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By Elaine Barclay,
Roslyn Foskey and Ian Reeve
June 2007
RIRDC Publication No 07/066
What this report is about
This project involved the
replication of the International Farm Transfers Study Survey in Australia.
The International Farm Transfers Study compares trends in farm succession and retirement across continents. While previous studies of the succession process have tended to focus upon the transfer of physical assets, such as land and other fixed capital, this project examines the transfer of the intangible assets of farm businesses between generations on family farms, such as the transfer of managerial skills and specific farm knowledge.
Who the report is aimed
at
This report is aimed at
policy and decision makers who are involved in aged pensions and farm succession
education programs as well as landowners who looking to make more informed
decisions about their inheritance.
Background
The transfer of the family
farm business from the older to the younger generation is a fundamental
aspect of farm development. Unlike other businesses, family farming is
characterised by an intimate connection between the farm as a place of
work, career and family tradition. What impacts upon one aspect of farming,
will impact upon all. As the vast proportion of Australian agricultural
businesses are family owned and operated, how families plan and manage
succession, inheritance and retirement is a concern for the whole agricultural
industry. Previous studies have noted the difficulty and complexity of
succession planning as farmers seek to meet three conflicting objectives:
to maintain a viable farm business for the next generation, to treat all
of their children fairly and to provide for their own retirement.
Objectives
The purpose of this study
was to provide a comparison of Australian trends in career progression,
farm succession and retirement with those in other countries participating
in the International Farm Transfers Study. Specifically, the project sought
to examine and compare the transfer of intangible assets of the farm business,
such as managerial skills and specific farm knowledge between generations
on the family farm, between various cultures.
Methods
To date, studies have been
conducted in England, France, Ontario and Quebec in Canada, Iowa, Virginia,
Pennsylvania and California in the USA, Japan, North Germany and Poland.
For the Australian study, the survey was mailed to 5000 farm families across
the country in the winter of 2004. The response rate to the survey after
allowing for ‘return to senders’ was 36%, providing a sample of 1180 farm
families for analysis.
Results
Most of the respondents
to the survey were full-time farmers with at least one family member working
on the property. Despite some evidence of shifts from the family farm toward
large corporate farms in Australia, most farm families are tending to remain
within traditional legal structures of property ownership, such as family
partnerships or sole operations, and employing only family labour.
Traditional legal structures can be used by farmers as a legitimate means of protecting values pertaining to property, family and inheritance. However, the study found that younger farmers favoured newer forms of business structure. Therefore, there is opportunity for change.
Retirement
More Australian farmers
prefer semi-retirement than those in other countries. Most plan to retire
or semi-retire at age 65, which is older than the planned retirement age
of farmers in Canada, France and England. Australian farmers who plan to
retire at older ages (70 and over) tend to prefer semiretirement.
Yet, one fifth of the respondents reported they intended to retire or semi-retire at an age younger than 55 years. A greater number of these farmers were on smaller farms.
Half of the respondents planned to move from their current home when they retired or semi-retired.
Most intended to move to town, which allows for continued involvement at various levels in the farm business. In comparison with other countries, Australian farmers’ planned sources of retirement income are fairly evenly spread across a range of options. A slightly greater number of respondents planned to support themselves in retirement through the sale of farmland and other farm assets.
Several respondents reported that they would prefer to support themselves in retirement through the aged pension but their legal involvement in the farm business meant that they are ineligible. These farmers are not keen to transfer ownership of their land and forgo security in their declining years and be entirely dependent upon the pension.
Compared with other countries, there is generally more discussion relating to succession and inheritance issues within Australian farm families. More Australian farmers discuss their plans with accountants. Twelve per cent of Australian respondents had not discussed these issues with anyone although this was a low proportion in comparison with farmers in other countries.
When asked what they would miss about farming when they retired, values of independence, hard work and purpose in life were reflected in many of the respondents’ comments: values traditionally associated with farming. Nevertheless, the hard physical demands of farming and the difficulties imposed by drought and financial stresses were aspects of farming that respondents reported they would be pleased to leave behind when they retired.
Succession
Across the whole sample,
just over half had identified a successor for their farm business. These
successors were most likely to be a son. Most daughters are excluded from
inheritance of land.
Daughters are provided with a good education as compensation. Successors were better educated than their parents. Many farm families see farming as a low return business and are increasingly encouraging their children to gain tertiary qualifications in areas outside agriculture and then if the children choose, come home to the family farm.
Farmers tend not to consider succession before the age of fifty but compared to farmers in other countries, they are at a younger age when they select a successor. Farmers on smaller farms were less likely to have nominated a successor. Properties greater than 50 000 hectares were also less likely to have a successor. This is possibly because many large outback properties tend to be run as companies rather than simple family farm business structures.
In Australia, as in Canada and England, successors were most likely taking a direct route towards taking over control of the property; working alongside the older generation on the family farm. As found in most other countries, farm size clearly impacts upon successors’ options. Successors on smaller farms were more likely to be working off-farm. More Australian successors were taking a professional detour, either running a non-farm business, employed on another farm or working in offfarm employment than successors in most other countries. The other option was the separate enterprise where successors were working on the farm but held full responsibility for a particular enterprise within the farm business; in most cases these were cropping or livestock enterprises. Others were in the best position of having a full partnership with the older generation. Most of this group also held full responsibility for a separate enterprise within the farm business.
There were similarities between Australian farmers and their English counterparts in attitudes and patterns in transfer of managerial responsibility to successors, which occurred at a much slower rate than in other countries. However, this may be a consequence of more farmers who have retired depending upon the farm as income in retirement. In such circumstances, the older generation may never relinquish legal control, often retaining ownership of the land until death and therefore maintaining a measure of control over the farm business. On Australian farms, as is the case on farms in all other countries, financial decisions are the last responsibility transferred to the younger generation. The major differences were that successors on Australian farms were less likely to have control over decisions regarding the long-term balance and type of enterprise, and decisions relating to the purchase of machinery and equipment. This may possibly be due to the larger size of operations in Australia than elsewhere, and the size and cost of machinery.
Factors influencing succession
and inheritance
Several factors impact upon
farmers’ plans for succession and inheritance including the possibility
of divorce within the family and the subsequent loss of all or part of
the family farm in family court settlements, the impact of assets and income
tests on eligibility for pensions and the impact of government taxes, the
financial pressure caused by escalating costs, the persistent drought and
the need to preserve the viability of a farm business.
The study revealed that a rural ideology, which largely emanates from predominantly Anglo Saxon traditional approaches to succession and inheritance significantly impacts upon farmers’ attitudes and values and consequently the way in which they approach retirement, succession and inheritance. Most respondents believed that passing the farm onto a sole heir was the best way to maintain the farm within the family and to maintain a whole, viable farm business. Other respondents believed that all children should inherit equally. Some reported they would sell the property in order that all their children would receive an equal share in the inheritance.
Two-thirds of the respondents were farming land that had been in their family or their spouse’s family for several generations. Most farms were in the family for an average of three generations. Those who reported a long history of familial connection to their land were mostly of English heritage.
Respondents who were descendents from a diverse range of ethnic backgrounds, such as Russian, Hungarian and Basque, displayed a clear preference for ensuring all family members have an equal share of the farm business.
Several respondents commented that succession planning was an extremely difficult and complex process for everyone involved. Many called for more information on farm succession.
Recommendations
It is recommended that:
 
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