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The two most common forms of joint ventures in agriculture are those
involving dairy and forestry syndication.
Dairying Joint Ventures
As a general rule, dairy syndication in New Zealand has involved small
groups of investors who have either known each other or been introduced
by one of the parties. As a result, few syndicates have been completed
using a prospectus under the Securities Act 1978.
The advantage of not having to use a prospectus is a considerable cost
saving, however not all syndicates have been well constructed and some
members have been less than happy with the operation of the venture. It
is important that some of the processes involved in putting together a
prospectus are completed in closely held syndicates.
It is almost always preferable for the syndicate to use a company as the
preferred vehicle as it provides a transparent regulated structure. The
constitution of the company is either altered or a shareholders
agreement is entered into to ensure the expected outcomes of the
shareholders are achieved.
Adequate financial information must be created and the joint venture is
reliant on that information for the management of the business.
Any securities taken by the bank, which bind all the parties together
should be negotiated carefully so as to ensure the parties individually
are protected. The banking arrangements must be sufficiently robust to
ensure that the venture can survive any unforeseen downturn or loss.
In many joint ventures, one or more of the parties have agreed to manage
the farming business. This role must be treated separately from the
governance of the company as the two have quite separate
accountabilities.
Many syndicates have been enormously successful. In large part this is
been due to good management, rising land prices and cyclically high
incomes. The documentation required for a successful joint venture comes
into its own when disputes occur or financial pressure builds.
Forestry Joint Ventures
Forestry joint ventures can take a number of different forms. Some of
the typical joint ventures are:
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A group of investors combine together to purchase forestry
land and create a plantation forest. In most instances a professional
registered forestry consultant is employed by the investors to provide
both financial information and management such as the establishment and
long term care of the forest. There are two distinct types of forestry
investment. The first are those that are publicly advertised, run by
professional promoters and which are regulated by a prospectus issued
under the Securities Act 1978.
Those run by professional promoters utilise a partnership structure
whereby the investors’ interest in the forest is either held by the
individuals personally or is held within a loss attributing qualifying
company. It is important that investors carefully analyse, by
comparison, what is being offered by the promoter.
The other type of investment is usually between individuals who know
each other or have been introduced to each other and will require those
investors to have a greater degree of knowledge of the forest industry,
and they will require a higher capital input than those syndicates that
are promoted publicly.
-
An investor may enter into a joint venture agreement with a
landowner to create a forest on that landowner’s land, with each party
sharing the costs and benefits of the sale of the crop. A joint venture
agreement is either combined into the forestry right which is registered
against the title of the landowner, which secures the joint venture
interest or the agreement is contained in a separate document. The
forestry right is then just used to secure the interest.
-
An investor may pay a rental for the use of someone else’s
land at around 7-8% of the agreed land value for the use of that land
for the rotation of the plantation crop. A forestry right is used to
secure the investors’ interest.
-
A landowner grants themselves a forestry right to preserve the
future ownership of their forest, should they sell the land in the
future.
If you would like a copy of our book, Forestry Rights in New Zealand
($20.00), please
email us.
Please
refer to our
disclaimer.
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