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Land and Environment : Agribusiness Assoc. of Australia

Agribusiness Perspectives Papers 1997/98

Paper 6/2
ISSN 1442-6951

Putting The Family Back Into The Family Farm

Paper 2 (of a series of 6 papers)

Geoff Tually
Senior Lecturer
Institute of Land and Food Resources,
The University of Melbourne

[Paper: 1 | 2 | 3 | 4 | 5 | 6 ]

Every family farm business has the opportunity to provide business experience for farm family members and most farm family businesses will need to grow, if broad family goals (Paper 1) are to be achieved.

This paper looks at the following three (3) aspects:

  • Exploiting the opportunity to teach farm family members business skills;
  • The level or type of opportunities to involve family members in the farm family business;
  • Using the expertise of farm service providers.

1. Exploiting the opportunity to teach farm family members business skills

Children are taught at school and tertiary institutions by employees, who specialise in an interest area. There is little or no opportunity to gain knowledge and experience in how businesses operate and students leave with an employee focus.

Families, who own or run a business have the opportunity to teach all their children, both their business operation and necessary business operating skills.

Providing a farm family business focus, as opposed to only a farm focus, should widen opportunities for the children. I asked an external student of mine why he sought to split up the family farm with his 4 brothers and sisters and why not use the farm to start five (5) businesses. The reply "I had not thought of that". You should build on what you have and not divide it up.

Two (2) advantages.

i) Children having business skills will always have a fall back position, if off farm careers experience difficulties.

ii) Children having appropriate (for their age) overall understanding and involvement, should be less likely to be involved in family disputes based on lack of knowledge of the farm family business.

To gain the greatest potential for farm family business growth, children need to learn business operating skills and be involved (as appropriate) in the business in their 20’s.

2. The level or type of opportunities to involve family members in the farm family business.

i) The effect of size of the farm family business. The ability to directly involve children in the farm family business will depend on the cash available for family needs.

l $30,000 is considered necessary to satisfy the cash needs of one family (figure 2, paper 1). This amount needs to be increased to allow for inflation, private school education and larger number of children (recently the parents of a farm family of six (6) children, estimated their peak cash needs to be closer to $50,000/year).

l $50,000 to involve one child (after completing school) full time in the farm family business. When the child marries this amount would increase. This amount would increase where there were a number of children in the family, etc.

For those families unable to expand the family farm business to produce the added income needed, then the farm could be used as a base for developing an off farm business,e.g., fencing/harvesting contractor, etc.

ii) The type of involvement of family members. There is a range of involvement possibilities, depending on the farm family goals.

a) Gifting a share of the farm family business. This is not (generally) a viable proposition, both from a business or legal position. Businesses need to grow and gifting only divides the present business. Once gifted, the recipient can withdraw their legal share from the business at any time, e.g., where a partner (son or daughter) is killed and spouse wants to leave, or divorce. Apart from the effects on other family members (inequitable involvement), the farm may have to be sold.

b) Children buy into the farm family business (land and business) setting up a unit trust (or company) allows for children to buy into the family business. Buying provides the following benefits.

l increases the equity capital of the farm family business. All children can buy in, including those with off farm careers;
l children will value their interest in the business and changes the focus to business and away from an inheritance focus;
l children develop their own assets;
l reduces potential family conflict due to parents inability to divide the family business equitably between their children;
l children learn business and investment skills;
l reduces the impact of family dissension, e.g., divorce, on the business (you get what you put in).

c) Separate the land from the business. The farm business uses the land. By separating the land from the business achieves the following family benefits.

l provides a specific business focus for children;
l provides for parents security as land ownership remains with them;
l easier for children to buy a bigger share of the family business, quicker;
l parents providing an appropriate lease of the land to the business, provides security to the business;
l family members wishing to withdraw from the business can sell their units to other family members, e.g., when parents retire.

Through using the above suggestions, (or similar) broad family goals should be easier to achieve.

3. Using the expertise of farm service providers to assist with ON farm planning (Business Plan area)

Farm Managers are generalists. They look at how all ON farm resources need to be combined to achieve farm family goals overtime.

Service providers are specialists. Tertiary education trains specialists, who on graduation are employed in their specialist field, i.e., as agronomists, livestock advisors, accountants, lawyers, finance advisors, livestock agents, etc. Each tends to focus on their area of specialisation and their advice is given in that context.

With any business you need to look at ALL the aspects of the business. Concentrating on specific parts of the business will not compensate for little (in some cases, no) attention to other parts of the business. Imbalances can occur where an overall perspective is not followed e.g.,

l using contour banks to reduce water run off may reduce quantity of water to fill dams.
l spending large quantities of cash towards the end of the financial year to reduce tax liability, could well effect the whole business and is not generally cash use effective.

The following planning frame may assist with

l looking at the relationship of the components of the farm business and placing into context, advice sought from specialist service (farm and business) providers;
l developing a plan of how to involve family members in the farm business;
l developing a business plan;
l basis for a family conference/regular discussion.

Figure 1

Using the planning frame

The planning frame uses seven (7) very separate areas of an ON farm business. Not all areas will be involved with every farm, e.g., with cropping only farms, the livestock areas will be deleted, etc. All areas interact and by working through the planning frame weak areas are highlighted and needed advice and/or skills sought.

Example (broad overview only, far more detail would be needed, e.g., a separate page for each entry).

Present Pattern of Management (P.M.)


Goals (G.)

PM.1 Present cash needs of family $50,000

(Eldest parent 45 years)

G.1 Cash needs 10% higher (present value)

(Eldest child will be 25 years and working in the family business). Teach children about the business and allow them to buy into the business.

PM.2 Manual financial and physical records.

Actual profit, cash balance, assets, liabilities, equity

G.2 Computerise financial and physical records. Increase profitability 10% each year.
PM.3 Machinery inventories kept for tax purposes. Value of machinery (market and depreciated value) G.3 Develop machinery records and computerise. Replace seeder and tractor. All machinery in good working order.
PM.4 Livestock inventory kept for tax purposes. Sold by auction.

13 month calving cycle.

Weight gain not measured

G.4 Develop 12 month calving program and increase calving 5%. Increase weight gain of steers/heifers for sale to .6kg/day. Monitor carcass quality.
PM.5 5 year cropping rotation with pastures. 10% lucerne for hay. Sub and rye grass. G.5 Increase use of legumes/canola by 20%

Introduce oats 10% of cropping program. Introduce snail medic to improved pasture.

PM.6 Range of soil types use district benchmarks for sowing rates and fertiliser. Fence lines are original. G.6 Develop soil map and relate through monitoring yields (G.P.S. system) to fertiliser and soil moisture. Increase productivity 10% on heavier soils.
PM.7 Record rainfall. G.7 Include rainfall trends in yearly budgets, ie., incorporate trends into financial and physical budgets.

Operational management (O.M.)

Skills/resources/advice needed (A.)

OM.1 Develop 5 year family budget for cash needs. Develop a family ownership structure plan for providing opportunity for all children. A.1 Undertake a modern estate planning course and then seek advice of consultant with expertise in this area.
OM.2 Develop strategy for computerising records. Develop yearly budgets to achieve the goal of 10% profitability each year use a 25% below average rainfall as 2nd budget position. Graph cashflow. A.2 Undertake a hands on computer course and a financial package e.g. Quicken. All applicable family members to undertake a grain marketing course e.g. futures and forward selling.
OM.3 Develop a set of machinery records and maintenance schedule and enter into computer. Check all machinery according to determined maintenance standards in first year. Plan for purchase of seeder and tractor. A.3 Encourage son/daughter to do a welding and machinery maintenance course.
OM.4 Check calving records and develop plan to pregnancy test of all breeding cows.

Develop breeding plan chart and relate to business cash flow for marketing program.

A.4 Go on farm tours (both domestic and overseas) to look at other management systems. Visit agents/butchers and abattoir to find out exactly what they want and how your stock are graded.
OM.5 Develop crop planting program for 5 years. Use GPS and GIS to improve fertiliser usage. A.5 Visit crop trials within region and interstate.
OM.6 Develop a whole farm physical plan. Develop a plan to realign fences where necessary. Develop a plan for soil and foliar testing (monitoring of nutrient use). A.6 Undertake a whole farm planning course or seek assistance of a whole farm consultant.
OM.7 Graph annual rainfall to determine rainfall trends. A.7 Study information each month in the Australian Farm Journal on the S.O.I. (Southern Oscillation Index) and how it may effect your rainfall trend.

[Paper: 1 | 2 | 3 | 4 | 5 | 6 ]

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