From traditional to off-farm equity financing in family farming: evidence from Australia

From traditional to off-farm equity financing in family farming: evidence from Australia

This research aims to explore how family farms shift their traditional financing models towards off-farm equity financing. To achieve this aim, semi-structured (in-depth) interviews were conducted with four family farms engaged in the off-farm equity process, and with fourteen farm advisors who are actively engaged in advising farms and off-farm investors in establishing off-farm equity alliances. Following the aim of the study, this thesis follows the publication1 style of Ph.D. thesis presentation. The first-person style of academic writing is used, as preferred in qualitative inquiry, in reporting the research process, evidence, and interpretation, across the whole thesis. Three different but interconnected papers reflect interpretive findings from the empirical evidence on offfarm
equity capital in the Australian family farm industry. The reflexive interaction between extant literature about off-farm equity capital in family farms and interpretive findings led to the following research questions to achieve the above overarching aim:

i. Why do family farms and off-farm equity investors differ in their views and how can these competing views be managed (Paper 1)?
ii. Why and how do family farms divert their traditional financing path into off-farm equity path (Paper 2)?
iii. How can family farms institutionalise their governance and reporting structures for accessing to off-farm equity (Paper 3)?

iences, addresses the competing views of farms and off-farm investors in the off-farm equity alliance and the mechanism through which these competing views could be minimised. Based on the interpretative thematic analysis, findings show eight pairs of opposing arguments between family farms and off-farm investors that might inhibit the flow of equity to family farms from off-farm equity investors. These competing views are: emotional vs. commercial, cost vs. profit, instinctive vs. reasoning, continuous vs. cessation, financial vs. non-financial literacy, lower vs. higher scale, traditional vs. professional, and operational vs. capital efficiency. In each pair, the first element relates to farms’ position and the second element indicates the investors’ position. Paper one also identifies two different strategic responses: investment readiness and equity structuring, which are used by family farms to minimise the competing interest. Institutional logic theory and strategic response model were inductively selected to interpret these findings.

Paper two accounts the practical experiences of family farms for off-farm equity journey. An interpretative narrative analytical framework identifies five narratives about the off-farm equity process from the stories farms shared. These narratives towards new financing mix include motivation for change, soul reflecting, right capital and right partners, professionalization, and letting go and taking on narratives. Interpreting the narratives emerged in the second paper, through path dependent, path creation process and new path creation theory, the study outlines four- steps off-farm equity accessing process for family farms. This process covers: responding triggers, searching alternatives, spotting obstacles, and getting ready. Learnings from this path creation also helped family
farms to be investment ready.

Paper three, grounded in both farms’ and advisors’ views, explores the governance process of family farms to access off-farm equity. An interpretative thematic analysis explores three elements of the governance process including governance culture, alignment and structure in the equity structuration process that lead family farms towards institutionalization. Following the institutional theory, this paper suggests a three-stage model of the governance process for family farms wishing to access off-farm equity. These three stages include transformation, formation, and intensification. Findings also suggest that a case by case governance and reporting practices, rather than a unique style of governance and reporting, seems to be more suitable for family farms wishing to access off-farm equity. In this paper, the researchers interpret off-farm investors and farm advisors together as a background institution in the off-farm equity setting, which inserts normative pressure on family farms to adopt a governance structure and reporting practices while accessing off-farm equity.

The philosophical position taken in this research was interpretive epistemology, which guided me to adapt qualitative interpretive methodology. I used the purposive and snowball sampling to select family farms and farm advisors engaged in off-farm equity accessing process, to conduct the in-depth interview. During the analytical phase, this study relied on both manual techniques and text analysis software. Analysis, findings, and interpretations of each paper were data driven.

One of the main original contributions of my thesis is to explore how family farms can shift their traditional financing models towards an innovative financing model, off-farm equity capital. Under this broader topic area, my specific contributions are three: first, this study gives empirical evidence regarding the barriers to off-farm equity alliance from the farm and investors perspectives, and how to build and sustain this off-farm equity alliance in the context of family farms. Second, my thesis demonstrates a path to off-farm equity, and how to overcome the hurdles in that new financing path for family farms. Third, my study shows how family farms can demonstrate their governance and reporting practices to off-farm investors to convince the investors that they can rely on family farms. In actualising these contributions, my research also contributed to the conceptual, theoretical, and methodological literature about farm and agricultural finance, equity alliance, family farms’ institutional path dependence, path creation and institutional process of family farms. Policy implications are also discussed and are indicated for further research while acknowledging the limitations of this project.