You don’t have to sell the farm!
Can farm owners hold onto their asset base and still earn income from it?
Succession is currently very ‘front of mind’ in the agricultural industry. Leading commentators see private farm succession as the single biggest challenge to overcome during the next decade. When you consider that the average age of farm owners is bordering on 60, and the forecast capital to replace their exit over the next decade is in the region of $60 billion, it is easy to see why there are concerns.
Those retiring from the industry are wanting options that provide them with a reliable income that is inflation protected. The traditional retirement plan has been to sell some or all of the assets to family members, or to outside interests through the traditional channels. However retiring farmers are currently exposed to historically low interest rates on cash deposits, and are either unfamiliar with, or averse to the risks associated with higher return investments, such as shares or commercial property investment.
There are alternative options, however they require a different mindset, with the realisation that for many, farming has become a business rather than a lifestyle.
To encourage young people into farming requires commitment from everybody concerned to create a pathway for progression, make visible what success looks like, and provide support to connect the individual parties. Current options available include:
Leasing, with the lease cost linked to commodity prices (Modern Lease).
Wages plus performance based incentives.
When done well, these options allow farmers to retain key staff whilst providing young people with the opportunity to progressively gain management control and get rewarded for achieving results. Those with `skin in the game’ consistently produce superior results to those who do not. Bringing new people into a farm business provides exposure to different skillsets, enthusiasm and fresh perspectives. Results produced by our best young farmers show the considerable potential that exists within farming.
If you would like more information, please contact your Findex adviser.