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Retiring Farmers Urged to Consider Options Before Selling

Published: Wed 27 Jan 2016 11:46 AM
Retiring Farmers Urged to Consider All Options Before Selling Up
With succession front of mind for New Zealand agriculture, a North Island sheep and beef farmer turned agribusiness advisor is encouraging farm owners to explore all of the options before settling on a succession plan.
Sean Bennett, a veteran of 20 years on the land prior to becoming an agribusiness advisor for Crowe Horwath, suggests that succession is one of the industry’s biggest challenges over the next decade.
“When you consider the average age of a New Zealand farm owner is marching steadily towards 60, and the forecast capital required to replace their exit has been estimated at over NZ$60 billion, it’s easy to see why there are widely held concerns,” says Bennett.
Bennett highlights the two-part nature of the succession issue. “You have older farmers seeking to release capital for retirement, whilst the next generation are often struggling to raise enough to get themselves a foothold in the industry.”
Bennett says, those retiring want options that provide them with a reliable income that is inflation protected.
Traditionally, the plan would have been to sell some or all of the assets to family members, or to outside interests through the traditional channels. However, Bennett warns that releasing all the farm equity for investment elsewhere might not be the optimal approach for farmers right now. “Farmers are currently exposed to historically low interest rates on cash deposits, and many are either unfamiliar with or averse to the risks associated with higher return investments, such as shares or commercial property investments.”
There are alternative options Bennett notes, however, they require a different mindset, with the realisation that for many, farming has become a business rather than a lifestyle. “If these farm business owners were aware of alternate options to hold onto their asset base and earn an income from it, they may consider leaving their investment inside the business,” says Bennett.
On the other side of the succession tale, attracting the next generation into farming and providing pathways to farm ownership have been part of an ongoing battle for the industry.
Bennett believes it will take a commitment from all stakeholders to achieve lasting success in this area. “We must create visible pathways for progression, together with a clear understanding of what makes these pathways successful. Providing support to connect individual parties is also a key component to ensuring an economically and socially successful generational transition occurs,” says Bennett.
Outside of selling or otherwise divesting the farming business assets, Bennett encourages farmers to explore the following available options:
•equity partnerships
•profit sharing
•traditional leasing
•modern leasing, where the lease cost is linked to commodity prices
•wages plus performance-based incentives.
“When done well, these options allow the farming business to generate retirement income and retain key staff, whilst providing young people with the opportunity to progressively gain management control and get rewarded for achieving results,” says Bennett.
He maintains those with ‘skin in the game’ consistently produce superior results to those who do not, and that bringing new people into a farming business provides exposure to different skill sets, enthusiasm and perspectives.
“The results produced by our best young farmers show the considerable potential that exists within the next generation of farmers and there are opportunities for current farming business owners to take advantage of this and have their asset continue to work for them into retirement,” says Bennett.
ENDS

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