Nowadays, thousands of South African professionals invest in farming. They come from all walks of life. Some are mining magnates who have made a personal fortune. Some are doctors whose medical and surgical skills have earned them more money than they ever expected. Others are academics, politicians, bankers – the list is endless.
All have found a haven in part-time farming. And, because of their wealth, most are able to run their farming operations at such a high level of efficiency, invariably with the help of competent farm managers, that they not only reap great personal reward, but also benefit the entire farming industry and even the underfed taxman.
You may ask why, of all the relatively safe avenues of investment, these professionals would choose the hazardous one of agriculture. Each of the rich may have their own private reasons but, apart from the tax-saving factor, they have a single motive in common – a strong predilection for the country. And because they have the means, they’re able to indulge their hankering. In any case, land alone, without any production, offers a fairly safe opportunity for a profitable long-term investment.
You may also wonder how exactly these ‘professional landowners’ benefit tax-wise. Let’s take the hypothetical case of Dr Bloggs, who managed to accumulate savings of just under R7 million. Today, the annual interest earned amounts to an average of about R400 000. Of this, about R150 000/year has to go to the taxman. However, if Dr Bloggs uses some of his savings to buy a small farm, the money he can make from this investment will be taxed only at the favourable agricultural rate, with a tidy balance available for re-investment in the development of the farm.
In other words, money makes money, and this fundamental truth isn’t lost on affluent professionals. The money they plough into farming and the improvement of their farms comes back later in substantial capital appreciation, the taxation on which isn’t as severe as it is on non-agricultural investment. Imagine what such a farming side-line will be worth in 15 years!
Helping the sector
Of all the professionals to invest in farming, quite a sizeable percentage is made up of medical doctors and vets. A sound knowledge of most of the subjects they’ve had to master while at university is also required in agriculture, and is thus, arguably, why they lean in the direction of farming when seeking additional investment opportunities. Some professionals hail from farming stock and, once comfortably established in their chosen (urban) career, begin to yearn for the farm life of their youth.
But having failed to inherit land, or marry a rich farmer’s only daughter, the sole way in which to satisfy their longing is to buy land and livestock with their savings. To their credit, the benefits brought to agriculture by wealthy professionals investing in the industry are enormous. Compared to full-time farmers, they enjoy greater financial stability through the fruits of their professional labour and they’re also less dependent on state assistance.
Because of their cash-flow advantage, they are more prepared for hard times, like a devastating drought. It is quite revealing to note how many of them concentrate on building up pure-bred cattle herds and sheep flocks. They have the means and tend to buy the best, either from the country’s top bloodstock or from leading breeders overseas. If you’re a new professional with the necessary cash, you may want to consider whether or not you ought to invest in part-time farming as an attractive and profitable side-line.
The experts reckon you have two options. One is to play safe, keep your money in the bank and, when the taxman comes along, endure the unendurable.
I say, just go ahead and do it!
George Nicholas is a former Farmer’s Weekly central bureau editor. The views expressed in our weekly opinion piece do not necessarily reflect those of Farmer’s Weekly.