Plan early for your farm’s future

Properties in the high rainfall zone have experienced the highest annual growth rate in the past 10 years, of 10.49 per cent.

ABARES also identified Australian milk production would lift 1.8 per cent to an estimated 8.3 billion litres in this financial year, with individual herd production driving that growth.

Because the farmland price indicator is based against broadacre cropping regions, it is skewed to one type of production, but the region with the biggest growth rate in land values is Victoria’s Wimmera district, followed by west and south-west Queensland, then the Darling Downs and Central Highlands districts, in Queensland.

What this amounts to is the value of agricultural land is growing steadily, and this is a reflection of positive business performance and growth in the farming sector in the past 10 years.

This growth in wealth challenges what has been a traditional norm for transferring agricultural businesses and assets to the next generation, and was the topic of a breakfast-timed panel at Farm World field days recently.

A panel of speakers agreed that planning ahead helps take the emotion out of decision making. It should also take into account the aspirations of the current owners and future generations.

The breakfast panel of speakers has become a regular gig at Farm World in recent years, tackling complex topics specific to the agricultural industry.

This year’s panel speakers were Jacob de Klerk and Suresh Ravichandran from CommBank, Margaret Willett from Willett Lawyers, Ferguson Agribusiness general manager Courtney Ferguson and Matt Harms from On Farm Consultants.

Planning ahead helps to future-proof the business and can take many shapes, CommBank’s regional agribusiness banking general manager Dominic Westerndorf said.

He introduced the topic.

“Farm succession planning — which secures a strong future for the farm — is one of the most important aspects of farm management, but it can be challenging to know where to start,” he said.

“Planning ahead can go a long way towards ensuring the transition is smooth when it is time to retire or pass the business to other family members — or someone else.

“Succession planning should also take into account unexpected events and what should happen within the farm business, and with the farm assets, if any of the current owners aren’t available to make decisions.

“At a personal level, planning ahead also enables you to manage your private wealth, taxation and retirement plans.”

Succession planning also helped clarify roles and responsibilities within the farm business.

When it took into account the aspirations of future generations, it gave them time to learn the business skills — formally or informally — they needed to contribute to the business.

Dominic said a succession plan also enabled current owners to map out their retirement plans and what, if any, ownership or part-ownership of the business looked like for them.

It also enabled the farm business to cater for the inheritance needs of family members who did not want to be involved in the business.

Defining the business structure was a key part of succession planning, according to one of the panel speakers Courtney Ferguson.

The only farmer on the panel, Courtney is Ferguson Agribusiness general manager, of which has grown from landholdings of 810 hectares to 11,332 ha, diversified into other business including renewable energy, and is structured as a company with formal advisers outside the family.

Courtney, one of three siblings, said every family member contributed to co-designing succession within the business.

With three young children of her own, she said the next generation were also involved in simple discussions about cash flow, business direction and viability.

“I was about 10 years old when my parents and siblings and I had our first conversation about succession planning,” Courtney said.

“I didn’t understand most of it, but my understanding has progressed from there.

“Now my siblings are involving their children in these conversations, as am I.”

Independent business advisers included in those discussions are the bank consultant, accountant and lawyer.

Courtney said it was important to identify the business entity and its assets, as separate to personal wealth.

“With land values now, no-one earns enough to take on that financial risk, by buying all the business’s wealth and assets,” she said.

Ferguson Agribusiness also has an exit strategy for each owner.

“If you don’t have an exit strategy, maybe you don’t have the right people in your team,” she said.

“We’ve set up the business so it has a future beyond the people who set it up.

“That includes keeping an open mind about what the business is investing in.

“Talk about opportunities as they become available.

“We conduct due diligence to identify business opportunities for growth, and some of those opportunities are outside farming.”

Matt Harms said succession planning enabled everyone to think and talk about the type of business structure that would be applicable to their farm.

It also helped manage people’s expectations.

“Succession planning is about transferring business ownership,” he said.

“That transfer can be within or outside the family.

“In succession planning, business wealth may be treated separately to the assets in the business.”

Matt said sharefarming in dairy was an example of succession planning where the assets — land, water licences, equipment, cattle, etcetera — were treated separately, often with different ownership structures, but enabled wealth to grow.

He recommended succession planning discussions should involve the family as a group, but also individuals separately, and include bankers, solicitors and accountants who advise the family members.

“It’s important to clearly identify the expectations of everyone involved, now and going forward,” he said.

“People need forward planning for their own families.

“Managing expectations is critical. As advisers, sometimes we need to call out unfair arrangements.

“It’s also incredibly important to remember that asset transfer is not an entitlement.”

Matt recommended reviewing succession arrangements when there were changes in equity or debt within the business.

It was also helpful to have up-to-date business accounts, including asset registers.

“Succession planning is an ongoing process,” Matt said.

Margaret Willett said young people involved in the business deserved to know what their future is in the business.

Decisions needed to be made about what business structures would best enable transition of assets and wealth from one generation of ownership to the next.

“Succession planning arrangements identify what assets are in the business, their dollar value, how they’re owned, and how they can be disposed of or transferred,” she said.

“Starting the succession planning conversation early enough in the principals lives also enabled them to accrue diversified assets off farm and on farm.”

CommBank’s Agri executive Jacob de Klerk said banks had specialist advisers and information available to also assist in succession planning conversations.

CommBank sponsors the industry breakfast held at Farm World.