“When it comes to transferring a farm to the next generation, success is temporary, but failure is permanent,” says Ryan McCarthey of Dungeness Creamery. Their ongoing success is the result of a creative shift in their business model, a cash infusion from selling the property’s development rights, training, and a little bit of fate.
When Jeff and Debbie Brown started their farm in Sequim, Wash., there were close to 60 dairies on the Olympic Peninsula. By the time their daughter Sarah was in high school, only six were left. Today, Sarah and Ryan run one of the two remaining dairies on the Peninsula.
Still, Sarah wanted to get involved with the family business, to be home. She got a degree in animal science at Washington State University and found a ready partner in Ryan, “I seriously found a guy that was willing to farm with me?!” But the family was aware that the current condition of the farm wasn’t financially sustainable.
The dairy’s transfer began with improvements to profitability. After research and consultation with WSU Extension and the county’s Economic Development Council, the Browns decided to shift to a raw milk dairy They cut the cow numbers by over half to begin bottling and selling raw milk under the name ‘Dungeness Valley Creamery.’ Sarah says, “the farm successfully transitioned to a niche market with higher margins, so our farm was ripe and ready for the transition to the next generation. Everything fell into place.”
From there, farmland conservation easement funds provided the catalyst to the Brown’s retirement. North Olympic Land Trust (called Friends of the Fields at the time) reached out to the Browns with grant funds to purchase the farm’s development rights and preserve the farm for agriculture. Jeff says this infusion of cash, “was a blessing that came out of nowhere, and it opened the door to retiring early.”
The official transfer of the farm business to Ryan and Sarah took about 5 years of talking (including the tough conversations), planning, and putting agreements on paper in close consultation with their trusted accountant. It was also a time of big family happenings: Ryan and Sarah got married and soon after, Ryan was deployed to serve in Iraq. When he returned, Ryan got a degree in Applied Management with his GI funds, and a new baby arrived.
In 2012, Ryan and Sarah purchased the farm business but not the land. The business had been incorporated decades earlier, making the transition simpler. Ryan says: “Our corporation leases the land, not us personally. It’s an initial 10-year lease with several options to purchase the farm at five-year increments. This lets Sarah and I enter with less financial risk and gives her parents a retirement income stream through the lease.”
As Jeff says, “It was really important to set up the transfer so everybody was taken care of — we didn’t want Sarah and Ryan to be overburdened with debt.” Jeff and Debbie were cashed out by the corporation through a corporate stock redemption. Ryan says, “That means we immediately were 100% owners in the corporation, so we at no time took on a personal loan or risk outside of the corporation-this reduced the financial risk to our personal, non-farm assets. We were also eager to expand the business and we felt that the dairy had a lot of untapped potential for the business to become more profitable, which made the process of transfer easier all around.”
Today, Dungeness Creamery is thriving. “Our business has seen pretty consistent growth since converting to Raw Milk in 2006, but since receiving the Value Added Producer Grant funds from the USDA we’ve really expanded quickly. It has allowed us to expand employment opportunities on the farm as well as inject a lot of funds in the local economy. And, it’s allowed us to replace a lot of aging equipment and upgrade a lot of things around the farm-not specifically from the grant funds, but from the increased revenue we’ve received from the project,” Ryan says.
This growth has also allowed the McCartheys “the opportunity to rebuild the infrastructure of our farm with a focus on efficiency, animal health and comfort, as well as being socially and environmentally responsible,” says Ryan. They’ve used USDA cost-share funds, through the Rural Energy for America Program (REAP), to install solar panels. And they are currently finalizing a Resource Conservation Partnership Program grant to help with an above ground manure storage project and fencing for rotational grazing.
For farmers looking to transition to the next generation, the Browns and McCarthey’s have this advice…
Sarah says: My first recommendation would be to time your transition not only with the business in mind but also with what is going on in your personal lives (Sarah and Ryan had a 4-month-old when they took over the farm, both named this as the biggest transition challenge.) My number 2 recommendation is to find an accountant or an expert in business transition that both parties trust, who can help make the transition as fair and financially beneficial to both sides as possible. You want the retiring generation to feel like all of their hard work paid off and that they will be financially secure in retirement. You want the next generation set where they can feel like they have a real solid, financially successful business ahead of them that they could possibly transition to the third generation someday.
Ryan says that it’s important even for the next generation to enter into the transition with their own exit strategy in mind.
Moving out of the home they built was what Debbie was most worried about as she entered retirement – they swapped homes with Sarah and Ryan and now Debbie says, “I think I love this place as much, if not more than the other!”
Most importantly, the Browns are enjoying retirement. When asked how retirement is going, Jeff says: “I recommend it! I milked cows for 50 years and I didn’t need to anymore.”
For Sarah and Ryan, it’s all about: “Love of the cows, love of the land, and a love for our mission: responsibly producing milk while working to develop a more sustainable food system for future generations. With two young boys of our own growing up with a playful curiosity for farm life, you just might see our products around for generations to come.”