No one in the family to take over the farm

Where there’s no clear successor, more farmers are looking for ways to sell to a young or new farmer from outside the family. It’s rarely easy, but new listing services and new financial strategies may mean it’s possible

We all know a farm in this situation. Mom and Dad always thought one of the children would stand up at some point and say, “I want the farm.” Now, the time has come for the parents to make retirement plans, and none of the kids is standing up.

Or maybe it’s the flipside. Mom and Dad just aren’t convinced that the children who want the farm are really the right ones to take it over, especially given the number of dollars that would be at stake, and considering there’s no end in sight to the soaring amount of business and technical smarts that it’s going to take for the farm to thrive over the next three or four decades.

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And there are other variables too. Even though they aren’t interested in taking over, maybe an adult son or daughter still wants to live in the family farmhouse, and may even want to keep ownership of the land and have it farmed by others.

Of course, some others just don’t see the wisdom of keeping any connection with the farm. They’re being pulled by their own dreams, which is the way it’s supposed to be, but they could use financial help.

Whatever the particulars, it seems there’s a growing number of farm kids who won’t be taking on the farm business as a career, which means older farmers must figure out their next step — and one option is to sell or transition the farm business operation to non-family members.

But that may be much easier said than done.

Selling the farm to new owners outside the family can be financially difficult, bringing up myriad tax-planning concerns, points out Pat Learmonth, director of Farms at Work (more on the organization later).

It can also run smack into the farm’s long-standing value system, which has always been to support the growth of new farms.

“Many retiring farmers would like to sell to a young or new farmer, if there is no one in the family to take over the property and/or the business,” Learmonth says. “(But) if the farm lacks a successor, often the default option is to sell to the highest bidder, which in today’s market is not likely to be a new or young farmer.”

The pressures are so intense, Learmonth says, it threatens to become a crisis with new farmers unable to find any way to get a start. Adds Learmonth, “There are few incentives, other than personal ones, to make the effort to secure the future of the farm as a farm.”

In some parts of the country, it may even mean the land leaves agriculture. Learmonth points to, for example, an Ontario land use report published in 2015 by “Sustainable Peterborough.” Over the last 20 years, the trend has been for land to be sold to non-farmers looking for a “rural” lifestyle.

Transitioning option

Learmonth has witnessed some attempts where retiring farmers have tried to create connections with a younger non-family person in the hope that eventually he or she could take over the business and/or the farming land base.

“Usually, the young person begins as an employee on the farm for a period of years,” she observes, “and becomes proficient in the production skills needed.” But it doesn’t always work out.

One thing is for certain in her view, however; a range of factors can ultimately prevent permanent transition. “Probably the single biggest hurdle is that the value of farmland is so high today, it is basically not possible to financially build its cost into a viable farm business plan,” says Learmonth. “As a result, it is an investment that most young people cannot afford to make at the start of the new business.”

Learmonth adds that if the retiring farmer wants to sell and move, it becomes impossible to work with the young person as the buyer of the property, even if they could successfully take over the business.

“In other cases, the value being placed on the business itself may not be justifiable, especially if the young person plans to make changes in how it is run,” Learmonth notes. “In other examples, the retiree may not want to leave the property, but wants to sell the business. This leaves the prospective successor to the business having to commute to the land, or move the business to another land base.”

Business arrangements

If all these hurdles can be overcome, a business arrangement must be put in place.

In terms of how to best transition the farm business to non-family members, including how to mitigate the risk of the land not being farmed in future (beyond spending time getting to know the buyers and making sure their intentions are genuine), Bud Arnold lists a vendor-take-back mortgage with an intended use agreement as an example.

The tax manager at Collins Barrow Chartered Professional Accountants in southern Ontario, Arnold adds that “retiring farmers could also lease to the new farmers for a while, but the agreement has to be worthwhile for both parties, with maybe a buy out option. You can also bring in new farmers as shareholders or in partnerships. There are many factors involved and finding an expert to draw up proper agreements is critical.”

To prepare for a first meeting about transitioning the farm to non-family members, Arnold strongly advises older farmers to make their needs as clear as possible, including their decreasing level of involvement and their income needs.

“Maybe you still want to live in the farmhouse and the new farmers are agreeable to that,” he notes. “If there is a large transfer of cash, be aware that it will be a big change in lifestyle and there is a need for professional advice, legal advice and tax accounting advice, maybe a financial planner. Farmers are used to reinvesting everything in the farm and it can be overwhelming.”

Making the connection

Offering mentorship opportunities is one good option for farmers without family successors to use in the quest to find suitable folks to eventually take over the farm, says Mathieu Lipari, program manager at Farm Management Canada.

Indeed, there are both national and regional or provincial programs that are helping farmers do just that.

A regional non-profit project in central Ontario called ‘Farms at Work’ currently lists opportunities for farmers to sell or lease existing land to other farmers and for new farmers looking for opportunities to farm. Learmonth has also written a free and comprehensive guide to help parties negotiate a farmland lease, available here: Accessing Land for Farming in Ontario.

L’Arterre is a new and similar program in Quebec that works through local development offices to match people who want to get into farming or who want to expand, with people who want to rent out land or transfer the farm ownership. “L’Arterre started less than a year ago and is still extending around the province,” says project leader Anne-Marie Beaudoin. “At this point, L’Arterre is available in half of Quebec and still spreading. So, the number we actually have might not be representative yet, but of the 197 new/young farmers doing matching activities, 100 of them are looking to take over a farm. And of the 263 land/farm owners doing matching activity, 43 are looking to transfer their farm.”

Nationally, there is FarmLINK.net which also connects Canadian farm owners with a new generation of farmers. “The dynamic listing system integrates necessary personal values and aspirations with hard property facts,” the website states, “and provides linking possibilities through the ‘My Match’ feature, which suggests potential matches based on profile compatibility. With private messaging, multiple search filters, resources and more, FarmLINK.net offers landowners a way to explore new business opportunities for their land.”

FarmLINK.net actually evolved from Farmlinkontario.net, a pilot project started in 2008 by “FarmStart,” in partnership with the Ontario Farmland Trust and the Kawartha Land Trust. In 2013, on a shoestring budget, FarmStart transitioned to the national FarmLINK.net. Later, some financial support was provided from the Growing Forward 2 federal-provincial/territorial funding initiative and the ECHO Foundation, which allowed a redevelopment of the platform. Marketing leader Anahita Belanger says she and her team know of nine matches that occurred in 2018. “We don’t actively track matches,” she says. “However, these users provided positive testimonials to let us know.”

FarmLINK.net match

The owners of BreadRoot Farm, an organic grain and grass-fed beef operation in Canora, Sask., have had a listing on FarmLINK.net since 2014, and it has proven useful. “If we had not found FarmLINK, I don’t know what we would have done,” says Hélène Tremblay-Boyko, who owns BreadRoot with her husband Al Boyko. “We had placed ads years ago in the Western Producer and Harrowsmith and we got offers to buy the land, but we didn’t want someone buying the land and farming it in an unsustainable way. We want to make sure the wetlands are never drained or the woods cut, for example. Through FarmLINK, we’ve had quite a few couples inquiring and trying out organic farming with us. It’s got to be a good fit. I tell people it’s like a dating service.”

On their FarmLINK.net listing, Al and Hélène state that “we are retiring farmers whose children are not interested in farming. We would like to gradually hand off the farm operation to new farmer(s) able to manage on their own after a certain period of mentorship. We would remain in our home on the home quarter and be available to help out when needed.”

The listing also states: “we are currently an organic grain and beef farm. We are open to other production ideas: market gardening, poultry, pork, sheep, rabbits or goats.” Land as well as livestock are “available to compatible candidate(s) in lease and lease-to-own opportunity. Mentorship opportunities also available.”

The couple are founding members of The Farmer’s Table, a web-based direct sales food delivery platform through which they sell grass-fed beef and vegetables, and they are also active members of Farmer Direct Co-op, through which they sell their grain crops.

At this point, Hélène and Al have found a “match” for about half the farm, which will be rented by a young couple, Stacey Wiebe and Dale Maier, for goat production. The “youngsters” also intend to take over the beef herd in a lease arrangement.

Discussions with this couple started in 2015, and in those talks (as well as in discussions with others), Hélène and Al realized that a young family wanting to farm all or part of their land will need a place to live. In 2016, she and Al purchased a nearby 10-acre farm yard that needs a lot of work but Stacey and Dale are pleased with it and are paying for it in instalments.

As for the rest of the farm, “there is the opportunity for another family to take over the grain land,” says Hélène. “Having a place to live will be needed, and we may be able to allow building on part of our land. It depends on their finances and it would need power and other infrastructure.” About two-thirds of the farmland will be placed in trust with a non-profit called Farmland Legacies after Hélène and Al pass on, and rented out to those who will farm it sustainably.

Mentoring

From 2015 to 2017, Kayleigh Donahue and her partner Chad (owners of the XY Hemp Corporation) were mentored by Al and Hélène in a formal business relationship for growing hemp. As Kayleigh explains in a blog entry on the website “Young Agrarians,” Al and Hélène provided her and Chad with access to land, welcomed them into their home, and taught them the practical aspects of organic farming. “Smart, compassionate, hardworking and funny,” she states in the entry, “Al and Hélène have been the best partners we could ask for.”

At first, the two couples developed a relationship over several months, getting to know each other over the phone, and developing a crop share agreement, cropping plan and financing terms. Kayleigh and Chad had their first visit to BreadRoot Farm in May 2015. “It was thrilling to be building a relationship through collaboration and we were so impressed by the generosity and understanding our future partners were showing us,” she stated in the blog entry. “It was so great to be able to find landowners who were active on this online land-linking platform, open to a new type of agriculture, interested in teaching new farmers (with no previous experience!), and willing to share the risks of our first crop together.”

In 2017, the couples ended their formal business relationship, with Kayleigh and Chad deciding to return to Alberta. Kayleigh states on the XY Hemp Corporation website that they are looking for farming partners in central and northern Alberta for a five-year partnership to grow hemp.

She adds that “we can’t thank Hélène and Al enough for their guidance and mentorship… we have learned so much from each of them. Anyone looking to settle on the land and learn organic agriculture should get in touch with BreadRoot Farms as soon as possible.”

A new business called Succession Matching has sprung up from this conundrum, to help business sellers transition ownership to new non-family buyers.

The CFIB weighs in

It seems that farmers are far from alone in terms of succession options. In a November 2018 report, the Canadian Federation of Independent Business (CFIB) indicates that almost half of Canada’s small and mid-sized business owners intend to exit their businesses within the next five years, and almost three-quarters within a decade.

As in farming, only a fraction — eight per cent — of business owners in the survey have a formal, written succession plan. About 40 per cent have at best an informal plan, and half haven’t begun planning at all.

Not having younger family members who want to take over the business is one of the barriers standing in the way of owners creating succession plans. The report authors add that “currently, there are very few options in Canada to connect those looking to exit their business with those who may be interested in purchasing a business,” and that this “may be an area for governments to explore.”

The CFIB also suggests the government change tax regulations so that transferring a business to non-family members is treated in a similar manner as within the family. Currently, any gain in the business’s value over the time it was owned by the seller is treated as a dividend if sold to a family member, but as a capital gain if sold to a non-family buyer, and no lifetime capital gains exemption applies.

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