Succession planning is a critical but often overlooked aspect of running a farming business, as it can have significant implications for the future viability and value of the business, the custodianship of the generation farmland and family relationships. It is especially relevant in New Zealand agriculture due to the high prevalence of family-owned or operated businesses, the intergenerational heritage within the industry and the aging dynamic of farm owners.

Succession planning challenges facing farmers

Many farming businesses are facing succession challenges. Here’s why succession planning matters and which factors to consider.

Ageing farm owners

According to Stats New Zealand, the average age of farmers has continued to rise in recent decades from 42.5 in 1986 to 51.4 in 2013, with sheep and beef farmers nudging towards 60. While there is limited recent data there is no indication this has reversed and if anything, it's likely to have accelerated.

Changing preferences

The younger generation may not be interested in taking over the family farm or may have different aspirations or values than their parents. They may also face barriers such as lacking skills, capital, or competition from other opportunities.

Market dynamics

The business environment is constantly changing due to factors such as technological disruption, globalisation, consumer trends, regulation, climate change, etc. These factors may pose threats or opportunities for existing businesses or potential successors.

High land values and low return on capital

The price of New Zealand farmland has risen significantly in the last three decades and this creates a barrier to entry for the next generation. While in recent times values for the most part have been holding steady aside from some elevated values driven by the governments incentivisation of carbon forestry, the leap into farm ownership requires either large amounts of capital or creativity around the succession model.

Succession readiness

Many farm owners do not have a clear vision or strategy for their succession or have not communicated it effectively to their successors or stakeholders. They may also lack the necessary tools or resources to implement their succession plan.

According to Alchemy Consulting, 20% of New Zealand business owners plan to sell within the next two years and up to 10,000 businesses could change hands over the next five years, many of which are in the agriculture sector.

The lack of succession planning can lead to costly and damaging consequences, such as:

• Loss of strategic direction and competitive advantage

• Conflict and resentment among family members and key stakeholders

• Reduced performance and profitability

• Increased risk of litigation and tax liabilities

• Loss of trust and reputation in the market

On the other hand, a well-designed and executed succession plan can provide many benefits, such as:

• Ensuring continuity and sustainability of the business

• Preserving family harmony and legacy

• Developing and retaining talent and leadership

• Maximizing business value and attractiveness to potential buyers

• Minimizing tax implications and legal issues

What a successful succession plan looks like

So how can farm owners create a successful succession plan? Here are some best practices to follow:

Start early

Succession planning is not a one-time event but a long-term process that requires constant review and adjustment. Ideally, it should start at least five years before the anticipated transition or even earlier if possible. The longer the lead time to more options there will be to make things work effectively for all parties.

Communicate clearly

Communication is key to avoiding misunderstandings and conflicts among family members and other stakeholders. Farm owners should share their vision, goals, expectations, and intentions for the succession with their successors, family, key farm managers and advisers. They should also solicit feedback and input from them to ensure alignment and buy-in.

Develop talent

One of the biggest challenges in succession planning is finding and grooming qualified successors who can take over the farming business. Farm owners should identify potential candidates within and outside the family and provide them with opportunities to learn, grow, and demonstrate their capabilities. They should also establish clear criteria and processes for selecting and evaluating successors.

Plan for contingencies

Succession planning should not only cover planned transitions but also unplanned ones, such as death, disability, or resignation of the current leader. Farm owners should have a contingency plan specifying who will take over in an emergency, what their roles and responsibilities will be, and how they will be supported.

Plan for the non-farming children

While it may not be financially realistic to divide the farming assets in a way which provides an equal share of prior toil to each child, having a plan that is fair and considers any non-farming that still enables those on the farm to make a go of it is key to avoid family resentment.

Seek professional advice

Succession planning involves many complex and interrelated aspects, such as legal, financial, tax, governance, and human resources. Farm owners should consult experts who can help them navigate these issues and provide objective guidance and support.

Key takeaway

It is imperative for New Zealand farmers to understand why succession planning matters and start preparing for it as soon as possible. By doing so, they can ensure the continuity and success of their farm, their business, and their family legacy.

To speak with an adviser near you to get more information on how we can help you and your farming business, contact us today.

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