Farm Ownership & Succession 2021 - Part 3 - Country-Wide

A Country-Wide special publication

PART THREE

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

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

6

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

7

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

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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

3

Adaptive plans should be the goal BY: KATE TAYLOR

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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

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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.

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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.”

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“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.

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Succession: Walls or opportunity?

BY: KATE TAYLOR

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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.

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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.”

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

T

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.

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- 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.

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

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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.

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“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.”

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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

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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.”

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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

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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

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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

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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.”

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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.”

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

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

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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

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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

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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.

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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.

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Sooner you start, the better BY: KAREN TREBILCOCK

F

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

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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

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Dunedin-based accountant Richard Farquhar.

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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.

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