In the past, farms looking to grow simply bought more land, but that’s not as easy as it used to be.
Rising land prices are forcing producers to be creative in finding opportunities for growth, which in some cases leads to joint ventures, mergers and acquisitions — the topic of this episode of the Mind Your Farm Business podcast.
“The capital and management requirements of these farm operations and their sheer physical and economic size is going to start to force the hand of some alternate structures that we haven’t seen in the past,” explains guest Dean Klippenstine of MNP.
At a most basic level, the success of any alliance depends on both parties having clearly (and selfishly) identified their goals and how they will benefit, he says.
“If I’m not clear what my goals and the objectives of it are, the likelihood of success is substantially reduced,” he explains. “Both parties have to have clear ideas of what they want to accomplish, and not enough do.”
Assuming that “bigger is better” is another common mistake, notes Klippenstine. Just because a farm covers more acres doesn’t make it more efficient — the perceived advantages of working with a neighbour or outside investor might not be as big as first thought.
Ultimately, the arrangement must define who is bringing what to the table, he says: “Whether it’s a joint venture, a limited company or a partnership. I don’t actually care. That’s about the nuances of the tax arrangement. In my view it’s about putting parameters on who’s contributing what to our business arrangement regardless of what we call it.”
In many ways it’s like a marriage.
“The marriage comparison is a perfect comparison because they’re all unique, all different and everybody wants something different out of them,” says Klippenstine, noting it also helps to seek advice from people who have been through it before.
Listen to MNP’s Dean Klippenstine and RealAg’s Shaun Haney discuss important considerations when “marrying” businesses, farm culture implications and common mistakes made in the pursuit of growth:
Disclaimer: Royal Bank of Canada and its subsidiaries are not responsible for the information provided in this podcast, and this information does not necessarily reflect the views of Royal Bank of Canada or any of its subsidiaries. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its subsidiaries.