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Stackyard News Jan 07

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    Family Farms - the Backbone of British Agriculture

With a firm belief that the family farming business will continue to be the backbone of British agriculture, John and Rachel Geldard were early to recognise that they had a responsibility to provide for the next generations.

Charles, Richard, John and Rachel Geldard

Charles, Richard, John and Rachel Geldard
“We knew that our sons at an early age wished to farm, so we planned towards providing them with that opportunity while they were still in their twenties,” said John Geldard.

Now frequent family meetings play an essential part of business management at the 500-acre owner occupied mixed livestock unit Low Foulshaw, Kendal, Cumbria farmed by John and Rachel Geldard in partnership with sons, Richard and Charles.

The necessity for farmers to start planning the future with their families at the earliest, as in any other business if they are to ensure succession and the continuation of a vibrant rural infrastructure, is the message from Professor David Leaver, principal of the Royal Agricultural College. Equally, as the UK livestock sector restructures, so the allied industries must adapt, he stresses.

“More than 90 pc of the UK’s 253,000 farm holdings are managed by family businesses,” said Prof Leaver, “however, only 30 pc of farmers expect the business to pass to a member of the family when they retire, compared with 50 pc five years ago, according to a recent Defra ERDP survey.”

The survey, which took in 504 farm businesses, reported that 24 pc of lowland pastoral farms had no successor, while a further 25 pc were uncertain of succession; similar patterns were indicated in the arable sector; while upland farms had the highest level of assured succession at 41 pc, a trend possibly due to the limited availability of off-farm options.

“While I think this reduction in expected succession is mainly a reflection of the structural changes taking place in the industry, most parents want the business to continue in the family, therefore the issue needs to be addressed early on, and for some that will be before their children leave for college or university and then to be finalised on their return,” he said. “Problems arise when succession plans start too late.”

John Geldard, a fellow of the RAC / Rumenco 100 Club which has highlighted the issue, said: “The role of the family farming business is unique. For example, one aspect which is the envy of all is the speed at which decisions are made.

“Unlike corporate structures with lengthy procedures, following research, decisions can be made around the breakfast table at our weekly meetings. The secret is everyone is involved; we work together.”

“Since we put our first step on the ladder 30 years ago on a tenanted unit with £5k capital, we have been profit led. Adding value has been a pre-requisite throughout our farming career, and various developments led us in the 1990s to implement policies to develop a support free, profitable farming business.

“With the farm in good heart, we decided to establish an off-farm diversification enterprise which would enable me to stand back and ensure succession by enabling Richard and Charles to take forward the beef, sheep and free range poultry enterprises.

“That diversification, Plumgarths Local Sourcing Hub has also enabled me to fulfil a vision, to reconnect the food chain.”  A redundant family farm steading was converted with ERDP funding assistance, five income streams have been developed, the business has created in total 50 new and part time jobs, and it has a projected turnover of £5m by year six.

“I firmly believe that the family farming business will continue to be the backbone of British agriculture. However, the most essential component will be profitability. Family farms cannot continue being propped up at all corners by various forms of payments. Instead, they need to develop and adopt business plans which will enable the farm to be self supporting.”

He added: “One of the great opportunities of being involved in the RAC / Rumenco 100 Club Annual Fellowship Beef and Sheep Report is to have gained a very clear understanding that agriculture has to take many great strides to get closer to the marketplace.”

Prof David Leaver

Prof David Leaver

Prof Leaver urged that the planning process should commence at least informally while the children were in their teens and formally, in their early 20’s, to ensure the business remained on a viable trajectory, and to generate enough income for the retirement of those leaving the business, as well as to sustain the incoming generation. Family meetings should determine goals and aspirations, whether they are personal, business, or financial,” he explained.

“Where appropriate, they should take professional advice on tax, wills, and business structures. They should separate the assets from the business in planning, and consider use of these assets for non-farming purposes. A subsequent action plan should be developed with objectives and milestones, and finally, it must be implemented. Ongoing monitoring and revision will be essential at regular family meetings.”

More than 90pc of the UK’s 253,000 farm holdings (each defined with a minimum threshold of eight ESU) are managed by family businesses. This tends to be even more true in relation to upland farms and farms where livestock are the predominant output.

Rapid inflation of land values and rents, the high start-up costs of capital intensive farming, and the wide profit margins needed to repay interest, means that setting up a second farm for the children is now an option few farmers can afford. High land and capital values also make it very costly for a successor to buy out the interests of other family members.

One solution followed by British farmers has been to move towards incorporating all willing heirs within an expanded family firm, a strategy which is resulting in even more family partnerships and increasing numbers of two-generation farms. This often means that higher numbers of family members are dependent on the farm business.

There is a growing recognition that the rate of succession will be a key determinant of future structural change in the industry. An England Rural Development Programme (ERDP) north west region survey concluded that the likely level of succession ranged from 30pc to 70pc.

The detailed survey of 504 farm businesses reported that on 24pc, succession definitely would not take place and that succession was uncertain on a further 22pc of the sample. The survey also reported that only 30pc of farmers expected the family business to pass to a member of their family when they retire, as compared with 50pc five years ago.

The level of succession is also strongly dependent on a number of other factors. These include the economic viability of the farm business and the farm business size, with smaller, economically marginal businesses less likely to secure succession. Greater off-farm employment opportunities may also reduce the likelihood of succession.

The relatively high proportion of farms without a successor could result in the number of farmers over 60 to 65 years increasing as they stay on. When they eventually do retire, the farms are more likely to be lotted for sale and the land parcels incorporated into neighbouring units.

link Working Together For British Farming In 2007
link Farm Tenants should not be Disadvantaged on CAP Payments
link Hidden Cost of Family Labour on Farm

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