These are increasingly seen as options to traditional farm ownership for young farmers looking for a foothold in the property ladder without being saddled with debt and farm owners looking for a way to stage an exit from the industry.
Rabobank National Farm Ownership Operations manager Brent Irving has been involved in over 100 of such arrangements to get more young farmers into ownership positions.
No two cases are the same, he said.
Many of the arrangements he is involved with are around someone buying a share of the livestock, land and buildings. “Then that forms the equity partnership,” he explained.
The arrangements occur across all forms of farming from red meat and dairy through to horticulture.
In one area of Otago where Irving is based, there were about 60 sheep and beef farmers with farms in 2000. Over the past 20 years, around 12 of these farms have been absorbed by neighbours.
“In 2000, there was one equity partnership in that area. Now, 36% of the 48 farms left are either managed or in syndicates,” he said.
In the North Island, Bayleys’ Gisborne, Hawke’s Bay and Wairarapa offices are organising an equity partnership seminar on August 12 because of the difficulties in achieving farm ownership.
“What we have all identified and realised through the sales of farms over the past couple of years is the opportunity for younger people or first-time farm buyers to get into farms is becoming less and less – it’s almost non-existent,” Bayleys Gisborne director Simon Bousfield said.
During the sale process of selling some sheep and beef farms, he said they received lots of inquiry from investors and farm managers looking for equity partnership opportunities.
“It’s just a matter of pairing one and one together. An investor wants a good young fellow with a bit of skin in the game that’s going to be a good manager and have an incentive to improve the property,” he said.
Adding there had been a substantial growth of interest in this over the past few years as well as farm owners looking at stepping back from the farm and developing an exit strategy.
“There’s more than enough capable farm managers that would make exceptional farm owners but don’t have the equity behind them to do that themselves,” Bousfield said.
Bayleys Hawke’s Bay agent Tony Rasmussen said the key to success with these partnerships was being open-minded and having a relationship that lasts the distance.
Farm leasing was another option that he said will be more popular in the future. It was an option some farm owners may consider.
“The demand is there for farm leasing and it’s a matter of putting two and two together with the right guy that wants to lease the property that’s going to work well with the guy that owns the property,” Rasmussen said.
REINZ rural spokesman Brian Peacocke said these kinds of arrangements allowed younger farmers a stepping stone for farm ownership, while allowing the owner the chance to phase out of ownership at a time when there was a glut in farm sales.
Irving said the arrangements are not easy to do and take time. One case he was involved with took two years to put together. Another case which had just been finished took 4-5 months.
The time it took often came down to whether the farmer looking to buy into the farm had the equity and the compatibility of the parties involved.
This was critical because the parties would be in business for several years.
Just as important as the shareholders agreement was the conversation between the parties that went with that agreement.
That conversation generally ironed out what each party wants as well as an exit strategy for the farm owner, if required.
In one such case, the farm owner collected a dividend while the equity manager that has bought into 50% of the farm, their dividend is going to the owner in lieu of shares, which they accumulate over time.
While the average age of sheep and beef farmers in New Zealand was in the late 50s early 60s, Irving believed it was in fact in the 50s.
These arrangements gave these farmers a gradual exit strategy while retaining a foothold in the farm and a steady income.
“It’s becoming more common, particularly where they are seeing more successful models working for them next door.”
New regulations around freshwater and animal emissions was in part driving the decision for many older farm owners to seek an exit strategy.
Younger farmers looking for ownership opportunities tend to be more comfortable with these rules and have the enthusiasm to work within these rules, while the older farm owner brought knowledge and experience.
If the two group’s goals and personalities matched, it often invigorated the older farm owner, he said.
Irving believes these systems will keep evolving as the next generation of farmers sought ownership opportunities.
“I personally think that if we want to keep taking agriculture forward, we need to keep introducing youth and good intelligent people into farming.”