Effective management, monitoring and succession processes within a large family farm - a family farm case study

Author: Leo Delahunty | Date: 05 Feb 2018

Take home messages

  • Production is key and productivity enhancement vital.
  • People skill set — striving for continuous improvement.
  • Empowerment of all involved in the operation.
  • Get farm structures right.
  • Risk management.
  • Measure and benchmark.
  • Have an open and trusting relationship with all stakeholders (partners, service providers, etc.).

Background

Templemore Partners is a family owned and operated farming business based at Murtoa in the Wimmera region of Victoria. Farming 5500ha of mainly black and grey clay soils comprising of 4540ha family owned and 960ha leased.

The farming activity is based around cropping with some trading of livestock. Crops grown (in 2017) were: wheat (1720ha), barley (950ha), canola (650ha), lentil (1820ha) and faba beans (430ha). There was another 340ha of long fallow. The business generally trades sheep over the summer months, buying, fattening and then selling off in the autumn.

The partners in the business are: Leo (65 years old) and Bernadette, Andy (56 years old) and Lyndel, Chris (36 years old) and Brooke and John (28 years old) and Eve. Their partnership interests are represented by individual family trusts. Chris and John are sons of Leo and Bernadette.

There is also a full time employee who joined the business in November 2017.

Issues that have been front and centre of the family business over the last five to 10 years include:

Production

  • Improving production.
  • Managing increasing cost of inputs.
  • Managing consequences of the millennium drought.
  • Management roles and responsibilities.
  • Changing grain market structures and price volatility risk management.

Farm and people structures

  • People empowerment and job satisfaction and responsibilities.
  • Succession/progression planning.
  • Enabling new entrants into the business.
  • Long term sustainable business structure.

Current issues include:

  • The ever increasing challenge of herbicide resistance and appropriate management techniques.
  • Climate change and its consequences — what changes are ahead for our farming system?
  • High land prices — are they really high? What/where is the next investment?
  • Managing labour shortages during peak periods.

The Delahunty family business (Templemore Partners) operates from a clear and agreed base of business and personal principles. These are stated within a set of guiding principles.

Guiding principles of Templemore Partners

The founding members of the Templemore partnership have agreed to the following core principles, which form the basis of the deed of partnership and the operating agreement:

  • The roles, responsibilities, risk and reward for all partners and employees should be transparent and fair.
  • Roles should be clearly defined and should facilitate partners and farm employees to move between roles subject to their ability, aspirations and the business’s needs.
  • People should be rewarded according to their contribution to the business, and as such, a clear differentiation (Figure 1) should be made between:
  • Business ownership, taking on of risk and share of profit.
  • Employment by the business as a manager or worker and receipt of a salary or pay cheque.
  • Land ownership and the receipt of rents.

    Templemore Partners is the business entity, the Business owners receive a profit share, landlords receive rent and management /workers receive salaries.

    Figure 1. Reward according to contribution to the business.

    The business entity, Templemore Partners, is a partnership of individual family discretionary trusts. This entity pays commercial salaries to operators, rent to landlords and profit to entity owners.

    These people in many, but not necessarily all cases, may be the same people.

    Agreements

    There is a formal partnership agreement (deed of partnership) in place that is supported by an operational agreement. The operational agreement is an appendix of the partnership agreement. The partnership agreement is reviewed infrequently; usually when a change in partner status occurs. In contrast, the operational agreement is a 13 page document and is reviewed annually. Within the operational agreement there are statements that include, but not limited to:

  • The guiding principles under which the business is conducted.
  • Decision making methodology and voting power.
  • Structure of the partnership; including proposed roles, managers and workers, landlords and business owners and review of annual partner responsibilities.
  • Operating processes; work in progress, financing of entrants to the partnership, assets and liabilities, dividend policy, insurances and retirement planning.
  • Additional processes that include policy statements behind much of what is written above.
  • Other sections include individual needs and aspirations and their implications on the business, business values and relationship principles, and farm business performance objectives.

    The farm has a clear set of values that are recorded and placed in a publicly visible location in the office.

    Values and relationships

    Throughout all processes of progression, productive and constructive relationships must be maintained. To achieve this, open, written ground rules are required. These ground rules are important to resolve conflicts and make judgements about which behavioural matters are acceptable or unacceptable.

    All family members agreed that they want to treat and be treated by others in the group:

  • openly
  • honestly
  • with trust
  • transparently.
  • They also want to:

  • Have fun.
  • Be appreciated and appreciative.
  • Be respected and respectful.
  • Have confidence in others.
  • Be acknowledged and acknowledge others.
  • Respect differences; skills, interests of others, etc.
  • Provide opportunities to learn, grow and make mistakes.
  • Be pro-active in conflict resolution.
  • Have regard, support and be conscience of the communities in which we operate.
  • The farm board

    On reflection, over many years, planning has been at the forefront of the way business has been done at Templemore. In 2008 we formalised some of this when we established a farm advisory board. The board comprises of all family members and three independents with finance, production and strategic management experiences. Its charter is to act as though it has a governance role (even though advisory in nature) and to focus on the areas of strategy, finance and governance of the farm business. One of the independent members chairs these meetings.

    In our opinion, it is essential that there be three independent advisory board members rather than only one in our multiple family farm business. This number has the advantage of keeping the topic of conversation wide and enhances a focus on business performance and opportunities. The risk of a lesser number is that an independent could end up primarily as a family arbitrator. The key success measurement of a board should be continual business development.

    Examples of board outcomes include:

  • A deliberate resolve to focus on investing in cropping land locally, after considering three different regions, resulting in a 260% increase in land equity over the last ten years.
  • A rearrangement of the farm ownership and business structures that gives all participants a clear understanding of their personal position within the farm at any particular time.
  • There are many other issues that have been dealt with including the value of farm storage versus GrainCorp, owning versus contracting machinery, sheep feed-lotting, other agricultural investment opportunities and internal land ownership adjustments.
  • The board usually meets between 8.30am and 1.30pm four times a year. The agenda typically consists of an operational report that focuses on issues of management and safety, seasonal outlook and grain market report including a current Mark to Market, finance reports that look at cash flow, profit forecasting and a balance sheet review. The agenda will often include guest speakers that usually give a detailed overview of their business and the issues they encounter. These businesses are usually family based but not always in agriculture. There is always time set in the agenda for structural and strategic opportunities that then might be investigated.

    These planning examples have gone a long way towards the success that comes from a satisfying and rewarding workplace.

    As well as the high level strategic approach of farm board meetings, the farm has operational meetings on most Monday mornings that includes all involved at the operational level. The agenda is made up of paddock specific issues, equipment and input management, general maintenance and a grain marketing status review. There are priorities placed against each item with the responsible person nominated to oversee implementation. These meetings are less likely to happen during cropping and harvest.

    Key management and production dates

    Key dates in the management and production planning year of Templemore Partners family business:

  • November (before harvest) — review and preliminary planning for new season of paddock by paddock performance.
  • Early January — formal production planning meeting with agronomists and partners.
  • Late January — first of four advisory board meetings:
    • Financial performance review.
    • Sign off of previous year’s financial accounts.
    • Agree on distribution of profits from previous financial year, if available.
    • Preliminary budget of new production year (March to February).
    • Review of debt and investment approach for coming year.
    • Grain marketing and weather forecast.
  • January/February/March — paddock and plant preparation for new season:
    • Paddock renovation, gypsum cartage, etc.
  • April — second of four advisory board meetings:
    • Sign off on new season budget.
    • Review of safety procedures.
    • Guest speaker timeslot — looking to learn from others experiences:
      • Typically other businesses talking about their issues and how they are tackled.
    • Other policy development and review.
    • Benchmarking performance review.
  • April — commencement of cropping program (allowing up to six weeks).
  • June — tax planning, in-crop monitoring and management (through to harvest).
  • July — third of four advisory board meetings:
    • Similar to other meetings.
  • October — last of four advisory board meetings:
    • Harvest preview along with previous meeting agenda.
  • November — commence harvest (allow six weeks).
  • People skill set

    The combined skills and experiences of the partner’s within the Templemore Partner ensures the business works well. They include; people management, production, financial and strategic capacities. Some of these skills are stronger with some over others and is usually reflected through the job descriptions where a lead and a secondary responsibility is assigned to each person.

    Benchmarking

    The partnership participates in a regional benchmarking program run by Agripath Pty Ltd that looks at the farm’s operational performance and compares it to a number of like-minded farms. These benchmarking figures are then referred back to our long term data to test our performance over a longer period of time.

    Long term farm and paddock production performance is monitored and used as part of the assessment process in determining the value of land purchase or lease opportunities. This historical data is also used in reviewing the performance of different crop types over the years. It also is used to validate internal land valuations for rental purposes.

    Software systems

    All paddock operational and grain production data and much of the marketing data is accessible via cloud based software systems. This is very important for management decision making and very helpful with communication between partners. Group messaging has also become a vital method of communicating actions by the partners to all partners in ‘real time’.

    Identified outstanding matters

    Tasks that still need to be implemented include a formal partner review process and a review of how the partner’s spouses are included when they find it difficult to attend board meetings due to family commitments.

    Conclusion

    There is a high level of personal satisfaction within the farm business that needs to be at the forefront for a successfully run family farm business.

    Contact details

    Leo Delahunty
    leo@templemore.com.au