Any more Bids? Deciding How Much to Pay for Farmland

The ultimate risk to he managed by fanning families is the risk of the farm family losing their livelihood, their equity and their way of life. The most important risky decision they must make is What price to pay when expanding the business and buying more land.?' When a farm business becomes illiquid and then insolvent and is sold up, it is commonly found that the owners paid a price for land in the necessary expansion phases of the business which was too high and the gearing which accompanied the land investment Was too high, in the light of subsequent commodity prices and interest rates. Making explicit the usually implicit assumptions about future profitability and debt servicing ability, which form the basis of the decision analysis and underlie land offer prices, facilitates judgments about how realistic arc these key assumptions. Land purchase prices can be identified whitch are likely to put the survival of the business in jeopardy. The prospective buyers then have a good idea about when to stop bidding if they wish to keep farming.