There’s comfort in being a food producing nation. Regardless of whatever else is happening, everyone still needs good quality nutrition. NZ is internationally-renowned for high-quality food products, and our quick response to this year’s health challenges has kept our products in high demand. For example, demand for our kiwifruit grew this year and industry reports point to strengthening demand in the years ahead.
However, challenges remain for the sector.
NZ agriculture is amongst the most efficient in the world, but dealing with the impacts of climate change and minimising our environmental footprint are key challenges. With our borders still closed, we need to find new and creative ways to address the labour shortage for the impending picking seasons. Finding suitable pathways to attract and retrain Kiwis will be vital.
But there’s another key challenge facing the farming sector that is perhaps less obvious and that’s the challenge of successful succession. We need to ensure that as the current cohort of farmers retire or move on, the transitions that follow are successful – our country is depending on it.
Like any good business owner, all farmers and orchardists must have a plan for the future of their business. It’s never too early to start thinking about what’s next for your farm. When it goes well, seeing the family farm change hands is exciting for both the seller and the buyer. Unfortunately, we’ve also seen the consequences when it doesn’t go well. Often, it’s because there hasn’t been a solid plan in place.
This is why we’ve started a succession planning series with our long-time partner the Dairy Women’s Network because there’s a lot to consider when transferring farming assets from one generation to the next. We’re hosting workshops across the country to provide guidance and advice on effective succession planning – whether that’s passing the farm on to the next generation through an equity partnership, or selling it to an entirely independent third party.
Generational succession is common in NZ because it generally offers the best result. It can also be the most challenging to get right. In our experience, there are some key things to think about when considering if the time’s ripe for the farm to change hands:
Every family and every business is different. However, following a structured process can help reduce the risk of undesirable outcomes.
In our experience, the best place to start is to get everybody’s cards on the table by asking: what shape is the business in; how robust are the finances of the child/children wanting to buy; what are the seller’s future goals; and what role or level of involvement does the seller see themselves having in the business?
By understanding everyone’s needs and expectations a plan can be worked through together. Sometimes involving a professional third party to act as a middle ground, such as the family accountant or lawyer, can be helpful too.
If the farm hasn’t supported multiple families before, it can’t be expected to do so when the sale goes through. Plans must be made to ensure mum and dad are looked after in retirement – goodwill and mutual understanding don’t pay the bills.
If there are non-farming family members who aren’t interested in taking over the family farm, it’s important to involve them in the conversations too. Transparency helps with setting expectations, the level of work required for the successor, what they may be entitled to and when they may get it. It also provides visibility on any plans, necessary or otherwise, for the future of the farm. We’ve seen successful examples where the successor has wanted financial help, or buy-in, from the other siblings to leverage the family farm as equity to build the pie bigger. This has been a great way to involve the next generation as a whole and kept the unit tight and invested in the outcome.
As with any successful business plan, the numbers must stack up. Treat the financial modelling as if you were buying a new business. Would you invest based on the numbers? Does the successor know how to be successful? Do they know what is involved in the both the farm and business’ daily requirements? If not, are they willing to put in the effort to learn?
There’s no blueprint in how long it should or will take. Don’t rush it, take your time and do it right.
Not every farm has a natural successor within the family and that’s where equity partnerships can come into play. There’s also the option to lease parts of the farm or the whole farm, depending on your situation. Interest rates are at historic lows, making it more attractive to people thinking about buying into, or adding to their existing portfolio within the primary industries.
The primary sector has always been important for New Zealand, now with borders all but closed to international tourists, our farmers and horticulturalists are more vital than ever to our country’s economy. Ensuring the inter-generational success has never been more important.
For more information on the Dairy Women’s Network’s Succession Planning series visit: https://www.dwn.co.nz/events
Who am I? Ben Speedy is ASB’s general manager for rural banking.
