Nuffield Scholar Damian Murphy (with dog Gus) has recently presented his research into attracting and retaining a new generation of farmers into the industry. His study compared Australian incentives and investigated schemes in the EU, Canada and USA. The Dumbalk North dairy farmer has proposed a scheme that could work Australia-wide. D122013.
By Danika Dent
DUMBALK North dairy farmer Damian Murphy’s underlying curiosity of finance models available to young and beginning farmers took him on a whirlwind world tour. His seven week globe-trotting study tour as a Nuffield scholar with funding from the Gardiner Foundation concluded recently. Mr Murphy presented his findings on international incentives for young and beginning farmers to enter the industry and compared them to Australian programs. From his study, Mr Murphy has developed a program that could be implemented in Australia. “When you look at the data regarding age of farmers, there needs to be people progressing through agriculture working on farms, share farming, leasing farms, buying farms, cattle, cows, purchasing crop inputs, living and bringing up their family in the country while contributing to the economic growth of Australia. “If we don’t have this progression, who will have the combination of skills, knowledge and assets to feed the world and provide food security for Australia? “To make sure we attract and retain the next generation, we have to have all areas of industry entry and progression working well. “There is a large population of farmers over the age of 55 who will hold substantial assets in agriculture that will need to be transferred in one way or another in the next couple of decades. “The biggest issue for young and beginning farmers is how to finance their entry into the industry. “For the next generation of farmers the amount of equity needed to be in a position to purchase an asset in agriculture can be quite daunting.” Mr Murphy’s plan would scrap a young farmer model, which under the current model can mean farmers up to 40 years old, and redefine beginner farmers as Stage 1 and Stage 2. Mr Murphy says these farmers are still growing equity and cash flow and have similar barriers when trying to get loans from banks, but are fundamentally different in the types of loans they need to access. Stage 1 farmers have less experience, less equity and low net worth. Their loan requirements are for portable assets or short term loans for stock, equipment, crop inputs, land rental or short term leases. Stage 2 farmers are looking for fixed assets, like long term leases, large infrastructure investments and land. They may well have entered the industry with other capital. Mr Murphy believes agriculture could benefit if a co-financing model could be implements to assist farmers with equity requirements needed to gain a loan from a commercial bank. His proposed financing plan uses existing Farm Management Deposits and a superannuation investment scheme, backed up by government guarantees to form a Future Farmers Fund (FFF). “The role of this fund would be to co-finance Stage 1 and Stage 2 farmers who have a suitable business and training plan,” he said. “An example of this would be a Stage 1 or 2 farmer who goes to a bank seeking finance but does not meet the security requirements. “The bank would then have the option to apply to the FFF on behalf of the farmer for additional security. “The bank would have first mortgage and the FFF would take a second mortgage over the asset.” Using a loan model taken from the Canadian leg of the tour, Mr Murphy said the FFF could save young farmers thousands of dollars, while still encouraging resilience, continual improvement and ‘entrepreneurial spirit’ in a very simple way. Mr Murphy said a loan arrangement with government guarantees and tax incentives was the most efficient way to keep the FFF viable, self-funded and protect against rorting. He noted from his EU studies that subsidies and cash handouts were inefficient, effectively ‘flat-lining productivity’ as there was little incentive to improve the farm and skill farm labour. “Looking at agriculture around the world has highlighted the need to implement change to formulate a controlled and measured program to help with generational change,” he said. “This proposed funding model is a combination of the most innovative, functional and effective programs found in the world. “They are tried and tested which lessens the risk and should accelerate the implementation to help solve the issue of our ageing farmer population. “The economics of farming will always provide a challenge to farmers who are looking to grow their asset, but it is reasonable that we, as a nation, need to make the most of the entrepreneurial spirit that the next generation of farmers will bring to agriculture and provide the options and opportunities they need.” As part of his scholarship, Mr Murphy is now working with United Dairyfarmers Victoria, Victorian Farmers Federation, Gardiner Foundation and others to prove to banks the FFF could work. From there, he anticipates the project will be forwarded to the government. For more information on Mr Murphy’s study and copies of his research visit http://nuffield.com.au/damian-murphy/ or search Damian Murphy on YouTube. Applications are now open for the next round of Nuffield Scholarships.