Monday, February 26, 2024

Hort, dairy ‘need new finance models’ 

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As barriers to entry grow along with land value, a rethink about ownership and risk is needed.
Property Brokers general manager rural Conrad Wilkshire says there is real opportunity to trade land-only entities and stock-only entities to get the next lot of farmers on the land.
Reading Time: 3 minutes

Innovative finance models are needed to give new entrants a foothold in horticulture and dairy.

So says general manager for rural at Property Brokers Conrad Wilkshire. He said business succession in horticulture in particular is a real challenge.

“If you think about how we get that next generation into horticulture assets, it becomes even more challenging. If you’ve got an asset worth $1.5 million a hectare, you don’t need that many hectares to make quite a dilemma,” Wilkshire said.

Most established growers are at an age where they want to carry less risk.

“Their capacity to cope with change or take on new risk is getting close to the end of the runway,” he said.

Wilkshire said industry leaders are proposing long-term lease models as a solution to get new entrants into the market.

“Not necessarily lease-to-buy, [but] long-term leasing, like 15 or 20 year leases, where you’ve got rights for renewal, you’ve got the owner’s interest protected, but equally there’s enough on the table to attract new investment.”

Rather than having their capital tied up in owning land, young growers could benefit from having their capital go towards a new production system and having 10- to 20-year lease terms, Wilkshire said.

“It doesn’t have to be the capital of the incumbent landowner that develops the orchard, but the incumbent landowner will get the benefit of that, as will the next generation,” he said.

The chief executive of New Zealand Kiwifruit Growers Inc, Colin Bond, said the prosperity of the kiwifruit industry has had a direct impact on orchard value and therefore the capital required for ownership.  

“The increased cost of entry means that more individuals will now be utilising additional avenues to obtain orchard ownership by way of, for example, minority shareholdings, or leasing orchards, which reduce the capital investment,” Bond said.

“There are existing examples of owners enabling succession planning by setting up employee share schemes as a path to ownership. 

“It would be advantageous for the kiwifruit industry, similar to other primary industries, to become more innovative in its ownership structures to better enable pathways into and out of the industry,” Bond said.

Wilkshire said the same holds true for dairy. 

DairyNZ’s solutions and development lead adviser, Paul Bird, said leases are one pathway to growing a dairy business and can be considered alongside sharemilking and equity partnerships. 

“They can make it easier for people to enter the dairy sector, particularly when rising costs create barriers. These models can offer similar returns to sharemilking but often provide more security where the lease term is significantly longer than the common three-year sharemilking agreement,” Bird said. 

 “They can also be a way of managing farm succession, providing opportunities for farm owners who want to keep the business in the family but may not have children to take over the operation.”

DairyBase data from the 2021/22 season shows 8.67% of farm owners lease more than 75% of the effective dairy hectares they farm.

Before entering a lease, it’s important for dairy farmers to find good advice and have a fair, clear and practical agreement, he said.

They should also undertake due diligence about the property and ask about lease prices for comparable properties in the area. 

Real estate agents, bankers, accountants and farm advisers will know the current lease prices, Bird said.

Property Perspectives: Real estate opportunities and challenges for growers

In this episode, Conrad shares his perspectives from the trip with host Gerhard Uys, including some challenges for growers and their businesses right now. They also delve into some alternative ownership models that the next generation of growers may want to consider.

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