A large number of farms within the agricultural sector will shortly be facing a point of time where the farm will be transferred to the next generation. The grantor can choose between totally 8 different strategies to transfer the farm, of which purchase, gift and a mixed form of these are the most common. During 2007 almost 10 000 transfers of agricultural estates occurred in Sweden and the expectation for the coming years is that about 15 000 estates will be transferred each year. By the time a transfer is about to materialize there are usually several stakeholders that in one way or another is trying to influence the outcome of the transfer. The choice of transfer method affects the conditions and possibilities for compensating the siblings. Nevertheless the choice affects the possibilities for the new farmer to operate the farm in the future. This study analyses the economic implications for each group of stakeholders of the strategies purchase, gift and a mixed form between these.
The study assumes that the stakeholders possess a common interest to ensure the maximal total wealth accumulated within the family. A theoretical model has been developed in order to assess the optimal distribution between stakeholders given that income constraints for various stakeholders are satisfied.
The theoretical model is applied to two case studies on family farms. The farm families in this study, may besides the grantor and the next farmer generation, also consist of siblings. The siblings may have a income constraint as well as the next generation of farmers. These income claims affect the distribution of wealth between stakeholders. An interesting result of this study is that the distribution depends on the different stakeholders asset return and tax situation. The total wealth for all stakeholders after a given period of time reaches the maximal level if the transfer has been made as a gift.
The grantor of each farm is indifferent to in what way the transfer is made. The next generation of farmers, after a transfer as gift, faces the lowest debt level and thereby the best conditions to operate the farm in the future. The siblings should also be interested in a transfer through gift as this method provides with a larger share of the wealth compared to the case of a purchase. The explanation is partly that the next farmer generation obtains a higher rate of return on equity in case he/she receives the farm as a gift, which provides him/her with a lower share of the wealth. Another explanation is partly that the rate of return and tax situation is typically more favourable for the other siblings.
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