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The ‘succession effect’

Setting transition as a goal for your farm can spur growth and profitability, until about three-quarters of the way through

"When the successor has climbed partway up the ladder, they get hung up on the higher rungs for a long time,” finds the U.K.’s Matt Lobley

All farmers, no matter where they farm in the world, share certain characteristics. They are all born worriers, and they all have lots to worry about — weather, crop prices, markets. And on top of the day-to-day production issues, and the management challenges involved in running today’s complex farm operations, farmers also have a lot in common when it comes time to hang up their coveralls and transition the farm.

The possibility that the farm will succeed to the next generation is a huge factor in how current farm operators approach transition. It can influence their thinking, their actions and the farm business in both bold and subtle ways, and it can do that for many years before these farms transfer any assets or actual decision-making responsibility to the incoming operators.

How the succession effect works

Matt Lobley, a professor in rural resource management research at the University of Exeter, England, came up with the term “succession effect” to describe this phenomenon.

The succession effect is the impact that the expectation or desire of having a successor has on the way farmers think about, plan and develop their farm business.

“You can identify people who, from a relatively early stage in their own career, before they even specifically produce a successor, are thinking about that next generation if there’s a strong intergenerational drive,” says Lobley. “That’s already influencing the way they’re thinking, and maybe the opportunities that they take advantage of to expand the farm, particularly when they have children and some of them start to indicate possible interest in wanting to farm.”

This leads to a succession effect, where the business is developed and grown in order to make it attractive for a successor to come in, and to make it capable of supporting another generation of the family.

“It’s an important driving effect on the business,” Lobley says, “and it can be very positive.”

Conversely, other farmers may end up being ultra-conservative.

“The succession effect can cut both ways,” says Lobley. “It might also mean a farmer becomes careful and conserves what he or she has got because they don’t want to risk the farm — they want it to be there for the successor.”

Climbing the succession ladder

There may not be a farmer alive who hasn’t hoped to have a son or daughter take over the family farm in the future. That said, when it comes time to start delegating and bringing in that next generation, it’s not as easy as the dream suggested.

Lobley is involved in an International Farm Transfers Project, which has surveyed farmers in Canada, the United States, Europe, Australia and Japan about transition, specifically about the delegation of business decisions or the “succession ladder.”

“The succession ladder starts at the bottom with easy things like planning what work you’re going to do on a day-to-day basis, or deciding on how much fertilizer you’re going to buy,” says Lobley. “As you go up the ladder it might be decisions about annual cropping patterns or the longer-term balance between enterprises. The higher up the ladder you go, it’s more strategic planning and things such as negotiating loans and sales, and financial management.”

In the survey, farmers answer a series of questions about these decision-making domains using a scale of one to five, where one is the current farm operator still making all the decisions, to five where the successor is making the decisions on their own. The answers are ranked to show the decisions that are most often delegated to the ones that are least.

In all of those different countries, with different economies, cultures and farming systems, the results are strikingly similar.

“As you’d expect, no one comes in and deals with the accounts and negotiates a loan the first day, they always start at the bottom and work their way up,” says Lobley. “When they get about three-quarters of the way up the ladder, where the decisions are starting to deal with finance, people get stuck there because they are the last things that a lot of farmers want to hand over. There are all sorts of reasons for that, but typically when the successor has climbed partway up the ladder, they get hung up on the upper rungs for a long time.”

It’s not a good thing, because invariably that reluctance to complete the process of bringing a successor into higher-level decision-making results in them being ill prepared when the time does come to assume those roles.

“In the U.K. and elsewhere, dealing with the finances and handing over the cheque book is often the last thing to go, and you get people who, suddenly in their 50s, get control of the business because Dad has just died, and they’ve never seen the accounts before,” says Lobley. “I have lots of examples from the U.K. of people who will say, ‘can you show me how to write a cheque, I’ve never written a cheque before.’ That pattern is pretty universal.”

Lobley talks to farmers all over the world and most of them have a tough time having any conversations about handing over the control of the business, even to trusted offspring. “Many farmers are worried about handing over business decisions to their successor because they are worried they will get it wrong,” he says.

Others are deeply entrenched in their own position in the business to the extent that it defines them as a person. They are worried that their place in the family will diminish if they are no longer head of the business, or in the community.

They say the words “retired farmer” to themselves, and frankly, says Lobley, they aren’t sure what they think of that.

It makes it so difficult when people are stuck at the upper reaches of the succession ladder who are not necessarily prepared for all the stuff that’s so important about running a family business.

Still a gender bias in farm transition

Another universal truth in farming is that there is still a gender bias towards preferring a male successor.

“Many times I have talked to farmers and when I ask them if they have got a successor, they say no, I’ve only got daughters. They’re not saying no, my daughters have said they don’t want to farm. It’s as if gender has made it just not in the cards,” says Lobley.

The parents will come up with all sorts of explanations, he says. Some will simply say it’s not women’s work. Then, if Lobley points them towards the examples being set by loads of successful women farmers, they’ll say my daughter never expressed an interest.

That, says Lobley, is when it gets into subtle psychology about the way people are brought up and the roles they encourage their children to have from an early age.

What farmers need to be thinking about isn’t gender, but who is the best person to take over the farm, says Lobley.

“You have to draw from the widest pool to get the best person to lead the business,” he says. “You have to capture that value.”

A professional detour

Interestingly, the project has also shown a growing trend among the next generation taking over the family farm. It is becoming increasingly common for them to have more off-farm educational, work and life experiences than in the past.

More people are going to a different country, working in different farming systems or different industries for a while before going back to the farm.

“They take this detour quite deliberately for a few years, and we find when they come back to the farm they bring different ideas, ways of doing things and social networks, and often they run really different farming businesses,” says Lobley.

The younger generation takes ideas from other parts of the world and mixes with other people, which can have a powerful effect on the business. Says Lobley, “There is a definite distinction between somebody who’s born and bred on the farm, worked there all their life, and never done anything else and someone who’s gone off and done other things.”

As well, these people are making a positive decision to come back to the farm and are not just doing it because there’s a weight of expectation on them.

“If you talk to some of the older generation, farmers in their 60s, 70s and 80s, they often had no choice. They were brought up, particularly if they were the eldest son in those days, expecting that they would run the farm, and nobody asked them,” says Lobley. “When people are positively choosing to go back and they really want to make a go of it, they make a difference.”

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Angela Lovell

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