Farming operation: a definition in search of a rationale?

The amendment of key provisions of the Farm Debt Mediation Act 1994 (NSW) (FDM Act) brought about by the Farm Debt Mediation Amendment Act 2018 (NSW) commenced on 3 September 2018. One of the amendments concerned the definition of “farming operation”. The principal effect of the amendments was to include on-farm and offshore aquaculture and farm forestry – previously outside the scope of the FDM Act. The stated intention of the amendments was to “provide a broad and inclusive protective buffer for farmers who are substantially employed in primary production.”[1]

The scope of a farming operation was under examination in Kiriwina Investment Co Pty Ltd v Green Lees Developments Pty Ltd[2] (Kiriwina), which, as explored further below, uniquely concerned a snake and rodent farming enterprise. While in Kiriwin, a the New South Wales Court of Appeal considered the definition of “farming operation” in place before the recent amendments, the discussion of the extent to which the FDM Act applies to “non-traditional” enterprises is equally applicable to the new definition.

What emerged from their Honours’ reasoning in Kiriwina was a range of views on the necessary elements of a farming operation, which will arguably remain, notwithstanding the recent amendments. Kiriwina also presented an opportunity for the court to clarify the meaning of a share-farming arrangement for the purposes of the definition of a “farmer” in the FDM Act (which did not change as a result of the amendments).

Relevant provisions of the FDM Act

The FDM Act applies only in respect of creditors under a farm debt. A farm debt is a debt incurred by a farmer for the purposes of the conduct of a farming operation that is secured by a farm mortgage.
The relevant definitions of “farmer” and “farming operation” under consideration in Kiriwina were as follows:

Farmer means a person (whether an individual person or a corporation) who is solely or principally engaged in a farming operation and includes a person who owns land cultivated under a share-farming agreement and the personal representatives of a deceased farmer.

Farming operation is

1. a farming (including dairy farming, poultry farming and bee farming), pastoral, horticultural or grazing operation, or\
2. any other operation prescribed by the regulations for the purposes of this definition [note that currently no operations have been prescribed for the purposes of this section].

The facts in Kiriwina raised issues as to whether Warwick Denshire was a farmer under the FDM Act in two ways. First, Mr Denshire contended that he was a farmer by reason of being a person who owned “land cultivated under a share-farming agreement”. Secondly, he argued that he was “solely or principally engaged in a farming operation”, that farming operation being the rodent portion of his snake and rodent farming business.[3]

Share-farming agreement

In about October 2013, a fire destroyed part of Mr Denshire’s property (Green Lees), including a boundary fence separating an adjoining property. Thereafter, Mr Denshire and his neighbour agreed (there being no real alternative) to the neighbour’s cattle being run on Green Lees. Mr Denshire’s evidence, given orally, went no further than his statement that “a share-farming deal” was done.[4] Was this evidence sufficient to conclude that Mr Denshire “owned land cultivated under a share-farming agreement”?[5] The Court of Appeal examined the elements necessary to establish that a relevant share-farming agreement was in existence, and concluded that in this case, it was not.

The FDM Act does not define “share-farming agreement”. That term has, however, been defined in a number of other (since repealed) Acts[6] as requiring:

• the land of one sharefarmer being made available to the other, who provides labour or stock or does other work
• the sharing of produce, income or profits

The onus being on Mr Denshire to establish that the FDM Act applied – his passing reference to the existence of a share-farming agreement was found to be insufficient.

The court found that it must also be established that land was cultivated under a share-farming arrangement. White JA (with whom Gleeson JA agreed) observed that cultivation meant something more than just “used in a farming operation”. Rather, it is necessary to demonstrate the improvement in some way. Sackville AJA suggested that (in respect of a grazing business) improvement might involve planting or promoting the growth of suitable feed grasses.

Farming operation

Mr Denshire’s farming operation was an unusual one. He bred snakes for sale as pets, and rodents for sale, both as reptile food and for the purposes of laboratory use. Could such an operation amount to a farming operation so as to enliven the operation of the FDM Act?

As observed by White JA, the definition of “farming operation” (as it then appeared in the FDM Act) was circular. It did not limit the scope of “farming” activities included within it to traditional farming or operations that produce food for human consumption. It was conceded in argument in Kiriwina that the snake-breeding aspect of the business could not be a farming operation. This conclusion was consistent with the finding in Champion Mortgage Services Pty Ltd v Craigie[7] (confirmed on appeal) that a fish hatchery business that harvested fish for sale to aquariums and pet shops was not a farming operation. In that case, Johnson J found that the FDM Act was confined to “traditional agricultural activities”.[8]

Similarly, White JA found that “breeding animals or fish as pets is not farming.”[9] His Honour did not, however, explicitly reject the notion that the rodent farming aspect of the snake and rodent farming enterprise could be a farming operation. Nor did he endorse the view that farming operations must be “traditional” to enliven the FDM Act, citing deer and goat farming as examples.

Rather, his Honour found that there was insufficient evidence to support a finding that Mr Denshire was “solely or principally engaged” in rodent farming so as to satisfy the definition of “farmer” for the purposes of the FDM Act. It was not possible on the evidence to undertake a comparison of the time spent on snake breeding and that spent on rodent farming.

Sackville AJA explicitly rejected the notion that the rodent farming business was capable of constituting a farming operation, observing:

There is no evidence to indicate that the breeding of rodents for pet food must be conducted on agricultural or pastoral land. The evidence implies that in Mr Denshire’s business the rodents were kept in cages before being killed. But there is nothing to suggest that the process could not be carried on in a factory, shed or similar structure. So far as the evidence goes, subject to planning requirements, the rodent business could be conducted anywhere. I would therefore set aside the primary Judge’s finding that the rodent business constituted a farming operation.[10]

While the metes and bounds of traditional agricultural activities remain unclear, the following propositions as to what constitutes a farming operation for the purposes of the FDM Act emerge from Kiriwina:

• a farming operation need not involve traditional agricultural activities
• breeding animals or fish for pets is not farming
• farming operations are not confined to the production of food for human consumption
• growing feed for stock is a traditional farming operation
• the fact that the activity may only be conducted on agricultural or pastoral land may be relevant

New definition

The new definition of “farming operation” is:[11]

… a business undertaking that primarily involves one or more of the following activities:

1. agriculture (for example, crop growing and livestock or grain farming),
2. Aquaculture,
3. the cultivation or harvesting of timber or native vegetation,
4. any activity involving primary production carried out in connection with an activity referred to in paragraphs (a)–(c).

There being no discernible difference between “farming” and “agriculture”, the new definition is unlikely to resolve uncertainty in relation to non-traditional farming operations of a nature comparable to Mr Denshire’s rodent farm.

Conclusion

If anything, the decision in Kiriwina blurs the definition of “farming operation”. The notion that the protection afforded by the FDM Act is restricted to “traditional agricultural pursuits” (whatever that means) was rejected. White JA’s reasons (with which Gleeson JA agreed) focused on the purpose of the operation, whilst Sackville AJA emphasised the nature of land upon which the farming operation was undertaken. Sackville AJA’s approach is arguably more in alignment with the rationale for legislatively mandated farm debt mediation; that primary producers exposed to the vicissitudes of weather and climate are in greater need of mechanisms by which their debt obligations can be consensually restructured.

The new definition of “farming operation” appears to confirm the primacy of food production as a rationale for the application of the FDM Act protections. Strictly construed, the new definition would capture an indoor prawn farm, although whether such a quasi-industrial operation would or should be covered by the FDM Act is a matter for debate. It is less clear whether aquaculture operations which produce fish for other purposes (such as, for example, stocking dams with native fish) will be caught, even if such enterprises are conducted, and may only be conducted, using traditional aquaculture methods.