Douglas Farms Succession Planning

September 2015

A family has involved a Rabobank advisor to help structure their succession plan

Murray and Marcelle Douglas have built a 1000-cow, 300ha dairy farming business at Titoki west of Whangarei, Northland and raised three sons, Ian, Tim and Rodger, now in their late 20’s and early 30’s. Since leaving school the boys trained and experienced other occupations until 2010, when they formed ITR Ag partnership to first equity manage then sharemilk on the home farm, plus two other Northland contracts.

The Douglas family and other investors have also invested and developed dairy farms in Brazil. ITR Ag is the vehicle for a planned farm succession from the parents to the sons, also using an advisory board structure with independent chairman. Ian is full-time farming in Northland and Rodger full-time farming in Brazil, while Tim is overseas.

Douglas Farms started in the 1980’s with a small family farm. Murray and Marcelle Douglas now have an amalgamation of five farms, with a 54-bale rotary built in 2008, and an older 30-a-side herringbone. They also have two herd homes, a 70m by 30m feed pad and a four-pond effluent system. Murray and Marcelle now live off the farm, on a run-off block about 10 minutes away and do relief work and projects.

Ian, Tim and Rodger have always been involved in farm work on the family farm, but after school Ian trained in the hospitality industry in Australia, Tim was a commercial pilot in Africa and Europe and Rodger worked for DairyNZ as a rural professional. When an opportunity to take on a sharemilking contract at Matarau, near Whangarei, came along, the three brothers decided to form a jointly owned company, ITR Ag, and begin farming on their own account.

“We had always thrown around ideas of being in business together in some way, and had looked at purchasing smaller blocks of farm land to build equity, but nothing paid as well as dairying,” Ian said. The intention of ITR Ag was to be an absentee company, none of the three partners necessarily working on a farm. Rodger managed it, along with his day job, in the first year, Tim for the second year and now Ian is the full-time ITR Ag manager in NZ. With bank guarantees from Murray and Marcelle, ITR was able to buy cows and get started in sharemilking at Matarau, with a trusted farm manager. That job has now gone five seasons with 450 cows which ITR Ag owns and has progressed to a higher-order contract, also called a milk price lease. ITR also took on equity management of Douglas Farms and in 2013 Ian and Tim jointly won the Sharemilker/Equity Manager of the Year for Northland. That job has now progressed to lower-order sharemilking for Douglas Farms. There is also a third sharemilking job, 50/50, called Pukepoto Dairies, with 900 to 1000 cows in Kaitaia. That has a slightly different structure, in order that ITR Ag could reward the local farm staff with share ownership.

Altogether different is the ITR Ag equity investment in Seven Crown Farms in Bahia State, Brazil, managed by Rodger Douglas for the past three years. It is just under 50% owned by ITR, and includes Douglas Farms and other investors. It purchased enough land to develop a 106ha dairy farm, of which 78ha is covered by pivot irrigation. It has 700 cows milked through a 40-a-side herringbone, with all building supervised by NZ short-term contractors and equipment supplied by NZ companies, such as Waikato Milking Systems, Gallaghers and Kiwi Products. It is now moving on to develop a much larger 250ha dairy farm on leased land with three pivots, two farm dairies and 1600 cows. Murray Douglas has spent a long time there this year, and Tim has been helping also.

The cows produce about 6000 litres each a lactation and 480kg MS, supplying a local company Lietissimo UHT packaging plant, all sold domestically. That is part of the Leite Verde venture covering 15,000ha, founded by the Wallace family of Waikato.

Ian and Rodger get industry-standard salaries for their work, in NZ from ITR Ag and in Brazil from Seven Crowns respectively, while Tim has opted not to be employed by ITR Ag at this time as he has a job overseas. They have equal one-third shares in ITR Ag, now best described as a multi-farm sharemilking company. It presently employs 22 full-time staff members and six part-time or casual. Ian’s partner Rowena Butterworth-Boord is the office manager, now run from Murray and Marcelle’s new home. Ian and Rowena are also the Northland regional managers for the NZ Dairy Industry Awards.

In family discussions between the parents and three boys, it was always understood that none of them would work directly for Murray and Marcelle in Douglas Farms, but try to find some way of fulfilling their own dreams and aspirations. The boys went away and qualified in very different areas before seeking to come back to farming.

Murray researched options and structures and realised that outside assistance would be needed. Tony Hammington of Rabobank in Waikato was used as a succession planner and all family members attended a two-day session. “We needed somebody to help us with the collective vision,” Tim said for a Rabobank informational video.

“We needed someone to help us who understood family dynamics and business strategy,” Murray added.

“It was obvious that splitting the pie wouldn’t enable all our aspirations, so we had to make the pie larger,” Ian said. “We agreed to put ITR into the Brazil venture, which was Rodger’s dream and keep expanding back in NZ with sharemilking opportunities to provide the investment input to Brazil.”

Murray and Marcelle were able to build a new house, step back from day-to-day farming and work when they wanted to. ITR Ag had to take on the management of Douglas Farms, and is now a lower-order sharemilker.

The family now has an advisory board that met every two months initially, but now quarterly, with an independent chair, Robyn Paul, a human resources specialist in the dairy industry. Formal reports on all aspects of ITR Ag, Douglas Farms and Seven Crown Farms are prepared and presented at each meeting.