Research shows farm ownership a viable goal

After hearing many reports of young farmers struggling to achieve their farm ownership dream in 2024-25, SMASH ran a significant project, supported by Ministry for Primary Industries (MPI) SFFF funding, investigating the paths to farm ownership.

The project aimed to identify how farmers have successfully bought farms in recent years, the characteristics of these farm owners, the challenges progressing farmers face on the path to farm ownership, and how the industry and existing farm owners can help progressing farmers to achieve their farm ownership goal.

During the project, SMASH talked to rural professionals from throughout New Zealand and conducted a large survey of almost 300 farmers.

They discovered that the traditional methods for building the equity to purchase a farm are still commonly used but are considered to be not as successful as previously. For example, sharemilking opportunities have reduced and may not, on their own, produce sufficient equity.

As a result, in recent years, prospective farm owners have started to utilise other methods, or combinations of methods, to build their equity. They included using a combination of financial prudence (cost management and minimising drawings), rearing surplus animals to grow their herd or for trading, off-farm income (such as contracting or a partner working off-farm), and monetary investments (for example, rental properties) to build their equity. They were also taking on multiple sharemilking or contract milking jobs.

When the time came to purchase a farm, the rural professionals noted it was important that farmers understood their goals and avoided overleveraging.

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The main sources of borrowing were tier 1 bank lending and family debt. Both the rural professionals and farmer survey respondents noted that equity partnerships and vendor financing are still mechanisms utilised for purchasing farms; however, their popularity has declined.

The project identified the key characteristics of farm purchasers. These farmers were goal-oriented, planners, driven, and very focused on success; financially literate and careful about spending; had a good industry reputation; and they were willing to actively pursue opportunities. They also had a strong network of supporters and advisors.

The general consensus was that when progressing, farmers need to be flexible about the kinds of positions and opportunities they look for and the region they farm in.

The project also investigated how the industry could support farmers on the path to farm ownership.

Existing farm owners have a large role to play. It was believed that they should be willing to step back and start the succession process earlier; mentor staff (particularly in the area of financial literacy); provide them with progression opportunities and a positive, financially rewarding employment package; help staff to build their equity, for example, through supporting them to rear stock or offering more flexible sharemilking contracts; provide creative ways of lessening upfront equity requirements e.g., vendor finance, shares in the farm, equity partnerships, or dividing the farm into multiple titles to allow gradual purchase.

The wider industry also has a part to play. The research found that there is a need for organisations to provide mentorship and networking opportunities, and a formal brokering service matching opportunities with candidates.

The surveyed farm owners also showed high levels of training and participation in industry courses. However, there was mention of providing more education and training around business management and progression.

Farmers believed that milk processors could help to finance farmers into buying farms, using mechanisms like Fonterra's MyMilk or Flexible Shareholding programmes.

They thought banks needed to be more flexible, supportive, and less rigid, and they were strongly in support of the government offering the opportunity for progressing farmers to withdraw their KiwiSaver investment for farm purchases.

Overall, it was believed that there are still good opportunities for farmers to progress into farm ownership; however, the process is more difficult now.

Prospective farmers need to be determined, goal-oriented, flexible, financially literate, and to actively look for opportunities. Building and maintaining the right support through mentors, advisors, family, and their wider network are all critical.

Existing farm owners and the industry need to actively step up to support progressing farmers.

The full Paths to Farm Ownership report can be found on SMASH's website: https://www.smallerherds.co.nz/knowledge-hub/progression/paths-to-farm-ownership/

Hard Work Pays Off

Michael and Lindy Bennett achieved their goal of 100% farm ownership four seasons ago, after many years of focused hard work, when they bought their farm near Te Awamutu.

Michael has always worked in the dairy industry, following the traditional progression pathway, while Lindy worked off farm as a rural professional. A 50:50 sharemilking role they gained, milking 470 cows for three years, was a critical step as their farm owners offered them the opportunity to step into an equity partnership.

Initially they took on contract milking for the partnership alongside their investment. The equity partnership then expanded with the addition of another farm and they spent an extra five years contract milking 1000 cows on two farms before the partnership was wound up. This built the foundation for the purchase of their current 82ha farm, originally one of the equity partnership farms, where they milk 515 cows.

Michael recommends equity partnerships as a great way to get ahead, with some provisos.

"Equity partnerships work well as a stepping stone, ours was very profitable. We were 30% owners and contract milking for the partnership, and we were not highly in debt, thanks to the sage advice of our farm owner. Just work on a worst-case scenario payout and don't gear up too heavily. Who you are in business with is also key."

Lindy's off-farm career working as an agronomist, and Michael's time spent driving trucks, also supported their progress, alongside stock sales, and investments in a lease block, rental properties and a holiday house.

Now they have achieved their farm ownership dream their focus has shifted to paying down debt, and they have diversified by running a beekeeping business as a side hustle.