Saving for Herd Ownership
While there are various pathways to get into farming, the first step is cash or assets to establish your equity.
Working on farms with cheaper rent and often a lower cost of living, with access to free meat, firewood and other essentials is helpful but it is a very slow way to save enough money to purchase land given the rapidly increasing land prices. The key is capital gains, either through use of growth-type investments such as share property, or benefits from ‘farm owner’ goodwill or leasing, which allows you to grow out your own stock on someone else’s land and build up your stock numbers. Leasing land as an initial step while still fully employed will build on the skills needed in management and budgeting and be of great value as you grow your own business.
Lenders take experience and ability into account especially with low equity loans for first herd or land purchases. The initial steps into dairy herd ownership via variable order share milking are organised and well documented on the www.dairynz.co.nz/farm/financial/budgets/ website. This includes useful draft spreadsheets covering the following:
- How much do I need for this share milking job?
- Variable order share milking calculator spreadsheet
- Personal budgets
- Annual cash budgets
- Monthly cash flow budgets
The ANZ has a $50,000 unsecured loan facility available that may allow farm workers to take the first step in variable order share milking. This would help cover some of the labour expenses until cash flow is paid out with milk production.
Equity syndicates can also be a great advantage for both sides. Investors get a committed, skilled manager with a vested and financial interest in the farm, consistent farm management and fewer staffing issues. The equity manager gets to share in a much larger property while taking a full wage, which can be reinvested if required. It may also enable the equity manager to borrow money at prime rates due to the high farm equity and investor’s credit ratings. Several banks have specialist managers who advise and match up managers with farm owners and investors.
The overall debt on the operation and everyone’s expectations of dividends and income need to be discussed. The time of agreement also needs to be long enough for the results of a young skilled manager to show through in profits and farm capital growth. Contracts need to be well thought through and researched by all parties before signing to ensure all involved have a clear and solid understanding of their rights and ownership in the event the partnership dissolves.