robbie commens - share farming and orchard leasing in the macadamia industry

Share Farming and Orchard Leasing in the Macadamia Industry

Prepared by: Robbie Commens

Australian Macadamia Society (AMS)

Leasing Orchards – recent RESULTS

68%

32%

Have growers asked you about orchard leasing?

YES

NO59%

41%

Have your growers (or you) undertaken any orchard leasing in the last 2 years?

Yes

No

The industry is TALKING about leasing orchards!

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Estimated area under lease• 525 hectares

– Across all production regions

• Dramatic increase recently

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Benefits for both parties

Manager • Access more land

• Scale of economies

• Utilise machinery

• Utilise skill and expertise

• Increase potential for profitability

• Full time macadamia orchard work

• RETURN ON INVESTMENT

Owner• Stay on farm

• Increase value of orchard

• Help next generation of growers

• Reduced labour inputs

• More spare time away from farm

• Package for potential investors

• RETURN ON INVESTMENT

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Why Lease instead of share farm?

• Started with Share farm idea

• Risks with share farming agreement – *Partnership risk

– Lease payment structure can be “open”

• Based on Grower Feedback and input -– Incorporated share farm styled payment structure

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How did we do it?

• Partnered with stakeholders (NSW sugar, RDA)

• Regional workshop

– Acquired grower inputand feedback

• *Share farm payment structure

• VERY strong interest(>200 attended)• Positive feedback

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HUGE amount of grower and industry input

How did we do it?

Economic Analysis / Viability*Lease agreement based on a share farm payment

structure

• Costs – Manager pays all input costs– Owner pays rates

• Split gross income

• Initially focused on split (70/30 ?)

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Production is the key to increase returns NOT split to owner/manager

• Both parties should have a vested interest in increasing production

As production increases so too should the split to

both partiesSplit based on 5 year average production

0%10%

20% 25% 25% 25% 30% 35%

100%90%

80% 75% 75% 75% 70% 65%

0-1t/ha 1-2t/ha 2-2.5t/ha 2.5-3t/ha 3-4t/ha 4-5t/ha 5-6t/ha > 6t/ha

Owner Manager

This sliding scale has been well received, and has helped growers to not focus purely on the “split”.

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Return on Investment is directly linked to production

• As production increases

– Manager income increases

– Manager can afford to pay owner more income

– Owner income increases

0-1t/ha 1-2t/ha 2-2.5t/ha 2.5-3t/ha 3-4t/ha 4-5t/ha 5-6t/ha > 6t/ha

Return to Owner under share farming $- $195.00 $585.00 $1,072.50 $1,820.00 $2,925.00 $4,290.00 $5,915.00

NET Return to manager $(4,550.00) $(2,145.00) $(585.00) $227.50 $1,430.00 $2,925.00 $4,160.00 $5,135.00

$(6,000.00)

$(4,000.00)

$(2,000.00)

$-

$2,000.00

$4,000.00

$6,000.00

$8,000.00

$10,000.00

Owner Manager

LOSS!

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Macadamia specific lease agreement

• AMS invested in a Mac specific lease agreement Contracts should;

• aid communication BEFORE the agreement starts• identify potential issues and solutions BEFORE they occur• help solve problems • collect dust in bottom draw

Contracts SHOULD NOT ;• prevent communication• be used as a weapon• create problems• be referred to regularly (monthly)

Available to AMS members at no cost

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Details of the agreement • Code of Practice

– To prevent orchards getting “mined”

– Independent Agronomic report

– Manager/tenant must agree to keep orchard at or above

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Details of the agreement

Termination

• Clause to state termination cannot occur in the first (INSERT NUMBER) of years from the start date

• Landlord (Owner) needs to give 12 months notice – Notice needs to be given in month of June

• Manager needs to give 6 months notice– Notice needs to be given between 1st Dec to 1st March

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Agreement can be altered

• Designed to save growers $$$$

• Clauses can be deleted or added

• Payment structure can change completely changed

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Key points

• Growers and Managers should ALWAYS Remember –

– Regional differences, orchard differences

– EACH AGREEMENT SHOULD BE NEGOTIATED & ADJUSTED CASE BY CASE

– Engage professional assistance

– *Formal agreements (not gentlemen agreements)

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Owner Case Study

• Greg and Liz Leggbagg

• Ewingsdale Orchard

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How can you progress this opportunity further?

• Register of Interest– Growers

• (spoilt for choice - >15 managers already registered)

– Managers

• Ask AMS staff for a copy of the agreement

• For further info talk, please contact me– Robbie Commens– 0488 432 226– robbie@macadamias.org

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Thank you

• Albert Einstein defined insanity as –

“doing the same thing over and over again but expecting a different result”

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