Succession and Farm Wealth
Farm balance sheets are looking as healthy as they have ever been. With strong commodity prices and low interest rates, farm land prices have continued to sky rocket in most areas.
According to the Australian Farm Values Report 2021 prepared by Rural Bank,
- Farm land values grew in all Australian states for the first time since 2005;
- Australian farmland compound annual growth rate is 7.6 per cent over 20 years;
- The median price per hectare of Australian farmland increased by 12.9 per cent in 2020, the seventh consecutive year of growth.
An essential ingredient to an effective succession plan is a viable business. A business that generates sufficient profits to fund two or more families within the family business, whilst continuing to grow. This has not always been the case and the more typical situation was for the younger generation to live on ‘bugger all’ with the promise of getting the farm after 30 years or so!
For the first time we have seen consistent strong returns and is a reason why more and more people can see a viable and bright future in farming and want to be part of it.
How does this increased wealth and bright outlook impact a succession plan?
We recently reviewed a farming clients succession plan and succession deed. It was an interesting case study to see how in a relatively short time the business of farming has changed. There had been a lot of ‘chatter’ amongst the non farming siblings as to how many more millions the farm was now worth, how easy farming is - the shearing contractor turns up and the shearing is done, cropping and harvest is completed effortlessly with big machines and they get to go on 2 holidays per year!
It was almost as if the parents and farming children felt guilty for what they and the industry has achieved in a relatively short time frame. They are all still working long hours but the hours are ‘better spent’, are much more productive, and there is a focus on timeliness.
From a succession planning perspective nothing had changed. Yes the net assets had increased considerably, but a key requirement of the succession deed was to pass the farm land and business through to the next generation. So, whether the land was worth $10 million or $30 million, the current generation of farmers were the custodians of the land for future generations.
The succession deed was reviewed with a few minor administrative changes made and a frank realisation that despite the positive outlook, this is possibly as good as it gets in farming and preparing for what might be around the corner is essential. Operationally there are still a few areas to keep improving and if the opportunity to purchase additional land does not become available other investments will be considered.
Whether you have already implemented a succession plan and review regularly or are about to embark on this journey, there are a number of key fundamentals that are relevant irrespective of the value of assets.
Contact our
Mulcahy & Co Agribusiness professionals to find out more.
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