There can be points in a farming career where you’ve established a solid business but you hesitate to make any further major investments unless there is either a clear successor or a plan to transition out.
That’s the point at which John Schenkels of Schenkels Farms Inc. in Miramichi, N.B., had found himself. Since taking over his father’s farm straight out of college in 1993, Schenkels had grown the dairy farm from 60 to 200 milking head while optimizing his land, labour and facilities along the way.
“At those points in a business you can stagnate a bit and don’t necessarily make the steps to get ahead,” says Schenkels, adding he didn’t want to be in that position.
“Intrinsically, you want to keep investing and growing,” he says, “but when there’s no clear successor, it’s daunting to invest in something that may end up pieced out and at lower value.”
In these moments, Schenkels believes it’s time for outside-the-box thinking.
About 15 years ago, and with a young family, Schenkels considered growing his dairy farm through a joint venture to merge and make a bigger dairy farm.
“It didn’t work,” he says. “Maybe it was the timing, maybe not the right people, maybe not the right plan.”
Instead, he looked outside dairy and diversified into wild, lowbush blueberries in 2006 — a great fit for his land and regional marketing opportunities in the Maritimes.
Fast-forwarding through another decade of farming and evolution, Schenkels now had two clear business entities established and was evaluating his next major move. He wanted to keep growing, yet had already optimized much of his land and resources building the dairy and blueberries to a size that could be attractive and attainable for successors.
Next, Schenkels wanted to invest more into dairy and was ready to make room for bringing family and/or non-family successors into the business.
The joint venture concept
As he approaches age 50 with four kids (aged 28, 19, 17 and 15) and three grandkids, Schenkels wants to keep the door open for family succession. “If they want it, it’s there,” he says, “but if not, no hard feelings.” In either case, his goal is that both the business and the family must continue.
The joint venture concept still niggled at Schenkels. Over the years he had continued to test the waters. “Lots of people had been approached, and lots didn’t work out,” he says, “you learn as you go, and keep putting the idea out there until something sticks.”
Finally, the fit came in the shape of four partners: two brothers, Jim and Ron Beckwith, around the same age as Schenkels, and Ron’s son, Lindon, and nephew, Kyle, both in their 20s. All relatives in the Beckwith family — yet, none related to Schenkels.
Schenkels and the two brothers each had dairy farms they hoped to see transition to the next generation, but individually they were limited with what they could achieve. Together, though, they could pool assets towards a common goal. That goal became a new company, Beckelm Farms (2018) Ltd. with 300 milking cows in a barn supported by a land base of 600 acres — and the opportunity to transition to younger successors.
“I give them a lot of credit for understanding what we were trying to do, where we needed to go, and seeing how they can get involved,” says Schenkels of his four partners. “Everyone could see the end goal and say it’s a better place than where we are now so we can buy into it.”
To help, the group involved family business continuity planner Len Davies of Davies Legacy Planning Group Inc. He guided everyone onto the same page from a neutral position, says Schenkels. “It’s important to have that neutrality to present a picture that’s authentic and not clouded in bias.”
Davies says the project “involved getting three dairy farmers together to create a new company where all three would contribute assets to get the new dairy enterprise under way.” There were three dairy farms at the outset, and there continue to be three dairy farms after the new agreement — though the milk quota and business ownership structure of one farm has changed considerably.
A different way to operate
In less than two years from the start of negotiations and planning, the group collectively established a new six-robot facility for 300 milking cows with the supporting land base in Salisbury, N.B. The first cows moved into the new barn in spring 2019.
Schenkels says the arrangement plays to everyone’s strengths, whether that’s as cow men or navigating accounting and legal, for example. There was give and take throughout the negotiations to make it work. Not every idea was viable, but the group tried to marry all things together to get the best outcome for everyone. And ultimately the plan was pulled together with accountants and lawyers to make a shareholders agreement.
Schenkels says considerable time was spent in discussions to draw up the shareholders agreement. “We had to cover all the ‘what if’ scenarios,” he says. What if there is death, divorce or disability; what if partners want to transition out, or new partners want to transition in. “We tried to anticipate every possible scenario and then clearly detailed what would happen in our agreement,” he says.
“A lot of credit goes to all parties for understanding their role and expectations,” says Schenkels. “It’s not perfect, but everything is rolling along smoothly at this point in time.”
Schenkels leads the business part and, despite the three-hour round-trip drive, tries to get to the new facility at least one day per week. His partners are the boots on the ground. The older generation brothers are mentoring the son and nephew. “The intention,” says Schenkels, “is to give them (the younger generation) the framework to understand how the right decisions get made, and then give the successors the freedom to make decisions.”
Big-picture goals and planning decisions are made by the company directors, collaboratively. Day-to-day decisions are made by the younger generation as the boots on the ground. The group tries to meet weekly to review farm performance and next steps.
Ultimately, the new enterprise will experience a full farm transition. As the younger generation builds equity, they can participate in a share buyback as spelled out in their shareholders agreement.
Why does it work?
Davies says the key to this arrangement is that all the stakeholders are compatible. “They are different personalities that bring different aspects to the table,” says Davies. “Too many people want people like themselves, and that results in clashes down the road.”
He feels this type of collaboration might be “the leading edge of something that we may see a lot more of in the future.”
“It’s not for everybody,” says Schenkels, noting that for many people it’s not easy to give up something; and sometimes you have good people and no opportunity, or vice versa. “We’re not less susceptible to failure and this approach is not less stressful, but the viability of this collaborative business structure should be better than a regular business venture.”
Ultimately, Schenkels is closer to his goal of having most of his assets covered by some sort of succession plan, building enough continuity and redundancy in that business so it can thrive for many years to come.
His business entities may not be as liquid as the day before this latest venture, but Schenkels is confident investing money to build the business, pointing out the alternative is to sell everything and get taxed. “If you’re working with good people,” Schenkels says, “you’re going to create wealth.”