Investment partnerships for farm growth

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When considering options to expand the family farm, most growers tend to call on their local bank manager. However, a global Nuffield Australia study has examined other ways family farms can expand without the limitations of bank debt

While relying on the local bank is the traditional way to finance a family farm, there are other, often under-utilised, finance options such as partnerships or investors to consider when expanding a farm business.

Image of James Dempster
Nuffield scholar James Dempster says there are a range of investment options to consider when expanding a farm business. Photo: Evan Collis

While relying on the local bank is the traditional way to finance a family farm, there are other, often under-utilised, finance options such as partnerships or investors to consider when expanding a farm business.

Mingenew, Western Australia, grower James Dempster investigated the numerous financing arrangements of farm businesses around the globe as part of his GRDC-supported 2016 Nuffield Farming Scholarship. He visited the US, Canada, Brazil, the UK, the Netherlands and New Zealand.

What he found is that traditional bank financing is not the only viable option available to expand a farm business and, in fact, other investment options can provide significant long-term opportunities for business development.

James says global institutional interest in agricultural land is more significant now than many growers may realise, with investors looking for opportunities to diversify portfolios, particularly into land assets.

He says while there does not appear to be a shortage of investor funds, the way a farm business is structured is critical to whether it is an attractive investment proposal.

“If you are considering a partnership, and looking to attract external funding, setting up your business to be investor-ready is extremely important,” he says.

“Before a family farm business can even be considered by institutional investors, it needs to consider critical functions such as governance, corporate structure, benchmarking, budgets, cashflow, human resource policies, record keeping, financial reporting and insurance.”

James’s study identified that large investment companies are already buying farmland globally, but what is possibly of more interest to Australian growers is how those corporate assets are managed.

He says his study uncovered three distinct styles of management of farm businesses that involve external investors.

The first and most traditional model is an owned–leased structure, which many growers and businesses are already using as an expansion tool.

“This is known as the ‘Westchester’ model, where an investor – which could be an institution, or even a grower looking to get out of the day-to-day running of the farm – owns the land and leases it out,” he says.

The second structure, James says, is where the investor owns the land, takes on all the financial risk and employs a manager to run the business.

Family farm investors

“The third structure is probably the most interesting, and that’s where there is a partnership between an investor and the family farm, involving a base lease payment, but also an incentive payment to the grower or manager, which can be based on any number of parameters such as yield, gross margins or profits,” James says.

“It’s this type of model that I see becoming more and more attractive to Australian growers, because the risk is shared and the capital outlay for family farms is reduced.”

In the Netherlands, James investigated a Rabobank initiative that matches up private investors with agricultural projects.

“There is huge interest in Europe from private investors in farm projects, but at the moment the issue here is that the investors are chasing a return that is higher than the current interest rate, meaning growers can currently borrow for less from their bank to expand their businesses,” he says (see Figure 1).

Graphic showing Australian interest rates have tracked downwards over the past 10 years
Figure 1 Australian interest rates have tracked downwards over the past 10 years. Source:, Reserve Bank of Australia

“But if lending criteria tighten and interest rates increase, this initiative could become an important option for growers.”
James also visited farm-management companies in Canada and the US that match family growers with investors.

“These companies find, acquire and manage agricultural properties on behalf of investors, and they actively work to connect investors with family farms looking to expand, and I can see a role for them here in Australia,” he says.

James visited numerous business collaborations around the world, where growers combined their business assets with like-minded growers to create large, efficient business structures.

“In New Zealand, I visited Morrison Farming, which is a business created by two brothers and a cousin who all joined their original farms together,” James says.

“Separately, they were considering leaving farming, because the price of land had gone up so much during the dairy boom that they couldn’t afford to expand.”

By joining forces, the three businesses became a corporate structure, with the three owners becoming directors on the board and also employed within the business.

“As one business, they have now significantly improved their workplace efficiencies, improved their financial position, and told me about many other benefits, including a better work–life balance and the enjoyment of being part of a team,” James says.
Succession still possible

However, he says transitioning a family farm into a collaborative structure does not mean children cannot participate in the farm business in the future.

“With this collaborative structure, the original land is still owned by the separate growers, and children can come into the business and take on a management role with the asset ownership remaining in the family,” he says.

As part of his study, James also investigated the possibility of crowdfunding to expand a farm business.

“This idea was a little bit different, and my investigations showed that crowdfunding has only worked where it was for non-financial returns – such as the public use of hiking paths on the farm,” he says.

“These types of investors need to see a greater short-term return on their investment than agriculture can usually generate.”

While farming may be exposed to fluctuating and uncontrollable seasonal conditions, James says Australian agriculture is a sound investment in the long term given land ownership is a significant component of the farm balance sheet.

He believes focusing on the long-term cost of production in a farming business is the key profit driver of farm businesses.

“My study reinforced my view that as broadacre grain growers we really need to focus on cost of production, and expansion can play a key role in that if it is managed well,” he says.

However, James says, debt can be a barrier either to young growers expanding, or to new entrants into the industry.

“With interest rates at 10-year lows, it’s hard to go past the traditional bank finance model at the moment, and accessing bank finance still appears to be a good way to grow a business, and it could be used in combination with other strategies,” he says.

“Australia is the land of opportunity – we have lots of land, and lots of opportunities to grow our businesses, if we can find the right partnership model.”

GRDC Research Code NUF00010

More information:

James Dempster
0458 191 183