This paper provides an overview of the problems of farm transfer in Japan, considering the M&A in farm businesses. Rather than conducting a detailed analysis of the actual situation, we investigate past research trends to identify important issues regarding farm transfers and provide our views. We discuss how the problems have been evolving and their solutions based on farm business innovations and changes in the structure of agriculture ; we draw a sketch to recognize the problems of farm transfer theoretically.

Research on farm transfer has been active since the 1990s, with the recognition that difficulty in securing successors arose in the backward type of agricultural structure. In the 2000s, research became more elaborate. The main research themes were diversification of farm transfer and business management to deal with the system’s vulnerability for intergenerational transfers, including securing a successor. Most of the studies during this period analyzed advanced problems but their distinction from backward problems was not clear.

The reason for emphasizing advanced types of problems is that they cannot be solved by agricultural structural reforms. The essence of the problem is an important question, and, in this paper, we take an approach that focuses on transaction costs. When the succession of farm business in the family fails, an organizational solution by developing a small farm into a corporate farm or a market solution by farm succession to a non-related person or M&A is implemented. However, organizing costs and transaction costs hinder alternative farm transfers. Assuming the family businesses’ development series and considering the choice of abandoning and closing farm businesses, this paper describes the overall composition of solving the farm transfer problems.

I. Legal Management

“Legal management” refers to the management of legal risks. There are many legal actions in the agricultural business, such as the acquisition of farmland, sales of crops, employment of employees, and M&A. Therefore, it is important to manage the legal risks in agricultural businesses. However, there are few cases of legal management in the agricultural business, although it is expected that many agricultural businesses will engage in legal management in the future.

II. M&A

There are two types of M&A : (a) acquisition of a company and (b) acquisition of a business.

(a) Acquisition of a company

There are three types of M&A for acquiring a company : transferring shares, mergers, and share exchange/share transfers. Transferring shares is the most popular type of M&A, in which only the shareholders of the company change. Two companies become one in a merger, and the effects are far-reaching. A share exchange/share transfer is a procedure that creates a parent-subsidiary relationship.

(b) Acquisition of a business.

There are two types of M&A for acquiring a business : a business transfer and a company split. A business transfer is an M&A transaction in which the business is acquired rather than the company. A company split is also a transfer of the company’s business, but it is an M&A that comprehensively transfers the assets and liabilities of the business. In addition, although not generally recognized as M&A, asset transfer, which is the transfer of assets for a business, may also produce the same effect as M&A.

The seller’s purpose in M&A of agricultural corporations is business succession, while the buyer’s purpose is to expand the business or enter a new agricultural business. However, the regulations of the Cropland Act are often an obstacle to the M&A of agricultural corporations. Due to the regulations of the Cropland Act and the complexity of M&A procedures, most M&A of agricultural corporations are business or asset transfers, and only in some cases are shares transferred. However, it is conceivable that other types of M&A, such as mergers, may be performed in the future for large-scale agricultural corporations.

In Japan, mergers and business transfers among agricultural corporations and wide-area partnerships in agricultural production and sales are expected to increase. In such cases, in addition to financial information and other information that can be compared numerically, qualitative information such as technical and sales capabilities and management skills must also be disclosed. In general merger and acquisition (M&A) procedures, due diligence (DD) is conducted, and the parties to the transaction enter negotiations after estimating the value of the business through a thorough examination of finances, assets, business, legal affairs, etc. The same process is followed in M&A with smaller scale businesses, such as agricultural corporations.

The following are the business valuation methods used in the agricultural sector. The evaluation criteria are determined based on the characteristics of agriculture and various conditions surrounding agricultural corporations, and consist of seven major categories (business form, regional characteristics, business infrastructure, management, business structure, environmental analysis, and risk analysis), 15 subcategories, and 50 sub-subcategories. These sub-subcategories are examined based on their suitability, effectiveness, efficiency, and sustainability. Their levels of achievement are evaluated with a grade of “excellent,” “good,” “acceptable,” or “needs improvement.” The analysis of the qualitative business value obtained through this process in relation to the quantitative business value obtained from financial information, etc., facilitates “management visualization” and reveals the sustainability of the business.

In the agricultural sector, some examples of mergers and acquisitions (M&A) remain. However, M&As involving small and medium-sized enterprises have been increasing in other industries, and they are expected to increase in agriculture as well. Therefore, this article presents the characteristics specific to agriculture based on the analysis of case studies of management succession through M&As in agricultural corporations.

In the case of the M&A of a beef cattle feedlot business, the buyer was a livestock dealer and a beef cattle feedlot operator. Thus, it was aware of the situation of securing successors for neighboring farmers. It was within this context that the deal was established, since buyers in the same region were regularly approached regarding M&As. The M&A was completed through a stock transfer.

In the case of the M&A of a crop producer, the acquired company, which was familiar with the acquiring company, approached the acquiring company, which was planning to expand its scale. The M&A was conducted through a business transfer, and the managers and employees of the company that was acquired were employed by the company that made the acquisition.

These agricultural M&As can be called “regional type M&As” as they are usually self-contained within a region, which vastly differs from those conducted in other industries. This approach can reduce the time required for the initial “deal-making” stage of the typical M&A process. However, as the shortage of successors continues and the number of companies to be acquired increases, there will no longer be enough regional companies to make acquisitions, and regional M&A will reach its physical limits. This would force businesses to consider a broader range of M&As, and in such cases, the same process would be used as for general M&As.