Farm Ownership & Succession 2021 – Part 1 – Country-Wide

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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.

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Succession questions cut to the core BY: TIM FULTON

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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.

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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

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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.

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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.

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Save early, take nothing for granted BY: TIM FULTON

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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.

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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’.”

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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

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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

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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.

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

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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.”

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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


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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

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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

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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.

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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.

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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

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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

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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.”

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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.

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FARM FACTS

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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

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“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.

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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.

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Lax planning concerns Government BY: PHIL EDMONDS

T

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

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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.

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