Forward planning is key to farm succession

OPINION: Young farmers need incentives to enter what is a rapidly ageing profession

The Government’s Food Harvest 2020 report forecasts significant growth for the agri-food sector, with an export target of €12 billion by 2020. Progress has been strong, with exports in 2011 reaching almost €9 billion.

Farmers are the first crucial cog in the agri-food supply chain. While issues such as volatile commodity prices, low farm income levels, weather and CAP reform have been well documented, succession provides yet another challenge for the farming community.

To avoid future disputes, it is preferable for parents to plan for succession, to discuss their intentions openly with their children. While such conversations are challenging, sensitive and often quite emotional, evidence indicates that having family discussions on future intentions for the farm can be invaluable.

Irish farmers are getting older. The latest CSO Census of Agriculture shows the average age of Irish farmers in 2012 was 54 – it was 51 in 2000. Only 7 per cent of farmers are under 35 years of age, and 51 per cent are over 55 years.

Similar trends are evident in other countries – the average age of US farmers is 58; in the UK, 58 per cent of farms are owned by over 55s; Japanese farmers are, on average, 65 years old; in New Zealand the average age profile is 50-plus.

Older farmers have an in depth knowledge of the farm. That knowledge is often under-estimated, yet it is the knowledge transfer from the elder farmer to the younger that is necessary to drive innovation in the sector.

Attracting the younger generation to farming is challenging. The agri-food industry is competing with IT, life sciences and gaming to attract graduates from an agricultural background to make their careers in a sector which looks tough. There is, however, an emerging cohort of young progressive farmers, looking to run farms as a business, and seeking to disrupt the “traditional way” of doing things, focusing on productivity and efficiency, and benchmarking standards against not just Irish, but international best practice.

The good news is that demand for training and education in agriculture is on the increase. The numbers studying agricultural science for the Leaving Cert has risen by 22 per cent in recent years. CAO figures reflect this trend, with demand in farming and food industry courses at third level doubling in the past five years. Recognising the need to support young farmers through education, the DCU Ryan Academy has recently launched the farm entrepreneurship and leadership programme, covering topics such as leadership and communication, financial management and opportunity recognition and assessment.

Farmer numbers have been declining in Ireland. Teagasc data show an average annual decline in farm numbers of 1.7 per cent between 2000 and 2010. A further barrier to entry/expansion for young farmers is that less than 1 per cent of land changes hands on the open market, with transfers either being within families or by private sale.

Succession at farm level needs planning. Transactions between parent and child can often involve a number of taxes (such as Capital Gains Tax, Capital Acquisitions Tax, Stamp Duty, VAT) and the financial impact of each should be planned for. Reliefs such as retirement relief, agricultural relief, and 100 per cent stamp duty relief for young trained farmers are available, subject to qualifying criteria.

Where possible, it is beneficial to consider asset transfers during the parents’ lifetime. Parents may find themselves managing the delicate balance between maintaining a degree of control while also letting the next generation make their mark. The impact of this can be factored into any succession plan. Professional legal and accounting advice is advisable.

When young farmers take over farms, they often incur significant upfront expenditure, as well as needing capital investment in facilities and machinery. Encouraging entry to farming needs to be supported and facilitated through progressive farm-based tax reliefs, smart funding structures, education, and an increase in agricultural land traded on the open market.

Global trends point to a change in the dynamics of food production, due to increasing population and consumption levels, driven by an expanding middle class, dietary shifts and ageing demographics. The world’s ability to produce food is a concern and opportunity.

New entrants have potential to bring new ideas, processes and technologies to complement the knowledge that is often lost as farmers’ age and have no succession plans in place. Yet without the right incentives, this upsurge in demand may not materialise into structural changes at farm level.

Ciara Jackson is head of food and beverage at Grant Thornton