people have been part of the journey they will have a better understanding of why decisions get made the way they do.” Sarah says she has just finished working with a family where one son is taking on a role in the finance side of the farming business and another is building his general business acumen in order to leverage his own wealth creation as time goes on. Starting early also helps those wanting to return to the farm. “If you wait until you’re 63 to say you’re

ready to go, it may not work. You’re giving them no time to prepare, and the more prepared they are, the greater likelihood of success. Succession is usually possible, even when starting late, but there may be compromises required of mum and dad, the succeeding partner or other family members. Mum & dad’s needs must come first, ultimately the decision remains theirs.” The later the conversation is left the more likely it will be about money, rather than a sustainable family business. Occasionally it’s not feasible to keep the farm. “I did some work with a couple where the end result was a realisation keeping the farm in the family was not going to be possible [for financial reasons]. They were in their 50s and the sale of the farm has given them the opportunity to design the rest of their lives rather than possibly having it decided for them. In taking a proactive approach, they’ve designed an awesome next phase of their lives that they’re excited about, and feel a great sense of relief in having made that decision.” Independent facilitators can draw out more thoughts that people are afraid to tell their family. Sarah had one family where the parents were clear in their heads that their son was going to take over the farm. He had three older sisters who were all happy with that decision. But the son wasn’t sure he wanted to farm and he didn’t know how to tell them. “When it finally came out, mum and dad’s chins hit the deck. I rang the mum the next day to check in. She’d asked dad what he was doing for the day; he replied, ‘I’m going to sulk’. He did for several days then said, ‘I’m so pleased we heard that. The last thing I want to do is force someone into farming who doesn’t want to be there.’ They ended up leasing extra land, which gave them capacity to justify another worker. “So dad’s needs were met – he wanted to ease back a bit – and it gave the son time to consider where he wanted to be. It took two or three years, but the son did decide to go farming. If we hadn’t worked through the people aspects, the emotional needs, it might not have worked out for either party.” She says more families are adopting an annual review process and involve the family’s professional advisors – banker, accountant and lawyer – so they’re hearing the same dialogue and all working with the same information.

Succession: Walls or opportunity? BY: KATE TAYLOR

assion for improving skills in young people naturally leads to succession and replaces “walls with opportunities”, says Wairarapa farmer, farm consultant and former Taratahi board chairman Derek Neal. “Train them, give them the resources and let them go. Support and advise them but let them have the opportunity to make their own mistakes,” he says. “I have seen numerous examples where people have had plenty of ambition without the opportunity to express it and their drive has been extinguished. I’m yet to see an example where it has been re-ignited. It is a waste of human capability.” “On the flip side, I have seen multiple instances where succession has been organised early, leading to outstanding outcomes.” Succession is not a scripted recipe; it needs to be customised for each situation. “There is a tendency for people and families to let the succession issue cruise and not rock the boat. To me that delay is a waste.” “If succession is not timely, people are denied the opportunity to express their potential. It can hold them back. People can do amazing things, but they need an environment where those things can happen and where they are not held down or held back,” he says. Parents firstly instil values such as love, care and respect in their children and this is closely followed by education. People come out of our formal education system full of information but limited business and wider life skills. “They need rounding up with worldly experience such as an OE and work experience. At around 26, they are often ready to go; somewhat raw, but rearing to go.” Neal says people farming from the age of 26 to their mid-fifties usually have unlimited energy and absolute hunger to improve and grow their business.

Farmer and farm consultant Derek Neal strongly advocates involving partners and spouses when families start developing their succession plan.

“There is a big difference between 26 and being older than 55 and it can be as simple as what you do after an intense week of farm activities ... bounce up for another day or reach for the painkillers?” “At age 55-plus, some people will carry on, but health and wear and tear can start to have an influence. Also, depending on the family makeup, they are often starting to look over their shoulder at the next generation. It is time to review the loop.” Derek does not believe succession is being handled any better or smarter now than when he started in the industry. Views of older family members may be rooted in understandable concerns about the loss of control. They may not want to give it up. They want to be involved but are unsure what their next role looks like. There is the concern about exposure to matrimonial property risk – an in-law walking away with some of the asset. Derek says at times there needs to be more push from the next generation. The younger ones sometimes hold back, he says, not because they lack ambition, but they

may have so much respect for the older generation in the family that they are reticent to trigger an adversarial situation. There is one thing Derek is emphatic about: include the ‘add-ons’ from – spouses and partners – from day one. “The add-ons come into a farming family and are expected to be totally committed, to give the best part of their lives and a fair part of their bodies to produce the next generation, and yet there is often suspicion from the older generation that they are gold diggers.” “The matrimonial risk is real. I personally believe your whole life is a risk,” he says. “You can do all you can with the help of lawyers and accountants to mitigate the matrimonial risk, but it should never be an excuse to not make progress.” Having meetings without the presence of spouses and partners and deciding to remain with the status quo needs care when it is delivered to them back home. “The add-ons will roll their eyes; so, either involve them directly or give them an idea there is at least a deadline for change.”

www.nzfarmlife.co.nz

Delving into diversification BY: BEN SPEEDY GENERAL MANAGER FOR RURAL AT ASB

he future of farming is reliant on good people making good decisions - successfully managing risk today to ensure the farm is fit for tomorrow. We know from conversations with our customers those decisions weigh heavily on the minds of farmers. Recent Kantar research conducted by ASB Rural told us 57% of farmers surveyed have succession planning on their minds. We know that for some owners of intergenerational businesses there can be added pressure when it comes to the business succeeding both today and into the future; it’s appeared to work up until this point so there is an expectation that it must continue to be successful. Owning and running a business has never been easy, but inter-generational business owners often carry an extra burden with extra considerations, and at ASB Rural we work with our customers to support them as they make these decisions. We are committed to helping food and fibre producers move into stronger financial positions and to enable them to manage their farm succession. One way we can help is working with customers to explore the merits of different ways to

maximise the potential in their business. There are many ways to do this, one we are seeing more frequently among our customers is diversification. The same research told us 26% of farmers are looking at diversification into non-farm activities while 21% are considering diversifying into a different farming type, livestock or crops. Diversification, at its core, is building additional revenue streams within your business. It looks different for everyone - something that works for one farm and one family may not be suitable for another because no two farms are the same. Diversification and a steady run of improving returns can provide opportunities for farmers to invest back into the business, including in environmental initiatives. Sustainable farms and orchards continue to be sought after and significant work is being put into achieving more environmentally friendly practices locally. And while diversifying may come with additional cost up front, it can help with enduring business sustainability. Much like private investors move to have a diverse portfolio to help hedge their finances and income streams, farmers can too. In recent years, New Zealand has had a golden run through increased capital gains on residential properties, while dairy prices - and in fact a range of commodity prices

“Diversification, at its core, is building additional revenue streams within your business.” Ben Speedy.

www.nzfarmlife.co.nz

- have been up for a good part of the past five years. The sharemarket has gone from strength to strength, too. But what if the good run doesn’t last forever? Diversifying may offer you additional security and options for when it comes time to action your succession plan. Diversifying is not without risk, but we’ve seen how it can really pay off for farmers too. When considering diversification, it’s important to remember there are not only financial gains but options for nonfarming successors, too. Conversations with other farmers and trusted advisors about diversified asset portfolios can be helpful to get you thinking beyond the financials. Perhaps diversifying is an opportunity to upskill or lean into new areas of farming, or does the possibility of utilising land in a different way interest you? Is there one area of farming or horticulture that you’ve always been interested in but never quite got around to pursuing? Is this your opportunity? If you’re not already, some key areas you could think about are risk versus return and skillset. Higher returns often come with higher risk. It’s important to remember that what is up at the moment may not stay up, and sometimes ‘slow and steady’ gains can be better in the long term than more volatile options. Everyone has their own risk profile – some people thrive off risk, while others taking on that same risk can’t sleep at night. And finally, do you have a good understanding of the undertaking of the new venture? If not, do you have the capacity and the appetite to learn something new? For example, if you’re carving off some land to plant kiwifruit do you have the funds to buy licences (if needed) and the infrastructure, machinery and know-how to ensure a successful crop year after year? If diversification is something you’re interested in as you prepare for succession, start thinking about the ways you may be able to get your business one step ahead. Don’t rush it, take your time and seek out expert advice because there are lots of opportunities available to us in a country like ours. Remember it’s never too early to start thinking about succession and it is never too late.

Off-farm investments pave way for succession BY: KAREN TREBILCOCK

hen Tom Hargreaves finished school, he was told by his father Gerald to not come back to their Geraldine farm until he was 30. When he did return 12 years later, his parents were ready to let him start his journey to own the family farm. “We all sat around the table, Mum and Dad, my two sisters and me and they explained how they thought it could work and asked us what we wanted,” Tom said.

“We all wanted the farm to stay in the family.” Tom and his wife Anna were gifted a minority stake in the farm, his parents kept the majority share, both held in trusts, and his two sisters were received other off-farm investments. “That’s the beauty of their succession plan – no money has changed hands. No money has had to be borrowed to pay out my sisters.” Kakahu Angus Stud was bought by Tom’s great grandparents in 1924 and featured on Country Calendar earlier this year. It had its 41st annual stud two-year-old bull

sale this winter, the first with Tom in control. What was 500ha when his dad took over from his father has grown to 1600ha with 20,000 stock units which include a Romneybase sheep flock, Angus and Charolais beef studs plus commercial herds and the recent purchase of a nearby 420-cow dairy farm. Eight staff work on the various farming operations with Tom and Anna continuing their architecture business from the farm’s homestead. “When I left school, I worked on a high country station for a year and then went to Lincoln University studying agriculture but I didn’t really enjoy it.”

www.nzfarmlife.co.nz

Above left: Anna and Tom Hargreaves with children Francesca (6) and Louie (2) having a day off the farm. Above right: Tom Hargreaves had a career in architecture before returning to his family’s South Canterbury farm, home of the Kakahu Angus stud.

“I THOUGHT I ALWAYS WOULD TAKE OVER THE FARM ONE DAY BUT I’M NOT SOMEONE WHO HAS HAD A ROADMAP AT ANY POINT. I WAS NEVER 100% SURE.” “After a year there I got the opportunity to play polo for Ireland and then England and when that ended I studied architecture in NZ” Working in Christchurch and then Melbourne, he was ready to return to the farm with his young family, having enough of city life. “I thought I always would take over the farm one day but I’m not someone who has had a roadmap at any point. I was never 100% sure.” “I always helped out on the farm when I was a kid, coming home for holidays from boarding school. And when I was playing polo I would spend the summers on the farm before going back to England.” “It was something I always enjoyed.” And now, in control, he’s enjoying the freedom his dad is giving him. “He’s still busy on the farm. He’s out on the tractor today. He’s here if we need him and he’s not if we don’t.” “Dad was always looking at new opportunities and technologies that we could use on the farm so I’m very much the same. “He’s very good at letting me make my

www.nzfarmlife.co.nz

own decisions but he knows I’m the type of person, just like him, who does their research to make sure it will work before changing things.” The stud uses EBVs (estimated breeding values) and progeny testing in their breeding programmes looking for calving ease, good temperament, high carcase weights and marbling. Cows on the dairy farm are used for embryo transplants from the Angus stud. Tom says the succession plan his parents developed was very different to their parents and grandparents. His great grandfather had given his two sons the farm on his death with one son then leaving to farm in the North Island. When Tom’s father Gerald took over, he had to buy his sisters out using his share of the property as equity for the bank loan to do it. What was also different for Gerald and his wife Sue was they started investing off farm when Tom was born. “They were part of syndicates that bought commercial property in New Zealand and they’ve done very well. It’s this they’re using

to help out my sisters. “Belinda has a backpacker’s business from it and Fiona works as a child psychologist but is involved in organic vegetable growing in Christchurch which helps people into jobs.” Both sisters still come back to the farm whenever they can. “Relationships are really important. We can all talk to each other openly about the farm and we’ve all stayed close throughout the process. “We could all be open and honest about what we wanted. “It is definitely not easy, but our personalities, the fact that we all get on, helped.” And Tom and Anna are already thinking about the next generation - their daughter Francesca is six and Louie is two. “They both love being out on the farm but who knows what they will end up doing.” “And that was one of the reasons we bought the dairy farm. We’ll never sell the home farm but if one of the kids wants to go dairying it’s there for them.” “We also put money into off-farm investments whenever we can.” In three years’, in 2024, the Hargreaves will celebrate 100 years of family ownership of Kakahu. “It’s an amazing history, an amazing place to farm, to bring up a family. We’re very fortunate my parents made sure it happened.”

Three generations of the White family, Simon and Lou White, back left, with Simon’s parents Gwen and Neil, and children, front left to right, George, 6, Oscar, 4, and Millie, 8.

Profitability underpins succession plan BY: KATE TAYLOR

unning a profitable farming business and diversifying with off-farm investments is a Central Hawke’s Bay family’s key to succession. Simon and Lou White and their three children – Millie, 8, George, 6, and Oscar, 4 – live near Otane, south of Hastings. Trading under the Ludlow Farms Trust, Simon and Lou lease the 665ha home farm

from Waireka Family Trust, set up by Simon’s parents, Neil and Gwen. “Mum and Dad’s family trust owns the land, and our family trust owns the farming company that leases it and farms it. We all thought leasing was the safest option; we’re safeguarding a valuable family asset at the end of the day.” Getting the right advice is a big part of a successful ownership transition. “Dad and I had a plan and kept the rest of the family informed starting with a full family meeting, even though it was a bit of a moving

target; our plan changed half a dozen times with developments and other blocks coming on the market. Our lawyer gave advice and helped write up things, including Mum and Dad’s Memorandum of Wishes, a copy of which everyone in the family has. We’ve kept them and our accountant and bank manager up to date; they all have good ideas from talking with other people and can bring new suggestions to the table.” For Simon, the timing was good. “I had a bit of money saved when I came home from overseas, so we set up the

www.nzfarmlife.co.nz

farming company (Ludlow Farms Ltd) straight away and I bought a percentage of shares. “Ludlow Farms Ltd started leasing the land from Waireka Trust from here. Over the next 12 years we were profitable, so the money the farm made was invested back into the company, which bought me more shares.” “The more shares we owned the quicker we got to our goal of owning Ludlow Farms Ltd out right. It took us eight years, 2018, for us to own it 100 per cent.” “It was a good way to do it; it gives a young guy an opening and the further in he gets, the more vested he gets, and the more understanding he has about the business.” The original 120ha Ludlow Farm was bought in 1960 by Simon’s grandparents, Eric and Tiny White, before being taken over by Neil and Gwen when Eric died unexpectedly. Simon says he appreciated his father’s willingness to allow him to also take responsibility early. “After his dad died suddenly, he was chucked in the deep end; he came home and knew nothing about cropping farming.” “He gave it a nudge, saw how it worked, and they’ve been great farmers, winning some accolades along the way. “It was tough when he first started, with death duty tax and through the ‘80s with high interest rates, but he had the opportunity to do what he thought was best with no questions asked.” “The farm used to have breeding ewes and big cattle and he transitioned it to cropping and was an early adopter of no tillage and other technology.” “I’m grateful he gave me the same opportunity to find my way. When I first came back and wanted to change things, I had to prove it would work. He was the boss for the first 12 months and then the decision making was up to me, but I still had him there as a teacher and a mentor, especially with financial details. That was another strength, being able to bounce ideas off each other, two minds thinking together. Having a good relationship with your parents is vital with succession.” Simon’s older brother Daniel worked on

The Whites grow a range of specialty crops including hemp for Kanapu Hempery.

the home farm first but is now farming a similar property in Canterbury with his wife Tash (as part of her family’s succession plan). Their sister Anna and her partner James manage Erewhon Station on the NapierTaihape road. “The main thing was for the farm to stay profitable to help other members of the family with any opportunities that arise, and to make a smooth ownership transition to the next generation,” Simon says. Part of that profitability is two other income streams on the farm, beef and lamb; the farm buys winter trade lambs in autumn, which are sold by before cropping starts in October, and R1 and R2 Friesian bulls are finished as the market and season allows. Four large dams also mean 400ha are under irrigation. The Whites have a range of speciality small seed crops, as well as wheat and barley, grow peas, sweetcorn and beans for McCain Foods, squash for the Japanese market, and hemp (on other properties as well) for Kanapu Hempery. Lou wasn’t involved in the original succession discussions, as she arrived on the

“THAT WAS ANOTHER STRENGTH, BEING ABLE TO BOUNCE IDEAS OFF EACH OTHER, TWO MINDS THINKING TOGETHER.”

www.nzfarmlife.co.nz

scene a few years after Simon went back to the farm. She has her own succession happening in the background with brother Richard running her family farm in Wairarapa with parents, Mike and Roz. “Lou and I have our own family trust, which is set up to benefit both of us and our children. So, if something ever happens to me, there’s still the potential for them to carry on if they want to in the future. At the end of the day, we are leasing the farm, but we’re paying down debt and paying interest on the mortgage on the farm, plus all the development we’ve done over the past 10 years.” Simon and Lou also have two lease blocks, 180ha each, to help utilise the farm’s machinery and to generate cash by finishing cattle and lambs and cash cropping over the summer. The couple have also used off-farm business and property investments to diversify their portfolio and start the ball rolling on future succession and the transition of the next generation. “I believe the earlier you start the conversation about succession and have a start plan in place, the greater the capacity to find a solution that caters for every family member’s best interest, while keeping healthy and happy family relations.”

Break-feeding on the lease property near Sheffield, Central Canterbury.

Rolling with risk for long-term gain BY: TIM FULTON

easing for sheep and cattle is money in the bank for Banks Peninsula-bred Edward Harrington, a Cantabrian expanding across the plains. Four years ago Edward and his wife Jenna took up a lease near Springfield, under the foothills of the Southern Alps. It’s one of three properties they lease, in addition to a down-country block at Leeston and a third on Edward’s beloved peninsula. Edward is from a Banks Peninsula farming family and Jenna from a rural English town

in Cornwall. Edward’s parents sold up the majority of their farming land that adjoined their Takamatua property when interest rates spiralled in the late 1980s. “We had a couple of hundred acres when I was a kid so I liked farming and used to go and watch the old man kill the odd sheep in the weekend or help feed out. After leaving school Edward went shearing for a couple of years, did a bit of casual work and then had eight years as a fulltime stock manager. He had six or seven hundred ewes on the peninsula as well so he looked after them in his spare time, or at weekends. Then by

the off chance one weekend a shearing contractor asked if Edward could help him shear at Leeston for the current lessor there. “I happened to ask if he was interested in leasing and sure enough he was. Then once I had that lease which started January 2017 I shot out there and did that after work as well.” The final piece of the leasing picture was the Springfield block. It was a grass market for sheep and cattle when Edward and Jenna arrived in October 2017 so they made balage, grazed cattle and hoggets until buying ewes at the next round of local

www.nzfarmlife.co.nz

ewe fairs. They fattened thousands of lambs in their first year at Springfield, using the HRL Alliance scheme, by which HRL paid for the lambs and Edward killed them back at Alliance, taking a margin on the way out. With their interest rates lower than bank money it was a no-brainer. “That was a big help to us, not having to outlay capital but we took the big whack, the lump sum at the end.” The Springfield farm is the home base, running 2000 Romdale ewes and 200 Angus cows, as well as 120 ewes and rams in a Dorset Down stud. Their three farms run 7500su on 1200ha and Edward and Jenna do as much as they can themselves, with help from a few casual staff. The couple are saving for a deposit to buy a house or lifestyle block in the next couple of years so every dollar counts: Edward jumps on the third stand alongside the shearers and does 250-300 sheep a day to save money. As an earner he prefers lambing ewes to lamb trading or dairy support. “I know dairy support creates cashflow but then at the end of the lease you’ve got nothing to sell. In a leasing situation we need the best product available to the market when we leave the lease.” The properties have good seasonal

“SO, IF THE LEASES WERE TO BE WOUND UP AT SOME STAGE IN THE FUTURE THERE COULD POTENTIALLY BE OVER A MILLION DOLLARS WORTH OF CAPITAL STOCK SALES.” balance: Springfield is cold till later, Leeston is warmer and drier earlier and the peninsula block is somewhere in between. Lambing starts at Leeston end of July so that creates cashflow through November and December, just as the peninsula cranks in December/ January and Springfield kicks in January and February. This year Edward tweaked his system, running an on-farm lamb sale in early February through Hazlett livestock, which sent all their young stock out the gate for $106 a head, leaving only a handful of lambs. Since 2017 all the hoggets have been sent on grazing to the same grazier to get them off the farm for seven months before being brought back to lamb at Springfield. Their lamb covers the grazing cost in a roundabout way which gives some flexibility for the other classes of stock to get preferential feeding without having them on farm. Top end steer

Edward and Jenna Harrington with daughter Briar on their lease block near Sheffield, Central Canterbury. They also lease farms at Leeston and on Banks Peninsula.

www.nzfarmlife.co.nz

calves are sold at weaning in April and the balance are carried through and sold in October which helps with cashflow, hitting the right markets. All yearling heifers are also mated and surplus ones are sold in April each year with annual draft cows. As a leaseholder, he accepts risks ingrained in his business, like having assets tied up in livestock. Last year was his best for lamb survival and calving, though sheep scanning is back this season and there was a nasty dry spell on the peninsula, followed by flooding at Springfield in late May. He’s well aware of the danger of having so much investment tied up in livestock. “In that flood we lost about 30 ewes. It’s only a small number compared to what some lost in sheep and cows but there’s six or seven grand from a bit of water going down a creek, picking up the ewes. That could have been 300 ewes or more.” Risk is ingrained in leasing but every lease is different, including the terms. “I know that out on the peninsula it’s done per stock unit but recent leases that I’ve seen advertised have been per hectare. There’s guys paying extravagant money per hectare but they’re all putting dairy support on, which generates a $10-$15 a week income for heifers or cows, or whatever you want to graze.” But Edward is wary of the flip side, that you’ve paid a lot of money out, with nothing to sell at the end of it. “We can come out of any lease if they ever wind up selling capital stock. At today’s market they’ve been fetching $220-$250 a ewe as capital stock, plus your cows are up to $1500. So that’s all money in the bank that’s literally come from breeding your own stock and keeping numbers up. So, if the leases were to be wound up at some stage in the future there could potentially be over a million dollars worth of capital stock sales.” On that basis he’ll happily stick to sheep and cattle, playing the long game. If he had any advice for an aspiring leasee it would be to keep an eye on the long term. Good relationships require give and take from lessee and lessor alike, he says.

Sooner you start, the better BY: KAREN TREBILCOCK

armers are never too young to start succession planning, Dunedin-based accountant Richard Farquhar says. “The earlier you think about it, the better prepared you’ll be and the better off you and your family will be.” He’s been involved in countless succession plans in the South and stayed in touch with the families through their transition and afterwards as an accountant. “No two succession plans are ever the same. Every situation is different, every circumstance is different but the sooner you start the better.” On a 4200 stock unit, sheep and beef farm in Otago, the parents formed their succession plan 10 years before they retired, he says. In that 10 years they reduced farm debt

and found a place they wished to live after leaving the farm. The three children were part of the discussions and Richard says there were at least five round-the-table meetings with professional advisers that all of the family, including the partners of the children, were at that he could remember. “The children understood what they would get would be fair but not equitable and they understood the reasons why,” he said. “The meetings built respect between all of the family members and, with the spouses of the children included, it brought in ideas the parents and the kids had not thought of. “Everything was clear, nothing was kept private, everything was on the table.” As part of the plan, the parents bought a house off the farm, one child was given the family farm and the other two were given a lump sum which was less than their onethird share was worth. “Because the two not interested in taking

on the farm got a cash payment, even though it was not worth the same as their share in the farm, they could move on with their lives as well. “One used it to buy a house with only 50% debt and the other, who already owned a house, used it to buy a rental investment.” On the death of both parents, the two non-farming children will get a further cash payment. A portion of income from the farm, now owned by the son, would continue to be given to the parents so they would not do without as they aged. “That’s basically an open cheque book which the son has agreed to.” “It’s only this year that he’s made some minor changes.” Although the plan was started 10 years before the parents retired, it was an evolving document in those years. “Just in case something happened. Things change, kids who wanted to go farming can

www.nzfarmlife.co.nz

Dunedin-based accountant Richard Farquhar.

www.nzfarmlife.co.nz

change their mind, others who said they didn’t finally want to. This didn’t happen in this case but it could have.” On a third-generation Otago sheep farm with 2700 stock units, there was one son and one daughter with the son wanting to take on the farm. The father had inherited the farm when his father died in his early 60s. The land was then put into a family trust but the stock and the equipment is in a trading entity. The son and his wife were given half of the trading entity and took over the running of the farm. After six years they bought the second half of the stock and equipment with the money from the sale going to the daughter, his sister. The son borrowed off the parents to buy it and is paying it off at commercial rates and also took on the farm debt. He pays a commercial rental to the trust for using the land but keeps the profits of the farming business. “Because they had ownership of the stock and the assets they were able to generate more income which enabled them to buy the rest of the trading entity. All of the family members still have ownership of the land through the family trust.” However, the next generation, the fourth on the farm and now in their teens, are not interested in going farming. “Everyone wants to keep it in the family but there is no document that says that has to happen. “At the moment they are thinking of leasing the farm out.” Richard says he visits the farm once a year at annual accounts time and the children are usually there listening as well, even though they don’t want to go farming. “The kids are really financially aware. Too often children are excluded for these conversations and are just expected to do what they’re told. “Legally they have to be there because it is a trust and I work for all members of the trust but these kids really understand what is going on, which is the way it should be. “Succession is not an easy conversation for any family member because you are dealing with people getting old and dying and also it’s about money – how much money will I get.” One succession plan he has seen go very

wrong did not have a clear plan and there was not enough communication between the family members. “I think one of the children still doesn’t know what has happened.” The Southland farm was converted to a 600-cow dairy unit in the early 2000s and about six years later the son and their partner took over the farm. No money was given to the other siblings. The farm was still carrying debt from the conversion and the parents and the son and his partner formed an equity with the parents retaining a 30% share. The son still owes his parents for his 70% of the farm. Significant changes to infrastructure were made in the first year of the son’s ownership which were not costed out which has put the farm under further financial pressure, so much so the farm may now need to be sold. “The problem here was there was a lack of a detailed plan and there was a lack of communication, and still is a lack of communication, between all of the parties and an unwillingness to take professional advice. “The kids now have a farm with debt levels which are too high and the parents can’t live their retirement the way they had hoped. “You can’t pin the blame on any one person. It was poorly planned, poorly communicated and there was a lack of respect for each other amongst all of the family members.” Richard says for every succession plan that has worked out well, he encounters at least two that have gone wrong. “You can’t wake up and say, right, we’re going to get this sorted this week. It takes years of planning. “There are a lot of conversations that are needed, a lot of time for people to think things over and figure out what they want. “Have your professionals there, your banker, accountant, lawyer, farm adviser, but also include all of your family members and be prepared for an open and honest discussion.” The parents retired and left the farm three years ago and Richard says the business is still working well. “Such was the respect of the son for his father that he continued farming the same way for the first two years.

Farm Ownership & Succession 2021 - Country-Wide

Articles inside

Get started early on succession journey advises rural lawyer.

Case study: Livestock equity

Research shows succession questions cut to the core.

Change the mindset to see succession