Over recent years, I have heard a number of farmers ask:
Who is ever going to buy my farm?
With the level of farm profitability and debt how could a family member ever succeed to this farm?
There have been a number of articles in recent times that have recorded and commented on the fact that:
the average age of NZ farmers is 58-65 years
in the coming years there is a lot of farm succession to be undertaken
capital and funding will be required to ensure succession and on-going development can proceed
there is a shortage of debt capital available from our banks who, it is estimated, will be only able to provide, at the most, two thirds of the required amount
The shortfall has been estimated at:
as much as $20 billion in the next 10-15 years
as much as $150 billion by 2050
It is little wonder that Fonterra is establishing an Equity Fund for its suppliers, and others see the gap being filled for “larger farming entities ($100m plus) by institutional investment funds, through sovereign wealth funds, foreign and local pension funds and iwi, and high net worth individuals – and will come generally via fund managers..”*
This is all well and good for larger farming entities—but what of those below that level?
As at August 2014 ANZ estimated it had access to a local and international pool of around $160 million looking for equity partnerships in the rural sector. A ring around the other trading banks indicated that the total available pool could be as much as $700m. The majority of this may well be destined for larger farming entities but, as is evident from the respective trading banks’ equity opportunities listings there is interest below that level.
Research by Kevin Old and Peter Nuttall in 2013 on farm succession reveals that 68% of farmers have some sort of succession issue to deal with. Most of the 800 respondents had at least one child who was interested in farming, but 38.9% had no children with a serious interest in farming.
All in all an issue and, an opportunity to be addressed.
A different approach
I have seen a number of succession matters where the parties have to be advised that succession is not really viable given that there is inadequate equity to enable dad and mum to do what they want to do, and for a child to be viable on the farm. Sale seems inevitable. However, I have found benefit in asking such parties to take the opportunity to consider expanding the pie and asking questions like:
What are the neighbours doing?
In more than one instance we have found at least one neighbour with no succession alternative, a desire to stay in farming and be involved in a syndicate farming both properties moving forward. The increased scale and rationalisation provided an investment opportunity for two equity investors and as a result everyone got what they wanted.
What about further a field?
In another instance the home farm became the run off for a larger farm down the road. The owner of which (“Dave”) wanted another 5 years involvement with the combined farm and it needed a farm manager. Dave’s brother became an equity party and he and the younger equity manager are on notice that Dave has, in terms of a “put option”, required them to buy out his shareholding at a price calculated in accordance with a predetermined formula.
In both instances, by thinking beyond the current parameters, options and opportunities were created and availed of.
To discuss your farm succession an syndication needs, contact Brett Gould.