Farm succession issues require families to communicate and plan
By Eric Mortenson
Experts recommend planning, communication to assure successful farm transition.
By Eric Mortenson
Family farms have some built-in business advantages, including access to a labor pool, a greater workforce loyalty and the sense of creating a lasting legacy. Work ethic and other values tend to be shared down the family tree.
But a Colorado State University professor said family dynamics also can lead to farm problems. Who has the final say? How do you implement new ideas? What about money and vacation time? Who reports to whom? What about personal use of farm vehicles?
Rod Sharp, an agricultural economist, said families that don’t talk out such issues and plan solutions may be headed for trouble. Most business owners are eager to pass the enterprise to the next generation, he said in an interview, but 70 percent of family business transitions fail. The rate may be worse in agriculture, he said.
Sharp and fellow CSU agricultural economist Jeffrey Tranel spoke Nov. 4 at a farm succession workshop in Salem, Ore., titled “Planning for the Four Seasons: Birth, growth, retirement, succession.” About three dozen people attended the session, which was put on by the Oregon Farm Bureau’s Women’s Advisory Council.
Farm succession is an issue that’s quickly coming to a head. The average age of American farmers is 57, and the fastest growing segment of farm operators is the group 65 and older, according to the 2007 U.S. Census of Agriculture. There are 23 states — Oregon isn’t one — where 30 percent or more of the principal farm operators are over 65. According the ag census, nearly 290,000 farm operators are 75 or older — more than five times the operators who are under 25.
“With the increasing age of farmers and ranchers throughout the country, there will be a lot of turnover or transfer of ag land in the near future,” Sharp said in an interview before the workshop. “Our goal is to help people prepare for that so the percentage of (transition) success rate goes up.”
Sharp said generational transitions are especially difficult in agriculture. Farmers tend to work to an older age than people in other occupations, and many don’t expect to retire. Instead, they envision themselves reducing work hours or the scope of their business, neither of which is easy to accomplish on a farm. In addition, farmers are emotionally attached to the land, and have a hard time letting go.
“Their whole life and livelihood is associated with working every day,” Sharp said. “If anything, their goal is to scale back instead of leave and retire. The other issue is they don’t have any hobbies or friends outside of agriculture — it makes it difficult to leave.”
Money, of course, is part of the problem. Non-farm business owners usually have a retirement account, but farmers often invest their earnings in the operation, buying land or equipment.
“It’s tough to retire because they don’t have the cash flow to just leave the ranch,” Sharp said. “Without having somebody paying them rent or leases, or buying their assets, they don’t have the cash flow to do that.”
Sharp and Tranel recommend a planning process in which family members communicate openly about the transition and business matters. Sharp suggested families three types of meetings:
• A family council open even to family members who have nothing to do with the farm.
• Business meetings only for members active on the farm.
• “Business rules and policies” meetings in which management decisions are made.
The pair handed out “A Lasting Legacy” workbooks in which people can document life lessons and history, list assets, distribute possessions of emotional value and make their last wishes known.
“We’ve seen million dollar companies dissolve over a few personal possessions,” Tranel said. In one case, the big fight was over who got the Christmas decorations.
“We spend time building on the inter-generational relationships,” Sharp said. “That’s the important part: communicating so everybody’s on the same page.”