Tuesday, 30 August 2011 09:49

Progression plan a work in progress

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Unfortunately, many families can't broach the topic of succession planning at the kitchen table, so it was refreshing to hear WA farmer Peter Evans discussing his family's approach in front of 200 people.

Peter spoke at the Dairy Innovators Forum in WA earlier this year about the ongoing transition of rights and responsibilities between himself and wife Sue, and their son Grant.

Peter says it's not a succession plan, but a progression plan.

The Evans milk 840 Friesians on 442ha of their 800ha property at Busselton. The family last month won the Western Australian section of the Dairy Business of the Year awards, with a cost of production of $3.97kg of milk solids. Each cow averages 990kg of milk solids each year.

The transition of this high-input, profitable business from Peter and Sue to Grant is underway. The details evolve over time but the plan's success to date can be credited to a big picture approach.

"You can't have plans set in concrete as circumstances change," Peter says.

"But you can have an overriding principal and be prepared to let it happen.

"I'm happy to let go. People want to keep controlling kids but you must be prepared to let go and respect them for that they are, which is a real life skill. There's a lot of trust involved."

Peter speaks from experience. He returned to the family farm when he was 17 to form a partnership with his parents.

The partnership became acrimonious because of differing visions of the roles of father and son so the partnership was split when Peter was 20. He began buying land off his parents and then more land to double the size of the holding.

Peter and Sue have wanted to leave management of the farm for the past decade.

Grant, now 28, left school at 17 and returned to the farm for a year. He left the farm, gaining further experience on cropping farms and feedlots, and returned when he was 22.

Grant was concerned he had not acquired enough experience to share the demands of running the farm. "We told him we're still learning and we're on our way out," Peter says.

Six months after he returned the neighbour's farm was put on the market for sale so they bought that as a trust with Grant and Peter as trustees.

Grant started on wages but two years ago they entered into a profit sharing agreement. They take out a market-based salary each and with Peter wanting to do less, he will receive less salary.

Profits from each year – minus the wages, 20% of the value of the herd and return on infrastructure which are distributed accordingly - are divided between the two partners.

The profits are divided according to land ownership. The dairy is given twice the value of the home property that produces silage, and three times the value of the third property.

Peter says he and Sue will look at renegotiating the ratio if Grant believes it should be but it has proven an accurate assessment, as last year they received a 7.6% return on the capital of the dairy, 4.15% on the home place and 2.77% on the third block.

Grant was keen to buy the cows recently with his share of the profits but discussions with a financial adviser revealed it was better to buy a 60% interest in the partnership, as this provided more flexibility.

"The succession plan has been risky, there's been a lot of trust involved as we've had no documentation until now," Peter says.

"He's borrowing money on commercial terms from the bank to buy cattle so requires an agreement between us."

The transition has made it easier for Peter and Sue to get away from the farm when they want. They moved house six months ago and Peter says Grant's expectations of him have reduced because he is now 10km away.

His thoughts of leaving the property altogether, which started ten years ago, have diminished.

"I'd like to go but your options are reduced as you get older," he says.

"I see now that to get Grant started, comfortable and happy is the most useful thing I could do.

"We're different but I recognise and respect that. I don't try to make him what he isn't, which is where a lot of succession plans fall over."

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