Inheriting the farm no cheap transaction

An astonishing number of people think that sheep farmers are handed their properties on a plate, writes Ann Pomeroy.

They think that because the farm has been in the family for two or three generations, the farmer has inherited the property and hasn't had to pay for it.

WRONG. Intergenerational transfers cost money. Lots of it - even when payment isn't in one lump sum. For a son or daughter, nephew or niece to buy stock and equipment and add their name to the property title, acquire the farm outright or join the family partnership or trust, money changes hands.

This money goes into buying a retirement home for the retiring parents as well as funding parents' retirement living expenses. The purchase price may also be funding the grandparents' living expenses.

How do I know this? Thirty years ago (1984) I interviewed 119 farmers: 67 in Central Hawkes Bay and 52 in the King Country (Waitomo District). Each group of farmers made up 10% of all the sheep/beef farmers in each area. All were farming ''economic units''.

I revisited most of these farms in 2012-13 and either reinterviewed them or talked to the people who had taken over from them. While this is a small study, it is somewhat indicative of hill country sheep-beef farming elsewhere in New Zealand. It's from this study that I learned about farm turnover, succession and debt.

The key difference between the two study areas is that the drought-prone Central Hawkes Bay (east coast North Island) was developed early for sheep production, whereas the lush wet bush of the King Country (west coast North Island) was developed more recently for farming. This means that in 1984 a considerable 36% of farms in the east had been in the same family for three or more generations, compared to only 12% in the west. Half the King Country farms were first generation in 1984 compared to 40% in Central Hawkes Bay.

What about today? In Central Hawkes Bay 51% of that original sample of farms is still in the same family and in the King Country 49% (i.e. farmed by the same people I interviewed in 1984 or by a son/daughter or grandchild). So what is their debt situation?

In 1984 few farmers in either area were debt free (only 12% had no mortgages). Most (80%) of the farms that had mortgages had obtained them to pay off the cost of buying the land. So much for that free ride to land ownership.

And today? Since 1985 farmers have had no government-funded subsidies, and have continued to cope with droughts, floods, pests and myriad other problems and disasters. This means today about 30% of King Country farmers from the original 1984 sample families have paid off their debts (excluding operating expenses), while 26% of the original families in Central Hawkes Bay are debt-free.

Interestingly, 20% of the families who purchased their farms after 1984 were debt-free in Central Hawkes Bay. (No information is available for the King Country newcomers).

What happened to the 60 farms that were sold? I was able to get some information on 33 of the new owners. Of these farms, nine were divided up between neighbours or added on to a neighbour's farm to improve its viability. A further 21 were sold to families from farms elsewhere in New Zealand. One new owner was an overseas business investor and philanthropist. That property has since been sold to a New Zealand farm family.

The remaining two farms were purchased by corporate investors. Some of the properties were sold several times. It is very common for blocks of land in separate titles to be sold. Farmers often swap pieces of land with each other to improve access around the farm. Often pieces of land are bought some distance away to provide different soils, topography and climate to complement the home block, or as a potential retirement farm.

Why were the farms sold, and what happened to the people who had owned them? I have information about 34 of these families. Sometimes the stories are very sad. Tragic accidents and deaths meant that in some cases the next generation bought the farm, but sometimes there was no-one to succeed, and the property was sold outside the family.

Similarly some farm couples that retired did not have anyone wanting to take on the property. (Retirement is sometimes the wrong word. Several older male farmers continue to do casual work in their district because they love the lifestyle).

While many of these families have children, the greater occupational choices available today mean that sometimes neither sons nor daughters are interested in farming. Daughters are much more likely to be encouraged to farm today than they were in 1984.

A few sold their farm and moved to a different one (either nearer urban amenities or to easier country). Only one family left the land because they could earn more from investing their money into urban-based business ventures, and they just didn't like farming.

Thirty years on it's clear to me that families that choose to invest mega bucks into farm ownership are doing it because they are committed to sheep/beef production, are passionate about quality livestock, care about the land, and love the lifestyle.

- Dr Ann Pomeroy is a senior research fellow at the Centre for Sustainability at the University of Otago. Her 1984 field work was funded through a National Research Advisory Council Fellowship and the 2012-13 field work was funded by the C Alma Baker Trust.