Sharefarm option slow to become accepted

Press, 10 February 1989, Page 18

Sharefarm option slow to become accepted

The increase in the number of sharefarming and partnership agreements on sheep, cattle and cropping farms during the last 10 years has been disappointing, says a Lincoln College lecturer.

Mr Rod Plank, a senior lecturer in farm management, said the college’s Property Management Service had assisted with about 80 agreements since the service was formed in 1978. Agreements arranged by other organisations and groups would probably double that number. “But this is a very small number when one considers that in dairying, with half the number of farms, there are about 4000 sharemilkers.” The Property Management Service was established to promote sharefarming and farming partnerships and to provide potential sharefarmers and investors with standard sharefarming and partnership agreements. “In 1978, it was felt that sharefarming and farm partnerships would provide opportunities for the settlement of young farmers, encourage investment in agriculture and allow retiring farmers to give up active management, but still retain a financial interest in the land. Farmers and others involved in agriculture still believed sharefarming or farming partnerships were a viable alternative form of ownership, he said.

A recent survey of a range of people involved in farming and the agricultural servicing industries showed that there was a positive attitude about the benefits of sharefarming and farming parnerships. The respondents had trouble finding reasons why these types of agreements should not become more common in sheep, cattle and arable farming. The service defines sharefarming as an arrangement where the land owner provides land and buildings and the sharefarmer provides stock and machinery. The gross income is shared 50/50 and the expenditure split broadly on the basis of the owner meeting the cost of maintenance and standing charges and the sharefarmer providing the labour and meeting the costs related to his stock and machinery. With a partnership, there is a management partner who manages the farm and receives a wage. He and the other partners have varying shares in the land, stock and machinery and share the profits or losses from the farm business. • The service will hold a seminar workshop on sharefarming and farming partnerships next Wednesday. Speakers will include

people involved in equity sharing, investing and corporate agriculture. Financial detail from a sharefarming example, provided by the service, suggests that even at very low lamb prices there was a return for a land owner similar to the yield on other “blue chip” equity . investments. The example, (see table) was calculated from a sharefanning venture where the owner provides the land and the sharefarmer owns the stock and machinery. At low lamb prices, the example shows the landowner receiving a return similar to the yield on a “blue chip” investment, and the sharefarmer making a small loss ($2300). However, Mr Plank said the sharefarmer’s “cash surplus" figure included a living allowance which could be reduced by $2300 to allow him to break even. The farm is a typical 4000 stock unit sheep and cattle property. Prices used are “best guesses” for the 1989-90 season, and expenditure is based

on actual costs for 1986-87 (the latest available) with an adjustment for cost increases since that date. Expenditure does not include interest or debt repayment. Mr Plank said the results were sensitive to price changes and the sharefarmer’s returns were more sensitive than the land owner’s. As prices improve, so will profits. A small improvement in lamb and wool prices would make this sharefarming proposition a viable option suggesting that at present land prices there were returns to be made from traditional sheep and cattle farming. Mr Plant said these estimates did not take into account the present drought. Many farms of this type were found in non-drought areas as well as Canterbury. The problem could be handled by using conservative production levels. Full details of production, prices, costs and the capital involved will be given at the equity farming seminar.

Sharefarming example Land owner Lamb prices Wool prices

Cash surpluses at various lamb and wool prices available to a land owner and a sharefarmer under a typical sharefarming agreement. The figures in brackets refer to the return on equity capital.

$/head c/kg 500c 550c 600c $10 $25,300 (6.3%) $29,800 $34,300 $20 $36,650 $41,150 (10.2%) $45,650 $30 $48,000 $52,500 $57,000 (14.3%) Sharefarmer $10 -$2300 $2200 $6700 $20 $11,050 $14,550 (14.6%) $18,050 $30 $20,400 $24,900 $29,400 (29.4%)