Farm Ownership & Succession 2021 - Dairy Exporter - combined parts 1-3

A NZ Dairy Exporter 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 23594 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: A Waikato dairy farming

family’s succession journey.

12 Case study: Growth underpins a

successful North Canterbury family’s

ownership transition plan.

15 Government calls for more succession planning.

to the first in a three-part series on farm succession produced by NZ Dairy Exporter with support from ASB Bank.

Over the next three months, 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 and share milkers, 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, NZ Dairy Exporter

Farm Ownership & Succession 2021 is produced by NZ Farm Life Media, publisher of NZ Dairy Exporter and Country-Wide.

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: Penny Clark-Hall, Tim Fulton, Sheryl Haitana, Phil Edmonds, Emma McCarthy, Brad Hanson, Karen Trebilcock. Designer: Emily Rees.

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Succession questions cut to the core BY: TIM FULTON

F

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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Henry Brandts-Giesen.

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...”

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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

H

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

T

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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ONFARM

Lending, not gifting Waikato dairy farmers Kevin and Cherie van der Poel are taking a hand up, not hand out approach to succession with their children.

BY: SHERYL HAITANA

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PHOTOS: EMMA MCCARTHY

hand up not a hand out is the succession philosophy Kevin van der Poel wants to emulate.

Kevin’s father Kees guaranteed a loan of $70,000 so he could afford to take on a 420 cow sharemilking job 30-odd years ago.

“I didn’t have enough money to do it on my own so I approached dad and used his equity. That was my helping hand. I paid him back within a couple of years.

“It gave me my foot up. I always thought if I could do the same thing for my kids, it would be good.”

Kevin and his wife Cherie have now started to give their children Hayden and Hannah the same helping hand as the start of a succession strategy.

One of their most valuable assets in starting to talk about succession has been the ability to discuss honestly with the children about a path going forward, Kevin says.

“Cherie and I have always had a close relationship with our children and talk openly with them.”

They have told Hayden and Hannah that they are willing to back their ideas and help them financially, but the money has been lent to them rather than gifted. They want the kids to learn the responsibility and skill set of handling money which will help them throughout their future.

“We wanted them to take on their own debt, so they take on responsibility, it is part of their own personal growth,” Kevin says.

When Kevin and Cherie moved to America in 2005 with the kids they bought shares in a Limited Partnership which developed a 3500 cow dairy

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operation in Missouri.

They moved back to NZ in 2012 and now own two dairy farms within a 10 minute drive of each other near Ngahinapouri in the Waikato. Kevin oversees the farms, while Cherie, a kitchen designer, has recently co-bought a kitchen and cabinetry company in Te Awamutu.

Hayden wanted to go farming and went to work for his uncle Jim and another farmer before coming to contract milk on the second property for Kevin.

Last year he approached Kevin and Cherie about further progression opportunities.

PROGRESSION PATHWAYS

When it came to sitting down to think about progression pathways for Hayden and succession of their assets, Kevin says he was fortunate to be able to discuss various options with his siblings. They are all farming as well and going through succession planning with their own families so he was able to get a good gauge of options.

“I’ve also seen what has worked and what hasn’t worked for some of my peers in the industry.”

The succession path they chose had to allow flexibility for all partners, giving Hayden the opportunity to grow and giving Kevin and Cherie the ability to carry on doing what they want to in their own future, with the ability to help Hannah.

Kevin and Cherie had experience with an equity partnership while they were in America and wanted more flexibility for Hayden and themselves.

“What I’ve seen in equity partnerships is they can be quite limiting, and equity gets tied up. We wanted Hayden to be able to take control of his destiny.”

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FARM FACTS Emerald Farm

• 132ha effective • Cows: 490 Autumn calving (and calves down late spring calvers from other farm).

• Production: 285,000, 580kg MS/cow • Supplement: DairyNZ System 5, 3t DM/cow/year

Alkemade • • • • •

Ngahinapouri 95ha effective 380 spring calving 219,000kg MS, 576kg MS/cow Supplement: DairyNZ System 5, 3.7t DM/cow/year

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What they ended up doing was giving Hayden the managing role of the autumn calving operation at Emerald Farm with a 30% share in a sharemilking company in partnership with Kevin and Cherie.

With Hayden’s equipment from contract milking and savings, he still needed to take out a significant loan to cover his 30% share of the sharemilking company, which Kevin and Cherie have guaranteed.

The sharemilking contract is for three years with the idea of offering Hayden more equity in the sharemilking company, and later down the track the sharemilking company will start buying shares in the farm.

That gives Hayden more potential to raise capital through the sharemilking return to keep buying more shares in the land.

“Life changes in today’s world and we don’t know where we will be in three years. This gives us the opportunity to remain flexible,” Kevin says.

Hayden receives a manager’s wage which was set up to pay the loan interest, however, Hayden has also been able to pay the principal out of his wages as well. That means his share of the 20+% return from the sharemilking income can go towards increasing his share if he wants to in a couple of years.

Kevin and Cherie were mindful not to put too much financial pressure on Hayden, now 26, so he could still be able to get off farm.

He is chairman of the Te Kawa Young Farmers and the national delegate for the Waikato Young Farmers.

“He needs time to socialise, he’s also started a new relationship. He needs that freedom to be a young person and still have a life,” Kevin says.

Kevin and Cherie consulted with their bank manager and accountant to set up the sharemilking company and have all the checks and balances in place, to protect their

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own assets, and give Hayden the flexibility on his own assets.

Their ASB manager Lachie Cotton has been a great help in making the progression seamless, Kevin says.

Giving Hayden the opportunity to have more debt means he starts learning financial responsibility and how to work with his advisors, Kevin says.

“We wanted Hayden to start having a relationship with the bank.”

“WHAT I’VE SEEN IN EQUITY PARTNERSHIPS IS THEY CAN BE QUITE LIMITING, AND EQUITY GETS TIED UP. WE WANTED HAYDEN TO BE ABLE TO TAKE CONTROL OF HIS DESTINY.” Starting to give Hayden progression opportunities now will hopefully help succession later on, as well as their working relationship.

Kevin is still in charge of the administration and oversees their two farms, along with a third dairy farm they lease in partnership at Te Pahu.

Kevin and Hayden can work together, without Kevin living on the same farm and looking over Hayden’s shoulder every day.

“I’ve seen the situation where sons come on

the farm and Dad is still there years later, nothing gets done, then the farm gets divided up and there is a family fall out.”

While Hayden is farming, Hannah is currently following a different path. She works in marketing and has bought a ‘fixer-upper house’ with her partner. They raised the deposit themselves, with Kevin and Cherie helping with extra equity to do the renovations.

The farming business has no governance structure yet, however, that is something Kevin wants to look at, especially as he gets closer to retiring and they continue on the succession journey.

Whether Hannah is bought onto a board of governance and Hayden manages the second farm on her behalf, or Hannah gets equity out of the farm for a different opportunity, is something they will talk about as a family in the future.

It’s a cliche, but the succession is a living document and something that evolves, Kevin says.

For now, Kevin, 58, is not quite ready to retire.

He and Cherie have plans to build a new house on the farm for themselves. They’ve built Hayden a house and two other staff houses, so Cherie, a kitchen designer, is well overdue for her own new house, Kevin says.

“There is talk of building the cows a house next (covered composting barn), but that might be pushing it to build that before Cherie’s house.”

Above: Well-fed cows on one of the van der Poel’s Waikato farms.

Right: Kevin van der Poel and his son Hayden have operational roles in the farm business while Hayden’s sister Hannah is working on building equity in the residential housing sector.

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Peter and Joc Kinney with sons Alex (centre), Sam and Max.

ONFARM

The Christmas dinner test A farming family found ways to settle sons and daughters on farms by focusing on growth.

STORY AND PHOTOS BY: PENNY CLARK-HALL

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North Canterbury family has bucked the historic trend of sons inheriting the family farm and daughters missing out.

Three of four siblings in the Norrie family - Hilary, Joc and Malcolm - took the opportunity to own their own farms. Their brother Geoff chose not to go farming.

“Growing up there were two farms and two

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brothers and you just sort of thought it was always the intention that one brother would get one farm and the other would get the other farm,” says Joc. “That was just the way it was.”

Fortunately, her father Dougal Norrie was savvy enough to install his own border dyke irrigation system in the 1980s, paving the way for him to take the next step into dairy farming. Dougal developed one of the first

three dairy farms in the Culverden basin and was the first local farmer to do a dairy conversion from sheep-beef farming.

“You know he was a Corriedale sheep breeder. All of his peers at the time thought he had lost the plot,” says Joc’s husband Peter Kinney.

“We do things that we think are quite big sometimes, but this was next level. He was ground-breaking.”

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This early financial prudence and vision allowed Dougal to expand and create opportunities for all his children. Having two sons in a position to help develop the border-dyke irrigation was important to the success of the financial position of the farms.

Peter is from a sheep and beef farm further south and Joc still remembers him declaring over the dishes in their flat that he would never go dairy farming.

“It's a big move for someone that grew up whistling at dogs,” says Peter.

He found himself changing his tune during his own family farm succession process, realising there wasn’t enough capital to make it work for everyone.

“The key thing is profitability to drive farm succession. I had three other brothers, two farming and the youngest at university, and three sisters,” says Peter.

“We ended up leaving the family farm.

My oldest brother is still there farming with his family. My other brother and I went sharemilking together and leveraged off the asset (family farm) to get going.”

SHAREMILKING THE WAY TO EQUITY

While it was pretty raw at the time, Peter says he thinks sharemilking was the key in creating equity. Sheep and beef farming lacked profitability back then.

Young cattle grazing winter crop on the family dairy unit.

Growing up on a sheep and beef farm and attending Lincoln University gave Peter a broad range of skills beneficial to dairy farming. Peter says this helped them find opportunities to grow.

Joc was working at Environment Canterbury at the time. The off-farm income was beneficial to their early growth.

Timing is everything and Peter and Joc reached a crossroad where they had to decide on whether to look at an equity partner option with Dairy Brands, or talk to Joc’s parents about going sharemilking on one of the family farms, Ballindalloch.

After sharemilking on the family farm for two to three years and some conversations with Joc’s parents, Dougal and Diane, they decided to invest in the farm. By building a new dairy shed and upgrading other farm infrastructure they were able to buy in to become shareholders in Ballindalloch Farm, while continuing to grow their equity as sharemilkers.

That was the beginning of a 10-year farm succession process, where the family navigated how this would happen, overcoming challenges along the way.

Dougal confided in his accountant, who helped them work through and bring options to the table.

“Our accountant, Peter Glassford, gave us

FARM SUCCESSION TIPS

• Start early – be intentional • Make your inroads before you have a family • Make sure you’re still enjoying what you are doing • Follow the Christmas dinner test • Be able to park things • Put yourself in their shoes – find common ground • There are many ways to cut the cake • Don’t farm together for too long, you need to do your own thing • Be constructive – add value • Don’t get the lawyer involved too early • Have empathy • What’s fair isn’t always equal • Don’t make it too easy for the next generation.

invaluable advice and guidance throughout the whole process,” said Peter and Joc. “When you break it down the key thing was that Dougal created an opportunity by what he'd done in farming and then we brought our own equity and strong cashflow from our sharemilking business,” Peter says.

By bringing it all together and making it work for everyone they were able to turn Dougal’s asset base and their dairy farming skills into a growth opportunity.

“By introducing something that’s profitable to the equation, you allow growth, rather than dividing something up and making it smaller.”

Joc emphasises it’s not just the capital that made the succession work.

“Peter was pretty driven in wanting to optimise and get the best out of the sharemilking business. You're coming in with top end skills to add value to the business as well as giving Dougal the confidence in your ability.”

SUCCESSION HAS TO PASS ‘CHRISTMAS DINNER TEST’

They agree with a phrase coined by one of their brothers-in-law - ‘a good test for succession is that it has to pass the Christmas dinner test’.

“At the end of it, your family still needs to be together,” says Peter.

“I think another key part is that fair and equal aren’t the same thing. You can't be equal with everything, it's just about being fair and transparent.”

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BANKER’S NOTES

by ASB Rural Banker Tom Norris The succession process started in 2000 and took about 10 years.

The key to the success of Dougal’s succession was that he and his wife Diane were strong enough farmers to get themselves in a financial position to do so.

Dougal put in his own border dyke irrigation system on his two farms and then built a dairy shed on each. This helped him later with farm succession as he was able to capitalise quicker to buy another dairy farm.

Peter and Joc moved to Ballindalloch Farm as sharemilkers in 2000 and bought into the ownership of the farm in 2003.

Sharemilking allowed them to buy into the farm quicker – scaling their business now to three farms.

They had a different accountant to Joc’s father Dougal to ensure independent advice. Dougal’s lawyer Mark Tavendale was critical to the process as he was collaborative and an effective communicator. He was strong when he had to be and structured the succession well.

As a banker it is really critical to understand what the family wanted to achieve.

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Peter and Joc Kinney with staff member Mike Devine.

When it comes to lessons learned for how they will do their succession for the next generation, transparency ranks highly.

They define it as “open communication all the time”. While they haven't got a plan set down yet on how it will work, they say that is intentional.

“It will change all the time. It's just about being open to what the direction is and getting the kids on board with understanding the difference between fair and equal.”

Setting up their business so they can create opportunities for their four boys is front of mind. Whether that is leveraging off the asset, not farming at all or helping them all into farming, Joc says they have the ability to do that.

They have since grown their asset base to three farms (dairy farm, run-off farm and a beef unit), and are business partners in a sharemilking venture with a previous employee. However, the trick is not making it too easy for them.

“If you do it too well for the next generation, they can potentially lose it. They need the challenge to be able to buy into it and create their own opportunities. You can’t just hand it to them,” Peter says.

While growing in the dairy industry would be great for succession Peter says you have to remain true to your aspirations. His was to go sharemilking so he could get back to sheep and beef farming.

DON’T HOLD ON TO THE PURSE STRINGS

Joc is wary of not creating a ‘lost generation’ in her children where they hold on to the purse strings for too long.

“You don't want to wait till they’re in their 40s before mum and dad start to let go of the reins. They’ve still got to be young enough to grab those opportunities and run with them while still in their prime,” she says.

Aware of how difficult the subject is, Peter advises that the plan should be pretty clear before involving a solicitor to create any agreements.

“The tone of legal wording can escalate an already sensitive situation, and what was a hard subject just got even harder.”

“You need to sit down with the family and have the kids involved from an early age and it's not just a one-off, ‘right guys, we're gonna do farming what do you all want?’ It’s having those conversations now. Just talk to them,” Joc says.

They are wary of the trap that some families fall into, where in trying to make it equal, they make it unfair.

If anything is certain in farm succession it is that family dynamics will change as children marry and parents age. Peter and Joc say the ability to keep business units separate, rather than trying to grow one big thing, is helpful to keep boundaries clear and opportunities available for future generations.

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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

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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 documents, and a resource book.”

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

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.

15

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PART TWO

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 23594 0621

Welcome

to the second of our three-part series on farm succession produced by the team at NZ Dairy Exporter with support from ASB. We’re continuing to examine farm ownership transition from all sides with advice from experts and case studies on farming families who are on the journey towards moving ownership of their business to the next generation.

Thanks for your feedback on the first part, published with the August issue of your NZ Dairy Exporter. Most of you were keen for more examples of farm succession. Others were after more advice from experts from the legal, accounting or consultancy sector, to start them on their own journey.

Our future plan is to package up all the content published across the three parts and create a single digital publication that we can make available for you to download for yourself or share with friends and families.

Next month’s issue of NZ Dairy Exporter will contain the final part in our series, so the digital version will be available soon after.

Meantime, keep the feedback coming and call 0800 224 782 if you want extra copies of the series sent out to you or members of your own family.

CONTENTS 4 Start now on your succession plan says

experienced consultant.

6 Stamina required to last the marathon,

says expert adviser.

8 Follow a Waikato dairy farming family’s

journey through succession.

12 Tick off the legality of your agreement,

rural specialist says.

14 Passive farm investment options offer

comfort without the slog.

15 ASB’s specialist team is there to help.

Tony Leggett Publisher, NZ Dairy Exporter

COVER: Getting started early on succession planning has paid dividends for Waikato dairy farming couple, Brendon and Rochelle O’Leary. Read about their journey, page 8.

Photo: Emma McCarthy.

Farm Ownership & Succession 2021 is produced by NZ Farm Life Media, publisher of NZ Dairy Exporter and Country-Wide.

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: Penny Clark-Hall, Tim Fulton, Sheryl Haitana, Phil Edmonds, Emma McCarthy, Brad Hanson, Karen Trebilcock, Kate Taylor.

Designer: Emily Rees.

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3

Start early on shared vision BY: TONY LEGGETT

E

xperienced succession adviser Sean Stafford regularly sees farming families divided over how to move farm ownership from one generation to the next.

Without a shared vision embraced by everyone from both generations, the lack of transparency inevitably creates tension and weakens the success of any future outcome.

Developing a shared vision needs to start early.

“Too many people trying to solve succession have put no thought into it until the point where it’s staring them in the face,” Stafford says.

The former rural bank manager says

4

farmers need to start developing that long term vision on the day they go into business.

“If you actually have a vision where one of the objectives is to provide children with something at the end, the sooner you can start building your plan to achieve it, the better,” he says.

He believes farming families are increasingly moving away from the ‘fair is not always equal’ approach, where the oldest son gets the farm and other siblings receive less and wait for longer to get it.

“When I look into the old model for succession, I see an emphasis on a transaction that happens on a particular day in time, and I also see an uneven assigning of capital to ensure the farm stays in the family.”

“I’m pleased to say there is an increasing emphasis on equality, and that is reflective of

what is happening in society generally.”

Stafford says every situation is unique, but there are recurring key factors which he feels add to the likelihood of success.

Shared visions that include a focus on growing the capital base of the farming business should be a priority he says.

“If you have a growth strategy, either onfarm or off-farm, you have a much better platform for succession because you’re growing your business to the point where you can satisfy more than one sibling or in some cases, the whole family.”

Lack of capital growth is the biggest single issue preventing equitable succession outcomes, Stafford says.

He often meets farm owners who have left succession discussions with the wider family until they are close to retirement, when it’s

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Sean Stafford is an advisor at rural accountancy and consultancy, MCI & Associates in Pahiatua, Tararua.

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too late to focus on growing the business.

“You end up with an asset that is barely supporting Mum and Dad, so the platform for succeeding to one child, let alone more children, is pretty limited.”

“My advice is to think of a vision as something that is worked on constantly, it should focus on growth and build an intergenerational trajectory. Everyone should be proactive,” he says.

When succession is handled as a gradual transition, daughters and sons are usually treated more equitably.

“I see a lot of examples where daughters are actually the successor, and not necessarily just in an active farming role. For some it’s more in governance and ownership roles.”

Succession discussions in the past often focused heavily on the operational side of the farm business but Stafford says it is more likely now to include more on the governance and ownership aspects.

He recently completed an ownership succession plan involving three siblings one brother who currently runs the farm business, and two sisters who live elsewhere.

Only one of the sisters can have children so the siblings decided to create a trust that owns the land and the beneficiary of the trust is the sister who can have children.

“The farm connects them all, brings them all together. They decided not to split the asset up and the farming brother isn’t letting his ego get in the way of a solution.”

Clarifying roles and responsibilities is starting to receive more emphasis. So is the identification of gaps in skills or experience, especially for the incoming person responsible for running the operational side of the farm business.

“This skill development doesn’t get enough time and effort in my view because ultimately professionals can’t earn fees off that space as easily as say, from a transaction.

“I want to see my clients avoid tension when the transaction does take place because we’ve spent the past 20 years preparing for it through a transition of roles and responsibility, and through growing the asset base to create options,” he says.

He is working with one family farming business where a 28-year-old son is the designated child to take over the business and Stafford is actively working on lifting his ‘ceo skill set’ so he’s ready in five years to

run the business effectively and continue to grow it.

“If we do that well, the transaction will naturally fall out of that work and we’ll have a lot more fun.

“Dad gets to work with his son over a longer period of time, upskilling him and mentoring them, supported by a professional, and through that process he is better able to deal with the emotional side of handing over the farm in a few years’ time.”

When the ‘keys’ to the farm are just handed over to someone in the next generation on a particular transaction day in the future, it’s often a case of sink or swim and the farm business usually suffers a performance dip.

“Unless that individual is a very special person, the business will take a dive for a few years.”

He says the ‘sink or swim’ approach just adds unnecessary risk. In low-debt farming businesses where succession transactions are focused, Stafford says the business usually survives.

“But that’s only the case in some very unique intergenerational businesses where significant amounts of capital are being gifted to support the business. But where there are significant amounts of debt, the need to uplift performance is critical.”

Differences in sheep, beef and dairy Dairy farm businesses are more likely to be one or two generations ‘deep’ and focused more on running a profitable business than creating a legacy.

By comparison, adviser Sean Stafford says many of the sheep and beef farm owners he’s dealing with are the fourth or even fifth generation owners of the property, so extending that legacy is usually more important to them.

He sees growth-minded owners in both sectors but acknowledges dairy farming has historically offered more options when succession is being discussed, including share milking, contract milking, and leasing arrangements.

When working with his sheep and beef farmer clients, Stafford is increasingly

5

encouraging them to separate the operational side of the farm business from the ownership of the land as a first step towards an ownership transition plan.

“Then we ask how we can use the operating entity to create opportunities for ownership transition for the future generation.”

“Step one is about building capability in the next CEO, then selling them a piece of the operational revenue. Stage three is talking about how we transition the ownership of the land.”

He knows of situations where a farming couple exit the operational side of the farm in their 50s, especially in well-established intergenerational businesses that are three-five generations deep. It gives the next generation an early start the operational and ownership but it often demands using the more outdated ‘fair is not always equal’ approach.

At the other extreme are 60-plus year-olds not ready to give up active farming. It’s become their life’s work, building a business often with scale, but they have forgone plenty over the years to achieve it.

“These are the owners who are just so passionate about farming. Even though they are well into their sixties, they are just not ready to give up.”

In these cases, you often have children in the business who don’t understand their father’s vision, they want to be a contributor but don’t see how they fit, and the principal doesn’t even see a problem because they are enjoying themselves so much.

“That is where coaching the incoming CEO is so critical, along with some hard questions,” Stafford says.

“That’s where you have to ask the incumbent farmer if they want to keep doing what they’re doing and throw the next generation under the bus, or do they want to start to step back, mentor the incoming CEO and have some fun?”

6

Mandi McLeod: ‘In farming, families go into business together simply because they share DNA.’

Succession is a marathon, not a sprint BY: KATE TAYLOR

T

here is no one-size-fits-all solution for farm succession but it’s important to ask the right questions at the start of the process, farm business consultant Mandi McLeod says.

Many people start succession planning with someone with the hard skills of accounting or law, but they’re talking about structure, and not genuinely figuring out what the family wants, she says.

“People shouldn’t underestimate the emotional journey they will go on, but at the same time, they shouldn’t be afraid of it.

“The worst thing we can have is people going in with the best of intentions and failing because they don’t have the soft skills to deal with the social issues. None of

it works unless you understand the family dynamics before even looking at solutions.

If you haven’t dealt with individual family communication, it doesn’t matter how good the accounting or legal solutions are; they won’t keep your family intact.”

McLeod set up her own consultancy, Systems Insight Ltd, in 2002, which included work on farm/family business strategy, inter-generational transfer and governance coaching. Her 2009 Nuffield scholarship also concentrated on those issues.

“I’d realised two things: one was that succession was focused on asset transfer, pretty much at time of death, and there wasn’t a focus on transitioning management skills with succession. All the research was non-agricultural, non-rural; farm businesses had quite different needs that didn’t fit the

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BUILDING BETTER OUTCOMES Real communication Process driven Transparent management Accountability demanded Governance expected NO LEAKS

Leaky systems result in no: • Process • Accountability • Governance

Family

Individual

“...NONE OF IT WORKS UNLESS YOU UNDERSTAND THE FAMILY DYNAMICS BEFORE EVEN LOOKING AT SOLUTIONS.”

box. When you’re on a farm, you don’t get to drive home after work. If you’re in another business and you employ family, they’re generally not living on the work site. You’re not looking into each other’s lives.”

She says there can be pressure on people who aren’t ready to abdicate power or control, and nothing will work until that happens.

“People who start successful family businesses are entrepreneurs and they get there because of power and control, so there’s a sense of loss of identity in giving that up. Then we have a generation of people who haven’t learnt patience. They want it now. But it takes time to work out what all family members want, and need, and expect from the family business.”

Both generations must be ready for the change.

“Mums and dads shouldn’t have to compromise their lifestyle for the second generation coming in, just to give them an opportunity. They have to be ready for a partner in the business and the successor

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Ownership

Ownership Family Management

has to have the necessary management skills or willingness to learn.”

McLeod bought into her parents’ 300-cow dairy farm in Waikato, but it was sold six years ago when she realised she couldn’t afford to expand or buy out her four siblings.

“I wanted them to have the life they earned, and it also gave them the opportunity to help other family members. We kept a third of the land, where they still live.”

Before that, McLeod says she had the triple whammy of living and breathing her own succession journey, researching with international colleagues to translate nonfarming succession stories into farming, while also working directly with farm businesses.

“It made me a bit unique, because my international colleagues were either running workshops or working in the academic field, they weren’t actually at the coalface of sitting with families and sometimes working through generations of trauma.”

Emphasis on the word, trauma.

“There are a number of family businesses where someone got the farm from gender or birthright. There were families where previous generations had not dealt well with succession so they had generations of family members not speaking to each other. I have knowledge of successors who had suicided or had breakdowns because they were put in positions of responsibility they were not equipped to deal with.”

She uses a diagram with interlocking

Business operations management

circles – family, management and ownership – to show the complexity of a family farming business. Traditionally they were viewed as discreet silos, but the greatest challenge lies when the three circles intercept, i.e. family members involved in management and ownership.

“Asking who needs to be where and what needs to be done to shift people through the different circles, while also acknowledging the emotional content. In a successful business, the lines on those circles are thick, but in a leaky circle, there’s no governance, no accountability.

“People need to ask, ‘Is that someone I would employ if they weren’t my son or daughter?’ or for the younger generations, ‘Would I work for them if they weren’t my parents?’ In farming, families go into business together simply because they share DNA.” People need process and a clear structure for introducing family members to a farming business, but she says many still want the end result without doing the work in the middle of the circles, which is communication.

“Genuinely understanding what family members want from the process; those expectations, more often than not, will derail the process if they haven’t been met, managed or mitigated. The equation should be for fair, rather than equal, and everyone being on the same page. Fair is sometimes equal but equal is very seldom fair.”

7

ONFARM

Roller coaster ride ends well Succession planning can be a denial disease, but farmers need to get their heads out of the sand, be brave, and start the process now, say Waikato dairy farmers Brendon and Rochelle O’Leary.

BY: SHERYL HAITANA PHOTOS: EMMA MCCARTHY

I

f farm owners don’t deal with succession while they’re alive, the dust will be rising long after they’re gone.

The family left behind will battle to try and come up with solutions and often end up selling the farm because nobody had the guts to have the hard conversation while the parents were alive.

Brendon and Rochelle O’Leary have seen it happen, with families in legal battles over the farm business.

They wanted to avoid that and they also wanted more clarity of their own future moving forward, so they engaged the family in succession discussions.

Brendon and Rochelle farm at Gordonton, where they own two dairy farms and a runoff, in partnership with Brendon’s parents Cliff and Colleen O’Leary.

Brendon is the fourth generation O’Leary farmer, with his great grandfather buying a farm at Pokeno in 1911.

Their 87-hectare farm, on O’Leary Road, was a mixture of dairy, beef and market gardening when Brendon started working on it after he left school.

He met and married Rochelle in their early twenties.

Brendon’s brother Lindsay was also working on the farm, and it became clear the farm wasn’t big enough to support three families.

They decided as a family to sell the farm and move to Gordonton where they bought the new farm as a family company, with Brendon and Lindsay gifted shares.

They grew the business to a second dairy farm and a runoff. Since going through the succession process, Lindsay has now left the business to go in his own direction, with Brendon and Rochelle paying him out of his share.

8

When Brendon’s parents pass away, Brendon and Rochelle will then buy his brother and sister out of his parents’ share. All parties are now aware how this will unfold when the time comes.

It’s always more difficult if there is one sibling onfarm and two off that need to be bought out, Brendon says.

It’s important to treat family members fairly, this doesn’t necessarily mean equally, they say.

The process has been a roller coaster at times, but they’ve all managed to come out relationships intact, with fair solutions and a clear plan for what happens in the future.

Rochelle and Brendon’s advice to other farmers with succession hanging over them is to start by hiring professional advisors who don’t look to the past, but look to the future instead for solutions to help the family achieve a succession plan.

“You’ve got to have the right people around you you can’t do it on your own.”

They hired a new accountant and lawyer who could look at the family business with fresh eyes and it was the best move they made.

Every family member was able to meet with them on their own and tell their side of the story and set out what they wanted to achieve from the succession process.

“Through that Dragon’s Den process, everyone gained their voice,” Rochelle says.

Everyone’s own hopes, expectations and needs are different, and it is important that it is all put on the table. However, people need to go into the process open minded and be realistic about the outcome, Rochelle says.

“People can’t expect to go through this and get

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9

100% of what they want.”

There were times when the succession discussions involved just the immediate family and partners sat out.

As a partner, even though she had been part of the business for decades, Rochelle still saw there were times when she needed to step back, she says. People can have different agendas, and it is important that the immediate family discuss how they want things to happen independently.

“You have to put all that sentiment to the side and the emotions - and that’s hard.”

Their professionals, and in particular their ASB rural manager, were essential in keeping the momentum when it came to progressing on succession planning.

Their advice is to find an adviser who can stand in the middle and see everyone’s angle and keep everyone focused. It’s a delicate and at times emotional process, and that adviser needs to be able to manage that as well.

Their bank manager was pivotal in keeping talking with all the parties, including Brendon and Rochelle, Brendon’s parents and his brother Lindsay.

They were the glue that held the process all together, Rochelle says.

“Our ASB bank manager was great at keeping us all focused on the big picture of where we wanted to end up. It’s easy to get distracted by focusing on the little stuff.”

There were some hefty professional fees that needed to be paid as part of the process, but you have to be prepared to pay to get things done and to get it done right, Brendon says.

“It’s going to cost you money, but if you don’t do it, it will cost you more. If you don’t invest now you will sell down your business and everything you had.”

Brendon and Rochelle tried to celebrate the small wins along the way. For example, the first win was getting everyone willing to partake in the ‘Dragon’s Den’ even if they might have gone in with their backs up.

“It’s like riding a roller coaster, you have to be brave. You take two steps forward and then three steps back.”

Brendon and Rochelle’s other piece of advice is not to leave succession planning too late. At 50, Brendon wishes they had been able to have these discussions earlier.

The older generation can leave succession planning too long, their wealth has grown

10

TWO PIECES OF ADVICE:

• Start now • Hire the right professionals

and thus the complexity of their business, and the pie is harder to divide, he says.

“Succession is never going away and it gets harder and harder as your wealth grows and your family grows,” The older generation fear the loss of control of their asset they have worked for, which can be a big stumbling block in commencing the pathway of succession.

You need professionals to demonstrate to them that this is not the case showing the benefits of a new vision, the couple say.

Brendon’s parents are now in their late 70s and 80s.

“It was too late, we left it too long,” he says.

Succession can be stressful and it’s a lot to

take onboard mentally for everyone. He was mindful of not putting too much stress on to his parents and not pushing too hard.

Leaving the succession talks too late also makes it difficult to work out the value the children working on the farm have put into the business over the years.

Brendon’s intellectual property and his input into growing the business to three farms has probably not been truly valued.

“Where was the line that Brendon started adding value to the business? He had all of the responsibility, but not on paper. We grew the pie but we’ve probably missed out on some of that worth.”

Although Brendon and Rochelle didn’t

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“OUR ASB BANK MANAGER WAS GREAT AT KEEPING US ALL FOCUSED ON THE BIG PICTURE OF WHERE WE WANTED TO END UP. IT’S EASY TO GET DISTRACTED BY FOCUSING ON THE LITTLE STUFF.”

FARM FACTS Owners: Brendon & Rochelle O’Leary, Cliff & Colleen O’Leary Location: Gordonton, Waikato Area: 62ha and 85ha milking platforms, 69ha runoff Cows: 200 and 400 Friesians/ Friesian cross Production: 84,000kg MS, 187,000kg MS

Left: Rochelle and Brendon started succession talks to get more clarity for their future.

Below: As your business and wealth grows, succession gets more complex.

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have more ownership of the business legally, Brendon has had the ability to farm with his parents backing.

“We are really grateful for that - they allowed Brendon to drive the business in a new direction, they’ve never held him back,” Rochelle says.

“You must respect the generation that came before. You might not always agree, but we couldn’t be here regardless.”

Brendon feels fortunate that his parents decided to sell the family land and make the move to Gordonton because it provided more opportunities for them to grow and he feels enormous pride to carry on the family legacy of farming.

When it comes to their own children, Alex and Annaliese, they are having open conversations already about succession. Alex is working onfarm managing the 200 cows and they pay him a market wage and keep everything professional.

“Gone are the days when you can expect your children to work for peanuts but ‘one day this will all be yours’,” Brendon says.

Alex will have the opportunity to buy shares

into the operating companies of the two dairy farms if he wishes to.

There is a lot of pressure for Alex being the fifth generation and Brendon and Rochelle are mindful of that.

“It can be a burden. You don’t want to be the generation that’s responsible for the business falling apart. There is always a fine line between making your children work too hard, or making it too easy for them,” Brendon says.

Giving too little too late means your children miss out on the opportunity to progress themselves. But giving them too much too early means they might not respect it or handle the responsibility.

With succession, the key is to keep having those conversations and be flexible, Rochelle says.

“Don’t look over your shoulder. Stay focused and continue to evolve. Treat the succession of your business like an open book - there is always another chapter. Our children have not had children yet, so things will continue to look different.”

11

Rural investment catering for long-term planning BY: PHIL EDMONDS

T

he current low interest rate environment is forcing everyone holding cash assets to sharpen their investment thinking. But for those facing a prospect of dividing assets, such as in a farm succession, being an active rather than a passive investor is becoming even more important.

There will be a cohort of farmers contemplating retiring and facing the

12

prospect of paying almost 25% more for a house in town than they would have paid this time last year. And according to property analytics provider CoreLogic, if house prices continue to rise in line with the trend evident in the past three months, they’ll be 29% higher again next year. All this means there will potentially be a lot less available for farmers to invest elsewhere or distribute to the next generation from a farm sale.

The lesson of the house price explosion is that if you do have funds available, be prepared to act in your interests, and

importantly, for those who will benefit from your actions.

Until relatively recently, farmers acting in their ‘interests’ has not been easy. Farmers have typically preferred to invest in what they know and understand, either other farms, or at least land-based food-producing assets.

This approach to investment is not unlike New Zealanders in general, who love land above any other asset class. But buying farms has meant taking responsibility for every aspect of its value – the land itself and the farm business operation.

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MyFarm general manager for investments Con Williams says MyFarm is looking again at partnerships in dairy and sees new succession opportunities where farmers stay involved in their farm property as part of a syndicate. If the syndicate is based on a land lease, it will receive a lease rate without the syndicate participants having to worry about any of the operation.

This type of ‘leased property’ structure fits with the conventional wisdom that retirees should look for steady or safer investments with a passive income which should be more reliable and free of management risks.

The syndicate model also presents opportunities to exit if your priorities change. Rather than needing to sell the farm, divesting proportional stakes can be enabled though the likes of Syndex markets.

MyFarm’s Con Williams sees new succession opportunities where farmers stay involved in their farm property as part of a syndicate.

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For farmers at or nearing the end of their careers and looking for avenues to retreat from farm work without abandoning farm ownership this wasn’t necessarily an attractive option. There has always been the possibility of bringing in a next generation family member as a sharemilker, for example, but this didn’t make the farm asset any more liquid to serve the interests of others, nor did it release capital required to fund a move off the farm.

Ross Verry, chief executive of private capital market platform Syndex, says the good news is that for farmers who feel most comfortable contemplating investing in what they know and like, the opportunities are expanding and becoming more attractive.

“Farm land has definitely become more investible with lots of different structures now available to appeal to investors with different risk profiles.”

The syndicate model also presents opportunities to exit if your priorities change. Rather than needing to sell the farm, divesting proportional stakes can be enabled though the likes of Syndex markets.

The creation of investment products that bring more flexibility in the ownership of farm assets also offers opportunities for farmers to diversify their investments into ‘adjacent’ food producing assets. Both Verry and Williams have seen strong interest among older farmers in syndicates owning horticulture, and particularly kiwifruit land and operations over the past couple of years.

Additionally, investment products are increasingly available to enable farmers to share in the growth potential of farm land development – something that in the past would have required investors to take a hands-on/boots-on role in realising that potential.

Verry notes that while farming may have become more complex, farm succession planning has in many ways become easier with far more options available. The desire for New Zealanders to own land has shown no signs of changing, and farmers can now more readily participate in that, earlier, rather than later.

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What if things go wrong?

BY: KATE TAYLOR

B

eing the pessimist at the table is a role Waikato lawyer Sue Garmonsway doesn’t take lightly when helping a farming family in the middle of succession planning.

“People have to think about the ‘what if’ questions. Things can and do go wrong and the unexpected can crop up.”

Managing expectations can be hard and everyone’s perspectives need to be considered.

“For the person leaving the farm, it’s about ‘how much do I still want to earn as a living,’ and for the ones coming in, it’s a question of ‘what can I afford to pay?’ I’m like the pessimist in the equation. I come up with everything bad that could happen that could derail the outcome they want and force people to think about those what ifs – what if your marriage ends? What if you die unexpectedly? What if there’s a family falling out – these are all relevant to the succession equation.”

Some people are happy to take risks, and

others want to mitigate every risk possible and don’t care what it costs, she says.

“There’s a fallacy around what it costs to do succession. You can pay X amount and do it properly now, or do it badly and cheaply and face possible litigation costs later. You’re better off to get in there and get talking about it.”

Garmonsway has extensive experience and knowledge in the area of rural law and agri-business succession. She has been working at the firm Gallie Miles for 17 years with mostly rural-based clients in the Te Awamutu and Otorohanga areas. She has two main pieces of advice: first, people should ask their professionals to work through succession planning together.

“What I think of as a fantastic plan may have disastrous tax implications, what your accountant thinks will work might not be legally robust, and what your accountant and lawyer come up with, the bank might not finance, so it’s really important to have all those professionals involved at the outset to try to make a difficult process easier.”

Trusts add an extra level of complexity and

“When you look at the individual farm succession transactions in isolation, unless you have context, it’s really hard down the track to look into the reasons behind each decision made.”

Sue Garmonsway: Everyone’s perspectives need to be considered.

14

were often drafted for specific reasons at a given moment in time, she says, but they are still a useful way to achieve succession.

However the farming business is being operated, documentation such as wills and shareholder agreements will also need careful consideration.

“The second thing, one I can’t stress enough, is the need for a really well documented plan. A lawyer is crucial to that. When you look at the individual farm succession transactions in isolation, unless you have context, it’s really hard down the track to look into the reasons behind each decision made. Also if someone dies during the process, you need a legally enforceable document.”

Another issue is when a fair decision is made at one point in time, that sees one person get an asset with big increases in value over a longer period.

“The non-farming person doesn’t see the freedom they’ve had; they often just see the other person’s $5 million asset.”

Garmonsway tells the story of a good friend who had taken over a farm from his parents some years ago. The parents had transferred the farm to the client and allowed cash reserves of the same value to be left to the non-farming child. One lawyer acted for all parties, and it was difficult to subsequently work out why certain decisions had been made.

What followed was a protracted argument between the client and a family member after the farm substantially increased in value, leading the family member to believe they had received ‘less’ from mum and dad.

Garmonsway subsequently worked with the client’s family to transfer the farm to the next generation. With one child onfarm and several off-farm it was vital there was a clear Heads of Agreement or succession plan that recorded in writing the overall intentions of all parties.

“Making provision for mum and passing the farm on to the next generation in a way that takes the interests of everyone – both on and off farm – into account; I’m confident it is as robust as it can be for when Mum dies. Coming into a situation that was such a mess with a lot of cost and drama, to then help the family through, was satisfying.”

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Jumping across the balance sheet BY: CHRIS TENNENT-BROWN, ASB SENIOR WEALTH ECONOMIST

I

f you’ve spent your life working and building a profitable business in the primary sector, it’s likely your relationship with your bank has been tipped towards the debt side of your balance sheet.

Your bank has been there to help fund your investment plans, help with your cashflows, and help deal with the ups and downs of working off the land and selling your products on the world stage.

ASB Rural has a solid history of working with clients to help grow their business, whether it’s a sheep, beef, or dairy farm or a business in forestry or horticulture.

Regardless of which part of the primary sector your business is in, a succession plan for the future can involve a jump across the balance sheet as your relationship with your bank changes from helping you invest in your business to providing advice and helping to protect your assets.

This can be a significant change in mindset. In many cases, particularly in the rural sector, deciding how to invest the proceeds of a successful succession plan is your ‘what next?’.

The ASB Rural team works with clients by asking 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.

As farmers ‘jump’ across the balance sheet following the sale of a farm or primary sector business, the family often winds up with significant funds that they want, and need, to get working hard to support them for the next phase of life.

Some of ASB’s best kept secrets are our skills in Private and Premium Banking, as well as investment management and insurance - helping hard-earned savings to grow, providing protection, and making everyday banking easier.

Private Banking is an exclusive service that offers the highest level of personalised banking. With this service, customers are assigned a dedicated private banker and associate who are on call to assist with any banking requirements. This could include

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Investment advice is available from the banking sector after a succession plan has been completed.

managing your private wealth, arranging home and investment loans, protecting your lifestyle and assets, and managing your everyday banking.

Our Premium Banking team is also responsible for helping our customers manage their portfolios. The main pillar of the Premium Banking proposition is a dedicated premium manager delivering

Chris TennentBrown.

personal solutions that meet your financial goals and needs via a quality financial review.

Similar to Private Banking, premium bankers provide access to specialist partners at ASB to help with all your banking requirements.

Working alongside our Private and Premium Banking teams, ASB has wealth managers (who are all Accredited Financial Advisers) across New Zealand. Wealth managers provide detailed personalised financial advice and tailored investment solutions to our customers. ASB also has insurance managers located throughout the country who can help ensure that you and your family have the right protection for what’s most important to you, particularly at times of significant change.

Succession is a big transition for all business owners, and it can be even more complicated for those in the primary sector when the business is more often than not also the family home. There’s no blueprint on how to transition from a farmer or business owner to the next stage in life because every situation is different.

The ASB Rural team has the dedication, experience, and the relationships into all parts of the bank to work with customers and help ensure a successful transition as you jump across the balance sheet, no matter how big or small that jump might be.

15

SITTING ON THE

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So talk to your local Bayleys team today and lock in your Country spot now.

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To learn more about Country magazine, call 0800 BAYLEYS or visit bayleys.co.nz/country LICENSED UNDER THE REA ACT 2008

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87

FARM, SPECIALTY AND LIFESTYLE PROPERTIES FOR SALE ISSUE 1 – 2021

A LT O G E T H E R B E T T E R

Residential / Commercial / Rural / Property Services

A NZ Dairy Exporter 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 23594 0621

Welcome

to the third and final part of our Farm Ownership & Succession series, delivered with your copy of NZ Dairy Exporter 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 the journey to a successful succession plan. 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, aspiring farm owners taking different approaches to achieve their goals.

South Canterbury sharemilker Will Green is determined to build equity through buying more cows while Jack and Tis Scheres from Waikato are sharemilking their way to farm ownership.

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.

CONTENTS 4

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

8

Will Green is driven to achieve his goal of farm ownership. Find out what his plans are and who’s involved.

6

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

7

There’s no ‘I’ in ‘team’ so collaborate your way to a successful outcome is the advice from ASB.

12

Jack and Tiz Scheres are taking a more traditional pathway to farm ownership,building equity by sharemilking.

Once again, we want to recognise the support of ASB. Without its support, this series would not have happened.

All the best with your own succession journey.

Tony Leggett Publisher, NZ Dairy Exporter

COVER: South Canterbury dairy farmer Will Green works closely with his local ASB rural manager Simon Cooney on achieving his goal of farm ownership. Photo: Stu Jackson (visit photographs.co.nz)

Farm Ownership & Succession 2021 is produced by NZ Farm Life Media, publisher of NZ Dairy Exporter and Country-Wide.

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: Penny Clark-Hall, Sheryl Haitana, Emma McCarthy, Brad Hanson, Karen Trebilcock, Kate Taylor. Designer: Emily Rees.

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3

Adaptive plans should be the goal BY: KATE TAYLOR

I

t’s never too early to start thinking about succession, even when the next generation is 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 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

4

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.

“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

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“IF I HAD TO BOIL THE ADVICE DOWN TO JUST ONE THING, I WOULD SAY TO START THE CONVERSATIONS EARLY.”

Rural Coach Sarah Barr advocates getting on with succession planning even before the next generation has decided if they want a farming career.

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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.

5

Succession: Walls or opportunity?

BY: KATE TAYLOR

P

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.

6

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.

7

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ONFARM

Seven year plan to farm ownership BY: KAREN TREBILCOCK PHOTOS: STU JACKSON

W

ill Green’s email address says it all – greener grazing.

The 31-year-old, who grew up on his parents’ tenant farm in Shropshire, UK, is now working towards buying his first farm in New Zealand.

“In seven years, I can do it. I probably could go a bit earlier and buy a smaller dairy farm, but I’ve got to make sure I keep to the plan. I want a 600 to 700 cow farm.”

That many cows is important because then he’ll need staff and staff are important when you might have to make an emergency trip home to England occasionally when the borders finally open.

Will first visited New Zealand in 2010 to have a look around and came back for good in 2014 working for dairy farmers Kieran and Leonie Guiney near Fairlie who had got to farm ownership through sharemilking.

However, in June last year he took on the position of lower order sharemilker for Dairy Holdings on a 1060-cow farm at Hinds near Ashburton and with the job came the opportunity to buy cows.

Last year he bought 400 mixed-aged cows which he milks in his herd and he bought another 330 cows recently which are in another Dairy Holding’s herd.

“In Dairy Holdings there is lots of opportunities for the right people. They’re

Will Green’s job is managing a 1060-cow farm for Dairy Holdings Limited, at Hinds near Ashburton.

www.nzfarmlife.co.nz

9

WILL’S STRATEGY TO FARM OWNERSHIP • $1/kg MS surplus after tax $350,000 pa x 7 years ($2.45 million).

• Money saved invested in cows within current business and lease back for 8-10% return (4-6% higher than cost of interest).

• In 7 years equity will be $3.5 - $4 million (including current equity).

really behind me. They want to see me grow as quickly as I can.”

Also helping him out is his ASB rural manager Simon Cooney who is based in the Timaru branch.

“He’s farming himself, so he understands what I’m trying to do. If I’ve got an idea I’ll pop him an email and he replies straight away and then we’ll sit down and talk about it. I’m probably emailing him too much. He must get sick of hearing from me sometimes!”

Farming accountants Brown Glassford “keep me out of trouble”.

The plan is to be whole herd owner sharemilking with Dairy Holdings in two years, increase cow purchases, pay off debt and be ready when the right farm comes along to buy.

“My farm supervisor at Dairy Holdings is Mick O’Connor and he’s great to talk to. He is mentoring me.”

Will said he’s not interested in diversifying his investments and instead will stick with cows.

“I really like owning cows. I get a warm feeling doing it.”

“Farming is my hobby as well as my career.

It’s what I do. It’s all I’ve ever wanted to do.”

His parents milk 100 cows on a tenant farm, along with running a few sheep and beef cattle, which Will says is enough for them to get by on, but farm purchase would be “very challenging”.

10

Aspiring farm owner Will Green has set his sights on farm ownership in seven years.

“Although things are changing over there.

I have a mate still in the UK and he looks like he might be able to do it but cases like that are few and far between.”

With no help from parents and the UK exchange rate, it’s money from “my own back” that will be buying his farm in New Zealand.

Helping him along though is his partner Sally Eames who works for Medsource in Ashburton.

“She loves farming too and helps me out with the calves in the weekends.”

FARM PURCHASE PLAN • 150ha, milking 570 cows (stocking rate 3.8/ha) – total capital required $8 million.

• Equity $4 million, borrow $4 million ($19.05 debt/kg MS).

• Overdraft $300,000.

• Total facilities with bank $4.3 million (loan to value ratio 54%).

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ASB rural manager Simon Cooney and sharemilker Will Green catch up regularly to test the farm ownership plan.

Aiming for the stars CASH FLOW DETAILS • Income 210,000kg MS x $6.50 (ASB status quo milk price) $1,365,000.

• Stock sales $94,000 (or $0.45c/ kg MS).

• Total income $1,459,000.

• FWE $4.25/kg MS = $892,000 so EBIT is $567,000.

• Depreciation (10%) of plant value $200k = $20,000.

• Loan and overdraft interest $220,000 (at 5.50%).

• Principal repayment (3%) $120,000.

• Drawings $70,000, tax $100,000 (28% tax rate), surplus $37,000.

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ASB Rural Manager Simon Cooney says Will’s plan is to have $1/kg MS profit each year, after tax, working as a lower order and then as a herd-owning sharemilker.

“Of course, this is sensitive to the milk price but he’s going to do it over seven years so some of those years he will do it easy and other years it will be a challenge,” Simon says.

“He keeps a close eye on farm working expenses, fully utilising the pasture curve and limiting bought in feed as much as possible.”

“If he can do the $1/kg MS profit then in his current position with Dairy Holdings (DHL), that is $350,000 surplus each year that he can invest.”

“His strategy is to use that to buy more cows each year. DHL leases the cows from him, and he receives 8-10% return (46% higher than if he had it on fixed term interest.)

“After seven years, including his current equity position, he’ll have around $3.5 million or more.”

“I know this is ambitious but as the old saying goes, if you aim for the stars you may

end up on top of the mountain. Will has a plan, he has dedication, commitment and combined with all of that he has outstanding farming skills. I am sure he will succeed.”

Simon says 150ha dairy farms with good water in Canterbury were currently selling for $45,000/ha, producing 1400kgMS/ ha (please note this is not a Tier One Mid Canterbury property).

“So that’s about $6.75 million and on that he could farm 570 cows at a stocking rate of 3.8ha, so he’d need about another $1 million to buy stock, including young stock, and $200,000 for plant and machinery. “ “There are options like Fonterra’s MyMilk that enable Fonterra shares to be purchased at a later date.”

“All up that’s about $8 million and he’s got half of that in equity – so in today’s banking terms he will be bankable, especially with his proven track record.”

Simon says Will was fortunate his employers allowed flexibility in their contract and sharemilking agreements as well as stock ownership investment opportunities.

“It means he can use it as a springboard to faster growth so he can achieve his goals.”

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From left, Snow, Chap and Jack: Sharemilking was never going to pave the way to buying into the family farms.

ONFARM

A blueprint for family farms The Scheres family wish they had bypassed sharemilking and cut straight to equity partnerships. The Putaruru-based dairy farmers told Sheryl Haitana about their smooth transition into succession planning. Photos by Emma McCarthy.

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B Below: ASB rural manager Jaden Verryt with farm owner Jack Scheres: Rural professionals helped the smooth transition into equity partnerships.

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rothers-in-law Paul (Snow) Scheres and Chap Zweins joke about arm wrestling over the family dairy farms, but in reality the blueprint for the succession plan is already settled.

Jack and Elizabeth (Tiz) own three farms just out of Putaruru, two are in equity partnerships, one with their son Snow and his wife Claire, and the second with their daughter Ashleigh and son-in-law Chap.

Snow and Claire own 55% of Waiohotu Farms Ltd, while Chap and Ashleigh own 53% of Waimakariri Farms Ltd. The home farm, Grangelands, is still 100% owned by Jack and Tiz, which will be able to payout Jack and Tiz’s other daughter Nina, who lives off farm.

Jack and Tiz sat down with all the kids when they decided to move to equity partnerships and laid out what was in their wills so it was clear to everyone what would happen.

“When we pass away, we still have this entity (the home farm) which Snow will take over, and my daughter will be able to get her share.

“I’ve heard of instances where the parents pass away and there is just a shit fight.

Hopefully there is no way of that happening.”

The kids are the ones driving and growing the business, so it’s appropriate they are now equity partners to build their own wealth and create opportunities, Jack says.

“If you leave it (succession) too late the kids

can’t grow their own equity.”

Snow and Chap feel fortunate that Jack and Tiz have backed them into an equity partnership and trust them to make the key business decisions going forward.

“Dad is really understanding and there is no pressure when you’re making tough calls, he always backs us,” Snow says.

Jack and Tiz lent Snow and Claire and Chap and Ashleigh a $1,000,000 interest-free loan to boost their percentage of ownership in the equity partnerships.

By backing them, they’ve helped them into a position where they can financially grow and be able to take opportunities, whether that’s buying more shares or borrowing to follow other opportunities, Jack says.

Having more skin in the game gives them more motivation to keep the businesses profitable, he says.

Snow and Chap can buy more shares at any point or borrow against the entities when financially able. They both earn a wage paid from the entities and get dividends for their shares every profitable year.

The idea to switch to equity partnerships came from their accountants and lawyers.

Chris Spargo from BlackmanSpargo Rural Law and Tony Harris and Callum Passey from Harris & Co pointed out how creating three separate entities for the three farms and bringing Snow and Chap in as equity partners would be the start of a succession plan.

Their rural professionals, including their ASB rural manager, were key in setting the structure up and making it an easy transition, Jack says.

Snow and Chap were both sharemilking on their respective farms until they shifted to the equity structure last season.

The sharemilking arrangement was proving too difficult financially for them to get ahead.

“There was too much advantage to the farm owner on a System 5 farm, so our accountant and lawyer came up with this scenario,” Jack says.

“With sharemilking Snow and I were going backwards,” Chap says.

“The maize bills would kill us, we didn’t have the cash flow. But now the entities can cover that.”

There is risk with sharemilking when it comes to cash flow and having assets tied up just in stock, and a lot of it can come down to timing.

Snow bought cows when there was a

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record payout, whereas Chap had better timing and bought them at record low prices.

“If we had our time again we would ditch sharemilking. I bought the cows on a high at $8 milk price, the following year it was $4,” Snow says.

Snow had to work hard to get himself out of the hole just in time to borrow again to go into the equity partnership.

KEEPING IT SIMPLE

The three separate entities keep it simple.

Snow and Chap get to run their own farms, so there is no stepping on each other’s toes on a day-to-day basis. Snow also runs the home farm and Chap oversees the 100-hectare runoff.

They work together on the overall farming business, share machinery and have a

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‘I’ve heard of instances where the parents pass away and there is just a shit fight. Hopefully there is no way of that happening.’ floating staff member between the farms.

“We bounce ideas off each other. The farms are doing pretty much the same thing so we can iron out practices together,” Chap says.

“We get on really well. If we were not enjoying it (working together) we wouldn’t be growing,” Snow says.

They all use nutritionist Andrew Robarts from JMR Advisory Services. The farms are all undulating, with plenty of steep hills so the use of maize is key, but with their runoff they no longer have to buy in maize.

They used to grow some maize and buy in the balance, but have since bought a maize chopper, together with Jack and Jack’s two brothers who also farm locally. Between the seven farms they grow 250ha of maize, which justified them buying their own chopper.

Chap, a former agricultural contractor, organises the maize business.

Jack started his progression in the dairy industry in partnership with his two brothers.

The trio grew their wealth together, but when their kids started getting older and going farming it became too complicated.

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FARM FACTS: Grangelands owners: 100% Jack & Elizabeth Scheres • Area: 140ha (135ha effective) • Runoff: 100ha shared with Waimakariri for young stock and maize • Cows: 500 Friesians • Production: 330,000kg MS • Operation: System 5, 80% autumn calving, 44-bail internal rotary, 700-cow covered feedpad, Allflex collars, protrack Waimakariri Land Ltd: Chap & Ashleigh Zweins 52%

“We owned several farms together, but it became too difficult to look after our own children. So my brothers bought me out, and they’ve since separated their assets as their children have started coming back to the farms too.”

Jack’s brother Peter had set similar succession plans with his sons a year earlier.

EPS ARE THE ONLY WAY FORWARD

Left: Snow, Jack, Chap and Jaden: The kids are the ones driving the business so they should have the chance to build their equity.

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Equity partnerships in reality are the only way forward for farm succession, Tony Harris from Harris & Co Chartered Accountants says.

Gone are the days when sharemilkers could sell their young stock to pay for the deposit on their first 60ha farm.

“With the value of land and assets now, we think this is the future. It works very well and not just for family.”

Farm owners are able to help their children into the farm business by gifting some of their equity.

“One of the reasons this works is that as you get older and more established you can afford to give away equity, but not cash flow.”

When the EP is first set up farmers can give their kids a helping hand. If the kids want to increase their shares after that they then have to pay market value and raise capital themselves.

The key with any EP is having a good exit clause, and that is no different for family, he says.

• Area: 120ha + 67ha Maori lease (150ha milking platform) • Cows: 510 Friesians • Production: 327,000kg MS • Operation: System 5, 50-bail external rotary, 550-cow covered feed pad, protrack, Allflex collars, 80% autumn calving Waiohotu Farms Ltd: Paul (Snow) & Claire Scheres 55% • Area: 190ha + 65ha Maori lease (140ha milking platform) • Cows: 420 Friesians and youngstock • Production: 210,000kg MS • Operation: System 5, spring calving, 44-bail internal rotary, in-shed feeding, protrack, Allflex collars

“If you know the rules to get in, and the rules to get out, there is no misunderstanding.”

When it comes to succession the main goal is to preserve the relationships at the end of the day, he says.

“There is an obligation to all of the children, whether they are on the farm or not. The key is you don’t want to break up any Christmas dinners.”

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