An evaluation of farm ownership savings accounts

Abstract

Farm Ownership Savings Accounts are a popular method of saving for farm purchase and entry into sharefarming. As at 31 March 1981 there were nearly 7,000 account holders and deposits totalled approximately $29 million. The investment returns that can be obtained from Farm Ownership Accounts are dependent on the savings period. For Special Farm Ownership Accounts the return on capital invested can be in excess of 40 per cent per annum where the savings period is three years, declining to less than 15 per cent per annum where the savings period is ten years. For Ordinary Farm Ownership Accounts the return on capital is approximately 20 per cent per annum where the savings period is three years dropping to approximately ten percent where the savings period is ten years. Owing to the effects of inflation, increases in the cash deposits required for farm purchase are likely to outstrip people's ability to save the necessary deposit through the Farm Ownership Account Scheme. Accordingly, these accounts should be considered as either a means of saving for entry into sharefarming or as a secondary means of saving for farm purchase. Aspiring farmers who have limited assets should consider saving initially in a Home Ownership Account rather than a Farm Ownership Account. Current incentives for first home ownership make this an attractive method of saving towards eventual farm ownership. It can be argued that Farm Ownership Accounts as they are set up at present are biased in favour of those people who, on account of their access to inherited or family wealth, only need to save for a short period and at the expense of those people who must save from wages and salary over a longer period. It would seem doubtful that this was ever an intention of those who designed the scheme and hence consideration should be given to changing this feature.