This is a good time to assess where your farm business is headed and how the next generation might be involved.
The holiday season brings forth feelings of happiness, joy, and anticipation about seeing family and friends at holiday gatherings. For many, there are memories of older generations who are no longer with us. There is reminiscing.
A family may reflect on how their farm has changed. They may think how happy Grandpa would be that two descendents of his favorite cow have scored Excellent on the latest classification.
Best of all, it is now the fifth generation working on the farm. They want to take over the farm and expand to 500 cows. Grandpa would be proud that the family tradition of dairy farming will continue.
Yet, today, many dairy farm families seriously are questioning the future of the industry. For the past two years, milk prices have been the lowest levels in 30 years while input costs have remained at near-record levels. There is little to suggest that families will regain lost equity.
Many are feeling depressed and discouraged. They have worked hard, “lived with the cows,” and harvested high-quality forages and still are not making money. Where did they go wrong? Deep down, there are feelings of anxiety and fear. How much equity is a family willing to lose to continue?
To prevent further losses of equity, many dairymen are contemplating selling their farms. For many families, the farm is a way of life that they are unwilling to give up because it provides a job and a place to live.
All farms will be sold at some time to either a family member or someone else. Who makes the decisions regarding the sale of the farm? Farmer? Banker? Doctor? Planning is critical.
The decision to remain in the dairy business and transfer the farm to the younger generation should be the culmination of many years of discussion between the younger and older generations. Does your family talk about the future of the farm? If children do not want to work on the farm, the parents must develop an exit strategy to preserve farm equity. The parents’ retirement will be funded by the sale of the farm.
If a child wants to return to the family farm, here are some questions that must be asked:
- Was the farm profitable within the last two years?
- What will be the farm’s operating environment over the next 30 years?
- Does the farm have a sufficient land base, or can additional land be rented?
- Are there development pressures?
- Will you have equipment dealers, feed mills, or vet service in the years ahead?
- Is it feasible to service the additional debt incurred by an expansion?
The reality is that, due to thin margins and the high cost of technology (milking parlors, tractors, and so forth), herd sizes will continue to grow. Thus, a family may have to milk several hundred cows to make a modest living.
Are the children strongly encouraged to attend a two- or four-year college? Do the parents respect their children’s ideas? Are the parents willing to discuss new ideas that the children get exposed to?
The technology and world economy has changed dramatically since I attended college. However, the decision-making principles that I learned 30-plus years ago easily are applicable to the current dairy industry. The greatest skill learned from the college experience is the ability to understand and get along with people. More than ever, communication skills are needed by the younger generation to successfully interact with people from diverse backgrounds in the world and workplace.
Do the parents encourage their children to work off the farm for several years after college to gain additional skills about how other businesses operate? By working off the farm, the younger generation will observe and learn how managers supervise employees who have diverse cultural backgrounds.
Before the younger generation returns to the home farm, there needs to be a frank discussion between the older and younger generations about the following questions:
- Why do they want to operate the farm?
- Are they really interested, or is this a way to please Mom and Dad?
- Do the younger children have the skills to operate the farm?
- Do the children enjoy working with the financial and farm records?
- What is the younger generation’s work ethic?
- Are they willing to put in long hours?
- Do they have a passion for dairying?
- Do they enjoy working with cows?
- Are they willing to learn new ideas by attending extension meetings, participating in farm tours, and reading?
- Can they handle the emotional pressures of having several years of drought or low prices?
- Are they able to effectively manage people?
It is difficult for a parent to say to a child that they do not have the ability to manage a farm in our highly cyclical industry that requires big investments and provides historically low rates of return. Does the older generation want to see financial assets that they have built over several generations put at risk?
Many states hold farm transition planning workshops to help families answer these questions. These involve many topics such as goals of the older and younger generations, analysis of the farm’s resources and operating environment, farm profitability, management abilities of children interested in operating the farm, selling versus leasing the farm, consideration of heirs, business organization, tax management, and estate planning. Attorneys and Cooperative Extension agents provide families with information and tools needed to develop a farm transition plan. During the workshops, the older and younger generations are given time to discuss and sketch out a plan for their farm. At the conclusion of the workshops, families can take their farm transition plan to their tax and legal professionals.
In spite of the huge financial losses incurred by families in recent years, I am encouraged by the number of young people from farm and non-farm backgrounds who want to pursue a career in the dairy industry. The younger generation looks at dairy farming as a business first and a way of life second. In the coming years as the older generation passes the leadership of the industry to the younger generation, I believe that the industry will be in good hands.
If there is no one to take over the farm, families still should be proud of what they have accomplished. On many farms, families paid for their children’s college education at great personal sacrifice. They should be proud that their children have successful careers and are productive members of society.
As we approach the holiday season, let each of us be thankful that we have the opportunity to till the soil and work with cattle in a business we love. All farmers should be proud of their stewardship of the land during their tenure. Finally, let us remember that our most precious asset is time. Use it wisely. Make an extra effort to spend time with family and friends we do not see often. These memories will last a lifetime.
Cooperative Extension Agent
Culpepper County, Virginia
Used by permission from the December 2010 issue of Hoard’s Dairyman. Copyright 2010 by W. D. Hoard & Sons Company, Fort Atkinson, Wisconsin.