Shared equity arrangements

The Australian dairy industry is made up of approximately 5500 separate farm businesses, each with asset values of (broadly) between $2 million to $20 million.

These assets are made up of land, water, stock, plant and equipment. Ownership might be of any, or all, of these components.

Joint ownership of dairy assets by two or more parties (shared equity arrangements) may be contemplated for a wide range of reasons, including:

• To find and keep good managers (who have ‘skin in the game’)
• To transition ownership to the next generation in family farms
• To transition ownership to others (non-family) who do not have the capital behind them to purchase a farm
• To achieve enough capital to invest into the dairy industry (where each party alone would not have sufficient scale). This may involve buying established assets or greenfield development.
• To attract external (private / corporate / institutional) investment to achieve growth or new projects (attracting equity rather than taking on debt)

Some of these reasons are about existing farmers wanting to ‘step back’ from day-to-day management but still keep investment in land or dairy operations. They are looking for capable others who want to ‘step up’. Other reasons are about enabling expansion of dairy enterprises and/or development of new projects.

As a result of this variation, there are many different formats in which shared equity can occur. Every case is different and there is no standard approach. But there are experiences that can be shared.

Resources: Shared equity arrangements – joint ownership of dairy assets

The Shared Equity Arrangements resource features a number of case studies where different drivers have occurred and arrangements set up – these are real farms who have generously shared their experiences.

If you are considering a shared equity arrangement, there are a number of tools which may be useful to you, depending on which direction you take

Shared equity arrangements are complex agreements. The case studies show how important it is to be clear about the degree of alignment between the parties (their objectives, ‘cultural fit’, approach to dairy farming etc).

Input from an experienced dairy consultant to help achieve your agreement is highly recommended. It is also essential that technical guidance is sought from the appropriate service providers (for example: accountant for tax implications; solicitor for assistance to document the agreement; banker for finance options).

Communication is a key aspect of shared equity arrangements. Many issues will arise, especially in the early ‘start up’ phase, that require open and honest discussion. These relationships require careful, professional conduct at all times.

Each of the tools in the resource can be downloaded separately to use (as below) and you can also download Shared equity arrangements (complete resource – PDF).

The shared equity arrangement resource contains:

• separating ownership of the farm business from land
• setting up a shared equity arrangement
• 4 case studies from real farmers
• Tool 1: shared equity – affordability calculator (excel)
• Tool 2: shared equity – dairy business checklist (word)
• Tool 3: shared equity – model investor agreement and information sheet (word)