Friday, February 23, 2024

Finances a bar to green plans after succession

Neal Wallace
Report looks at barriers to adopting new farm and environmental practices while farms are undergoing succession.
Reading Time: 3 minutes

Finance, not intent, is the primary barrier to families investing in environmental initiatives while going through farm succession.

A report by NZIER commissioned by Thriving Southland and its member Catchment Group Co-ordinators, looked at the barriers to adopting new farm and environmental practices while farms are undergoing succession.

The report noted that as environmental measures grow in importance, there is a fear the financial and management pressures from farm succession can influence decision making.

There is also a view that generations have a different approach to environmental measures, with younger generations feeling they cannot make the changes they want as they could be counter to the direction taken by their parents.

The research found however, that this was not the barrier initially perceived.

“The older generations enjoyed sharing the responsibility and having stimulating discussions about how the farm was run, while the younger farmers acknowledged that the older generation held critical knowledge and therefore respected their decision-making ability.

“This is wise, as research suggests that in the years after succession, farms may operate at a loss while the younger farmers are coming up to speed.”

The study used research on family farm succession and environmental decision-making, along with interviews with Thriving Southland Community Catchment Group Co-ordinators and three farming families at different stages of succession.

Succession generally takes about a decade with the final stages usually coinciding with the older generation’s decline in physical abilities.

“This highlights the importance of starting succession early so that the transfer of knowledge can occur before the older generation needs to retire,” the report notes.

One assumption from New Zealand literature is that younger farmers want to farm differently to their parents. They are more likely to adopt new technology, are less risk-averse, more influenced by social norms, less focused on financial outcomes and more likely to implement sustainable management plans to help meet environmental targets.

“These intergenerational differences in ways of farming and prioritisation of environmental outcomes may cause some tension around succession.”

There is an initial apprenticeship period as the new generation suggests new ways of running the farm, but in general the study found older generations were open to those suggestions or would provide a rationale as to why they would not work.

“The younger generation remarked that when they interrogated why the farm was run the way it was, there was a solid rationale, and they respected that they had to learn how the farm worked before trying to make significant changes.”

Farm profitability, which is usually compromised due to the costs of succession, rather than a lack of will, is the main factor restricting environmental change, and it can be further delayed by the costs of succession.

“Interviewees assured us that had they wanted to make changes for environmental reasons, their predecessors would be open to such suggestions.”

Financial pressures faced by incoming generations drive management decisions, such as higher stocking rates, farm expansion such as leasing land, higher lambing rates, better grass options and improved genetics.

“Despite these changes, both generations remarked that the incoming farmers had not significantly changed the farm in terms of the day to day. It was essentially the same farm business, with tweaks.”

Succession can have a significant impact on older generations or parents, with several people interviewed noting that when farmers move off their land they lose purpose and often their health declines. 

“This means they tend to want to stay on farm in their existing house and ultimately, the incoming generation cannot fully move onto the farm property.”

This can mean a farm having the added costs of buying or leasing a house and property to fund their parents’ retirement.

One family interviewed has diversified outside the farm to provide alternative succession options existed while another was building up savings and investments so their children wouldn’t have to fund their retirement.

“Even though they had relatively successful successions, they were thinking about making the process easier for the next generation.”

The report urged farming families to start talking about farm succession openly and sooner rather than later, to engage with professionals and to have clear vision and goals.

Succession needs to ensure the farm retains its strategic operational, management and financial capabilities and remains financially viable.

“Ultimately, the families we talked to had a similar vision for the farm, good communication and a strong pool of expertise to draw on.

“These are key factors in promoting easy, smooth succession and are likely to mean the younger farmers do not desire to drastically change the farm.”

MORE: Want to share your thoughts on this issue? Text us on 027 226 8553 with the keyword SUCCESSION followed by your comments.

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