5.6 Succession
There was a diversity of views about succession. These included:
- that it is no longer normal to consider ‘selling’ a farm to the next generation even at commercial rates
- that many of the younger generation will have difficulty in inheriting the family farm, even if there is no need for a deposit, or interest rates are low
- that monies, when realised, should be used for one’s own retirement
- that few farms can realise money that can be shared equally amongst all children - boys and girls - as well as ‘provide’ sufficient to establish one of their number on the farm
There are many problems associated with succession, both now: "all generations have been subsidised into farming in the past and now they’re expected to go cold turkey"; and in the past: "He’s never liked farming… [it was assumed] everybody wanted a farm - he didn’t, but he was given one - he didn’t like to turn it down. I blame his father for that."
One ‘older’ family have been wanting to hand over the farm but have been unable to do so quickly, because of huge losses following the share market collapse; "We’d like [our son] to take over the farm- we’re gradually handing over more land - it’s a partnership. We’ve borrowed more on our farm to get them into the enterprise…"
There are a number of families where the sons were working on the farm and would ‘inherit’, and daughters would get the lake bach/house [ a number of families had houses at Lake Taupo ] , or the farm "house which is probably only worth $10,000". Several daughters in different families had been given a house on marriage or helped, with their husbands, into businesses or other farms.
Financial obligations and ties between family members figured prominently in people’s talk. Money, in a number of instances, had been loaned by parents in the form of a deposit, or at low rates of interest, so there was that felt moral obligation for several families as well as a sense of responsibility to the older generation/s, especially if they had broken the farm in.
"I’d watched dad cut scrub five times - it should be in trees but we couldn’t borrow - its not a lending proposition." "My father broke that road into the back - broke the farm in - you feel like you’re letting him down."
There was a story of a relative being unable to "hand over the reins" and monitoring moves so closely that people felt stifled and lost confidence, and several families who feel they can’t, or don’t want to move until their debt to their parents is paid out. In another family a male is keen to take over the family farm but prevented from doing so, because it is owned by two close relatives who are nearing 60 in the process of winding the farm down. Two families talked of how one of their parents "had pissed the farm away against the pub wall" or "sold it at the pub and the TAB".
One farmer expressed his keen disappointment that neither of their sons was interested in farming, "though both would have made good farmers". All his siblings had bought farms round the district, and "up till now most [of their sons] went farming. This generation is moving away from farming - [they] can see better alternatives - it’s a little disheartening [to] see all the work that’s gone in for 2, 3 generations being brushed aside - [they] don’t see it as a preferred lifestyle".
Another couple expressed their relief when they decided to move from the family farm – that the farmer could make the break and concentrate on other business interests, and that their sons need not carry the albatross of a heritage round their necks.
One family is having difficulty in deciding who they should sell their farm to. Succession is not an issue, but they have questions about who should have the option of purchase. They do not want to sell to rich landowners yet do not want a "small farmer to carry the debt load of buying their farm".
The whole picture of succession has changed for these farm families. One of the strongest norms to emerge was the certainty that children should not be foisted with the family farm; the other, that all children should be treated equally. "We’ve got a large family- it’s not fair on the other kids just to hand on assets to one- I will have to sell up." "The older brothers and sisters got houses bought for them when they got married - [we] couldn’t do it now."
A number of children or young people said they hoped to be able to return to stay on the farm when they were adults, because a family member would own it.
5.7 Farm money matters
This section is not an economic analysis of farming, nor of farm accounts. Focus is on money matters that arose in discussion with farm families. There are a number of areas of focus or concern.
Interest rates: the rise in interest rates in the 1980s has crippled some people’s ability to stay farming, and/or to leave the farm. One family, as noted earlier, had a rise from 7 to 17% within a short period after buying their farm. Others, especially those who borrowed, and could borrow, up to and over 85% on the farm and stock, have been unable to lessen their dependence on financial institutions. "If you have 85% bank loans it’s hard to climb out." To sell their farm, a number of families suggested, would be to walk away with less than they started, and this would be insufficient to either pay family debts, buy another viable farm, or establish a business. Such families saw themselves as trapped, or "as stuck, but stuck happily". Others walked. "It was a slow twist - glad when it all came to an end."
Values: the bottom line of this conundrum is that land prices, according to a number of texts, and experts, such as Sam Brown, Commissioner of Crown Lands, have been inflated beyond their value, including settlement blocks, so that returns will always be insufficient to cover high debt servicing. "The farm we bought had been viable for 100 years - it’s not for us. Initially we bought 600, added on 200. Had problems getting finance - they’re long narrow rehabilitation blocks- a lawyer’s delight."
The ratio of land value to purchase price, and the level of debt servicing to gross income are some of the critical issues for families in both a financial and emotional sense. One couple, whose farm is now vulnerable, acknowledge their farm is not a paying business "but it’s his dream - he said he would commit suicide if he couldn’t farm". Another: "you look at the farm -wonder why you’re doing it. Deep down you know you’d be better off if you sold".
This is difficult to comprehend if one looks at such comments only, or primarily, from an economic perspective. Farming, as it is being practised in the mid-Rangitikei in 1997 cannot be viewed solely in terms of economic efficiency. There would be few farmers who would pass a ‘rational’ economic audit. Farming is more than ‘money’.
One farming family were successful, a reference farm for advisors, locals and Massey university students, so successful that the family purchased as part of their retirement plan a farm in another part of New Zealand. The price went down on their nearly debt free farm. They leased the other farm, then the manager on that farm went broke, and they couldn’t sell it. They lost a huge sum of money, and their confidence was "knocked for a sixer.
I really feel I should have got out of this place - it was very difficult - I’d built it up. Scrub grows back - we let fences go - no topdressing for nearly five years. It’s only just now recovering. I really enjoy going round the farm...[it was] pretty devastating. The worst thing is that this farm has been touch and go..."
The impact on this couple in their late 50s and 60s is ongoing, for both partners. He continues to farm and his wife is doing further education and working at a number of jobs. The woman said: "I would like to retire... and not have the responsibility [but] we don’t think about retirement. Two jobs are necessary for payment". It seems that a growing number of farms are now dependent on at least one source of off farm income.
Borrowing: People talked of purchasing a 600 acre block which had been viable for 100 years, but is no longer so; being told by financial institutions and farm advisors that in previous years 3000 stock units were needed for viability, but now that figure stands at 3500 and increasing quickly. One family, now with a freehold farm, had had difficulties in raising finance because they had capital and no farming experience – "they wouldn’t lend me a cent. We borrowed at 10%- everyone else was at 3%. Brother-in-law borrowed 100%".
We heard of people borrowing money at 32%, of one family with 9-14 loans, of people paying interest on interest following huge losses after the share market collapse. "The downturn has been twice as bad for anybody who had a mortgage." There is a belief that younger people cannot get finance, and therefore are unable to get started in farming without substantial help from family. Sam Brown, Commissioner of Land, makes a provocative and telling point: "there is no lender of last resort that’s geared towards the philosophy of the continuation of individual family units".
Banks have lending ‘rules of thumb’ lasting for many years. One person with their finger on the pulse suggested that commonly banks were looking at, in terms of gross income:
25% debt servicing
50% farm workings
25 % drawings- this includes clothing, food, running of car except on farm business, household expenditure.
This was queried by a Rural Marketing Manager for one of the major banks. He suggested the debt servicing figure would be around 30% maximum, and that these figures had not changed for years. He also commented that the bank had probably been "too tight in the good years and too loose in the bad years" and that the bank was committed to the rural sector. "All farming customers have a relationship manager who is an expert with an understanding of farming; he or she will understand the effect of a drought on cash flow, and cycles on farms."
This is in contrast to many of the comments we heard which suggested that banks are tightening up, becoming less flexible, and making decisions "primarily on the statistics in front of them on their computers" - far removed from any personal considerations or involvement made possible when bank managers were located in towns such as Taihape and Hunterville. One farmer stressed the following point: "we’re in business - we know our business. Anyone’s that survived now has had to do it the hard way - bankers don’t understand or give the farmers the respect they deserve".
The two banks in Hunterville closed between March and June 1997, meaning many people, including those without transport are having difficulties with money matters. There is no hole in the wall, or ATM machine. To obtain such a machine in Taihape was said to have caused a big fuss, one of the main arguments being "there was no one on tap 24 hours a day to service it if something went wrong". Money from businesses is couriered on a daily basis through to Marton or Taihape.
Community service cards: one of the notions which provoked an immediate and intense response in the area was that of farmers being on community service cards. There were few who saw it positively, and many objected strongly. The NZISS office initially suggested there were ‘lots’ of farmers on such cards, but when questioned further thought only about 10% of their clients were farmers. "They’ve got to eat."
Decisions about eligibility are made on whichever is the greatest amount: gross turnover less business expenses including depreciation resulting from turnover [or] drawings from business, including value of goods and services received from business. Children are sometimes sent in to get the forms which can then be posted directly to Wellington.
(NZISS Taihape May 1997).
In February 1997 the cut off point for a family of four was $36,346. These rates rose on July 1 1997. Many farm families said their drawings were less than this amount.
Staff in an accountant’s office thought "no farmers would be on these cards- they wouldn’t even know they would be eligible", while a number of others suggested that those who were on the card would be "those who could afford a creative accountant, and therefore didn’t deserve to be on the card".
Urban and rural - talking past each other: one ‘farmer’s wife’ illustrated the relativities of ‘farm monies and town monies’ when she said "until I got married the only money I had to deal with were my wages". That is a vastly different scale of money management compared to the sums involved in farming- in purchase of, for instance, land, stock, equipment up to $1 million dollars or a fertiliser run which can cost $30000, or more.
Urban people are ‘assumed’ to work on income and expenditure outgoings on a weekly or fortnightly basis. It was suggested few farmers know what happens on a weekly or even monthly cycle. For farmers financial matters are tied to a seasonal cycle. To live in the red for most of the year, or consider spending $5000 on a trip to Australia – "because it doesn’t make much of dent on a mortgage of nearly quarter of a million" is an alien idea to many townies, particularly people living on a benefit, or low income, for whom $5000 is a fortune. One family living in the area cannot buy the house they are renting because they are unable to save the $2000 deposit.
One of the questions commonly raised in living standards studies is: could you raise $1500 within a week in an emergency? That amount is nonsensical to farm families, and it would be hard to gauge what the corresponding sum would be. Living with an overdraft for up to 10 months of the year appeared to be a ‘normal’ part of life for many of the farm families we interviewed. In an ‘emergency’ the overdraft would be accessed, or the limit lifted.
One farm consultant suggested $30,000 drawings were seen as equivalent to a $70,000 p.a. income in the city. [ attempts to verify this were not successful] Few families we interviewed had drawings of that amount. Professionals living in towns such as Taihape have a top wage of around $50,000, though some doctors, lawyers and accountants are likely to earn more. Large sums of money, such as the $15,000-30,000 likely to be spent on fertiliser on a regular basis, are not part of the spending patterns of those on a fixed income. Even for those in self-employment outside farming the high sums of money and valuation of assets such as land and stock are hard to grasp. This can lead to a huge gulf in understanding of money - from both rural and urban dwellers. Farming couples used to dealing in sums of thousands may watch the cents, but ‘they think and assume big’. Manufacturers and other business people may do likewise, but their home is not so inextricably linked to their business.
Housing is ‘cheap’ in places such as Taihape, but everyday items of food such as groceries, travel, communication, and service costs are expensive. Money - income, assets and expenditure, is relative. Comparisons are misleading for they disguise costs and values of housing, transport, rates, overseas holidays - matters which, for town and country alike with good skills, can be put in one account or another. "It is your duty to avoid tax, not evade tax" we were told. The phrase ‘asset rich and income poor’ is so overused that it disguises the confusion that we uncovered in talking about money matters.
The whole question of money, farm families, power, and relationships with financial institutions, advisors, taxation; relationship and compliance with ACC and OSH, and need for education on employment opportunities, needs an analysis which is beyond the scope of this project. The area is riddled with bias, myths, suppositions and ignorance - of options, other people’s situations, non-understanding and apprehension. Much of the discussion in texts and in ‘city talk’ is based solely within an economic framework. Farming has both an economic and social base. This is fundamental to any understanding and needs lateral thinking, as well as further study.
Contact for Enquiries
Rural Affairs Coordinator
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0675
Fax: +64 4 4 894 0745
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