Why is farm succession so challenging?
1. Society’s expectations have changed. While historically it was accepted practice for families to pass farms down to selected children, in part because the parent’s retirement was tied to the farm’s continued operation, as we have become a more egalitarian society we have increasingly demanded equal division of wealth between children. Favouring one child no longer meets societal norms.
2. Farms have a minimum economic size. Most farms are about as small and carrying as much debt as possible while supporting a family. Divide most Kiwi farms further and the parts won’t be economically viable units. They would certainly become unviable if divided multiple ways over successive generations.
3. Farmers are motivated by land ownership. Many of our farming families came here from Europe to own the land they work on rather than spend their lives as tenants. It is rational to invest more effort and passion developing land and livestock that you actually own. The less a farmer feels they own the farm the less motivated they will be to improve it. Working for your brothers, sisters, aunts, uncles and cousins is not as motivating as working for yourself and your children.
These three economic and social factors create a headache for farming families. If they want to keep their farm in the family, it probably has to remain intact and without much more debt. If that farm is to be optimally managed it would be owned by the person asked to run it. The farm probably can’t support more than one family but the non-farming children won’t find an unequal division of family wealth palatable in the context of modern societal trends.
Succession is therefore a formidable challenge. It has to be completed during the final phase of the parent’s working lives, unlike most inheritance which tends to happen after the parent’s death. It tends to treat children unequally. It needs to be completed while simultaneously protecting the farm as a business and establishing the succeeding child for their farming career. It needs to ensure that the parents retain a reasonable lifestyle in retirement and it needs to ensure, as far as possible, that non-succeeding children are content that the process and outcome were fair.
Although society’s attitudes to inheritance have changed, in some respects laying siege to the traditional process, whatever the future holds for New Zealand, family farming and succession will remain an intrinsic feature of rural life.