2015-05-22  

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Failure to Discuss Future Threatens 40,000 Family Farms

Exclusive research shows lack of succession planning as a major threat to family farms.

More than half of farming families in the UK have no succession plan for handing on their business to the next generation and 17% of potential successors have no idea whether there is a plan in place or not according to new research.

The research was conducted online by Farmers Weekly in association with NFU Mutual and was completed by over a 700 families during March 2015.

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© Copyright Walter Baxter
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The results revealed a lack of planning from families on how to pass the farm onto the next generation and that this was largely driven by a lack of communication between generations.

54% of owners said they had no succession plan despite 64% of farming families believing that a lack of succession planning was a threat to the future of the farm.

For those families with a succession plan, ensuring the future of the family business and tax efficiencies were the primary reasons for creating it. The conversation is difficult to have, the business can only support one successor and the owner does not want to retire were mentioned as the major challenges.

What is fair isn’t always equal

Primogeniture remains a significant part of farm inheritance with 36% of families choosing to pass the farm on to the eldest son. While hardly an equal mechanism for wealth distribution, it has traditionally been viewed as the fairest and reflected a time when family came before business.

But in at a time when farm businesses are having to re-structure and re-size to survive in a volatile global market, the results showed that this approach might be changing, with business now sometimes coming first. 35% of owners planned to share the business amongst more than one child and 14% to a child that wasn’t the eldest perhaps reflecting the rising value of farm land and the need for the right child to take over the business.

Generations divided

There was a significant generational difference of opinion, with 74% of successors saying it was a threat to the business and 42% of owners saying that it wasn’t.

More successors than owners felt the farm should be passed onto the eldest son while more owners than successors claimed to share the farm between more than one sibling.

There were further differences of opinion on why succession planning was important. Successors were significantly more likely to say it was important to ensure the future of the business, remove family tension and enable the older generation to enjoy their retirement. While tax efficiencies and a need to be fair to all children were more important to owners.

Twice the amount of successors said the main challenge to creating a succession plan was that the conversation was difficult to have and that the owner did not want to discuss it. Successors were also more likely to say that family conflict was a challenge to succession planning. Owners were more likely to say they cannot afford to retire, and that potential successors don’t have the right skills or aren’t interested.

Respondent profile

We split respondents into owners (those likely to be passing on a farm) and successors (those looking to inherit a farm). The average age of owners was 57 and successors was 36, although 27% of owners were over 65 and 29% of successors were under 25 years old. The majority of owners and successors were male although 11% more successors were female than owners.

Industry Reaction

Sean McCann, chartered financial planner at NFU Mutual, said:
“These findings are deeply worrying. Most farms are family run, which can often make it difficult to discuss who will take over the business, or how it will be divided between children.

“However, in today’s highly competitive global market, family farms which don’t have a clear succession plan and a long-term future mapped out risk falling behind and becoming financially unviable.”

Michael Mack, rural business consultant at Smiths Gore, said:
“A lot of the findings are very worrying – even if sadly they aren’t surprising. The lack of communication between generations and the lack of clarity in their plans is a real area of concern.”

“It is important to get succession right so it is fair to everyone – not just because of business issues like tax and efficiency.”

William Frazer, Editorial Projects Manager at Farmers Weekly said:
“At a time when farm gate prices are rock bottom and with land prices up 254% in the last 10 years the decisions facing farming families about the future are complicated.

Traditionally farmers have been slow to retire, however with a volatile commodity market and strong growth in land prices, there is more at stake. As this research shows, farming families quite rightly are trying to figure out how a farm’s value is fairly distributed, but sadly for many it is a real struggle.”

NFU Mutual

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