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Success story

A new survey shows our farmers actually are finding ways to transition their farms to the next generation

There’s encouraging news from a fresh survey of multi-generational farms in Canada and the U.S.

Amid all the debate that the 2016 ag census has generated about whether farmers are actually getting serious about Canada’s huge farm succession challenge, this survey shows that many farms are getting on with the job just fine, thanks.

No one said it would be easy, and it isn’t. No one ever said that every parent and every son and daughter would always agree with every decision, and they don’t.

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Hand over wheat field in early summer evening.

Young and old aren’t the same, and never will be.

But the farms in this survey tell us that in many families, succession is often more a matter of setting a direction and getting on with the job than of laying out a detailed script and sticking slavishly to it, or of deciding exactly how many dollars will go to which specific family members before you even start to transfer any of the operational decision-making.

It turns out most families agree on a lot more than you might have expected, if they give each other a chance.

The irony is that the survey, which was conducted by Agri Studies, based in Guelph, Ont., in conjunction with Scott Downey, economist at Purdue University, was set up to look at decision-making patterns on multi-generational farms, not to specifically study succession.

Agri Studies is a consulting firm, and they wanted to be able to help farm supply companies sharpen their sales strategies for dealing with the growing number of multi-generational farms that are becoming a bigger share of the market north and south of the border, especially in the wake of the 2008 boom in grain and oilseed prices. (Full disclosure: Glacier Farm Media, which publishes Country Guide, helped Agri Studies identify the farmers for its survey.)

Ag supply companies are already picking up on the fact that change is underway, says Justin Funk, Agri Studies managing partner. But it hasn’t always been easy for them to tell exactly what’s behind the change. They’re finding, for instance, that on a lot of farms, it’s harder to know who they should be talking to. Should they make their pitch to the senior generation, or to the junior?

And on a growing number of farms too, they just haven’t been as sure about what the family is looking for. Is it the product that is dependable year-in and year-out, or the one that’s most competitively priced?

And who makes the final call?

The survey team wanted to know who is actually making the decisions on these farms. And what kinds of sales messages are they likely to give the highest priority to.

It turns out the answers paint a useful picture of how these farms are navigating their day-to-day business while keeping their eyes on their long-term future.

In all, the survey team polled 406 farms, about two-thirds in the U.S. and one-third in Canada. Roughly three-quarters of the farms had at least two generations on the farm, although the survey team also polled another 100 single-generation farms as a kind of check.

Next, the team went back to 50 farms, doing detailed, separate interviews with the two generations (on most farms, this meant father and son). In these more detailed interviews, the average age of the older generation was 60 and the young generation 33.

Key traits of farms that are succeeding at succession appeared to be:

  • Fairly clear succession timelines and goals.
  • Shared but not overlapping operational decision-making (see chart further down).
  • At least some ownership for the young generation.
  • Parents retaining final say on financing and marketing until late in the process.
  • A willingness on everyone’s part to accept some level of conflict and frustration, while using farm meetings to discuss differences in an objective format.
  • A focus on the long term.

The other big finding was that these farms are treating transition as a phased-in, multi-year project. In the farms with detailed interviews, (where, as noted, the average parent was 60 and the next generation 33), the two generations independently told the research team it would take an average of eight years for the farm’s management to fully transfer.

photo: File

However, the change has already started. “Much of the transition is happening a lot quicker than we thought,” Funk says.

As anticipated, multi-generational farms were larger than single-generation farms, but not by so much. A third of multi-generational farms had annual sales over $1 million, compared to a quarter of single-generation farms, and roughly a quarter in each group had sales between $500,000 and $1 million.

A clearer difference was in education, where the younger generation on multi-generational farms shows a strong shift to university degrees (nearly 60 per cent), compared to 12 per cent with a college diploma and 16 per cent stopping after high school. (Comparative numbers for the parent generation were 30 per cent university, 35 per cent college and 25 per cent high school).

Researchers also found differences in succession planning tied to farm size.

In particular, they found that in long-term planning, large farms put their priorities on:

  • Financial security.
  • Providing a sustainable way to transition the farm to future generations.
  • Transparency.
  • Clarity of the succession planning process.

By contrast, smaller farms were much more likely to focus on preserving the current owner’s flexibility than on financial security or fairness among siblings.

Shared decision making

Two decision-making conclusions jump out from the study.

First, as farm size increases, so does the likelihood that the younger generation will play a larger role, in contrast to their almost “hired-hand” status on smaller farms.

To put it another way, the larger the farm, the more involved the younger generation will be in decision making.

But there is a crucial twist to this. When the research team went to farms that appeared to have a healthy approach to succession and asked who made specific decisions, whether it was about input purchases or even machinery, both generations put their hands up.

And it turns out both were right to do so, because on these farms, the younger generation often sorts out the details about seed genetics, for instance (in fact, the study found that decisions about seed choices are among the first to be transferred). The younger generation may also be who talks to salespeople about crop protection, or to the local supplier about fertilizer.

But the senior generation (mainly “Dad”) still retains a kind of “the buck stops here” authority to approve the younger generation’s decisions, whether that’s on a decision-by-decision basis for young and relatively inexperienced entrants, or on more of a field-by-field basis as the younger generation earns more confidence.

Not surprisingly, perhaps, this proved an area of tension on some farms if the young generation felt Dad was slow to give up what they saw as micromanagement. But generally, if the overall direction of the succession seemed to be in place, the conflict was kept within limits.

On many farms, the younger generation also had more authority for hiring and managing employees.

As they gained more experience, as well, it appeared to be understood by both sides that the younger generation would have more input into machinery and marketing and even financing and land rental/purchasing decisions, although these were among the last to transfer. Still, the oldest generation tended to hold onto primary responsibility for dealing with lenders and landlords.

Differing perspectives

Part of the success of these farms seems to come from accepting that the two generations have different biases.

For instance, when it comes to choosing which crop-input dealers to work with, young generation farmers give more weight to issues including convenience, service and access to wide range of options.

Their parents, by contrast, are likely to value trust and loyalty.

Across many areas too, older generation farmers are more likely to opt for consistent performance while the young may gravitate toward competitive pricing.

There was a gap regarding machinery purchases as well, with younger farmers focusing on the technology and capacity advantages of new equipment, while older farmers preferred to repair rather than replace (and to say that their young partners need more caution about the impact of machinery purchases on the bottom line.)

The satisfaction curve

Overall, the young and older generations told the survey team they were quite satisfied with their progress, although the older generation was likely to rate their satisfaction higher, perhaps because of their memories of tough times in earlier decades.

Even so, the news wasn’t all good, with notes of dissatisfaction from both generations on communication and on succession planning.

As well, the young generation are more likely to express dissatisfaction over the farm’s progress on goal alignment, role clarity and conflict resolution.

Yet at the same time, more farms are adopting formal meetings and other tactics to keep the lines of communication open, so family members know they will get a chance to make their case.

Not surprisingly, larger farms are more likely to have formal meetings. Roughly 40 per cent of very large farms (i.e. sales over $2 million) meet at least once a quarter, and another 40 per cent organize an annual meeting.

Increasingly, however, even medium-sized farms (sales of $500K to $1 million) are adopting the meeting format, with almost half (approximately 45 per cent) having a formal farm meeting at least once a year, and nearly 20 per cent also having weekly or monthly meetings.

About the author

Editor

Tom Button is editor of Country Guide magazine.

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