FOR RETIRING FARMERS AND THEIR FAMILIES

Share farming: how it works, with an example

Say you want to keep living on your farm, but you can't actively farm it any longer. There's a good farmer nearby who could.

Share farming is one way to make that work. You keep the land, they do the work, and you share the seasons, good and tough. It's one of the seven transition options in Ageing on Farm.

How share farming works

Share farming splits the farm's profits between you, the landowner, and the farmer, based on who bears which costs and risks. It's a step beyond leasing, because both parties have skin in the game.

The typical arrangement has both parties contributing to input costs, like seed, fertiliser and chemicals, in agreed proportions, with profits split accordingly.

The landowner usually contributes the land, major infrastructure and sometimes a share of input costs. The farmer contributes labour, management and machinery.

When seasons are good, both parties benefit. When they're tough, both carry some of the burden. It's fairer than a flat lease, and it gives the farmer more reason to look after the land, because their income depends on it.

Who pays for improvements

The complexity comes in deciding which costs sit with whom.

Soil health improvements, weed control and infrastructure upgrades lift the land's value beyond the life of the sharefarming agreement. If the farmer pays for those, they're building the landowner's capital value without benefiting from it long-term.

This needs to be negotiated carefully at the start.

An example

The couple below are made up. The deal is a common one.

Picture a couple running an irrigated cropping and livestock business in the Riverina. Their elderly neighbours have a block of about the same size next door. They want to stay on the farm, but can't actively farm any longer.

The couple negotiate a sharefarming agreement with them. Both sides share the costs of seed, fertiliser and herbicide. The couple contribute all the labour and meet the machinery costs. Profits are split equally.

The trickier negotiation is around irrigation infrastructure. The layouts need upgrading, which will improve both short-term productivity and long-term capital value.

They agree the landowners will make an upfront contribution to the upgrade. The couple will offset a percentage of that cost for each year the agreement continues, up to an agreed cap.

The result: the couple get better scale and efficiency across a larger area. The retiring neighbours get income from their land, which is being actively improved. And the relationship is built on money both sides have put in, not just a cheque in the post.

Benefits

• Risks are shared between the landowner and the farmer.
• Both parties benefit when seasons are good.
• The farmer has more reason to look after the land than a pure leaseholder.
• You can stay involved in strategic decisions, if the agreement allows it.
• It can be a stepping stone toward a deeper partnership.

Drawbacks

• Disagreements can arise about who pays for improvements that have long-term capital value benefits.
• It's more complicated to negotiate and document than a lease.
• Management strategy can be a source of tension, especially if the landowner wants things done their way.
• It still doesn't settle succession. The agreement has an end date.
• Both parties need good financial records and transparent reporting to avoid disputes.

Questions to think through first

• What would you look for in an incoming farmer? Skills, values, personality, farming style?
• How long would you want to trial an arrangement before committing fully?
• What exit strategies do you want built in, just in case?
• What happens if either party changes their mind partway through?
• Have you spoken to a lawyer who understands farm succession?
• What are you most nervous about? What are you most excited about?

The full guide, Ageing on Farm, is free at cultivatefarms.com/resources.

You can build your own plan at cultivatefarms.com/plan.