What happens to the family farm when the lineage stops?
Sale is the easy answer, but how about a different approach?
In an environment where land values continue to outrun the stock market, why would retiring farmers ever sell? Currently, there is a consistent two to three percent return on rental values and the original asset has shown appreciation rates of above 10 percent most years.
Even if the family does not want to be involved in operations, the investment is sound. Everybody else in the world, including Bill Gates, is investing in land. Why would we, as the original stewards, get out of it?
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So, how do you create a business legacy where family is not involved in operations?
One option is to bring in external “c-suite” employees (chief executive officer, chief operating officer, chief financial officer), and create a self-managing operation. You sit as president on the board and entrust the day-to-day to others. Before we find all the reasons it won’t work, let’s acknowledge that is how most businesses around the world have succeeded. I always use the line, “agriculture is not different.”
If you can show potential employees a projection to ownership or growth of the farm, does this become an option? It did for me. As an equity owner in a farm that does not have my last name, this motivated me to leave a professional career. If it worked on me, there have to be others it will work on as well.
Be open to seeing high-quality employees, start investing in labour and don’t focus on cost as the driving factor in hiring. Train, educate and promote when you find those people. These aspects are important in creating a self-managing company. And lastly, get out of the way and delegate.
As farm owners eclipse 65 years, this seems to be one way they see retirement without sale. Find a neighbour they trust or respect, create a joint venture or partnership with that individual and become a minority member of a larger enterprise.
Unlike the internal version, I have seen this work in numerous ways and it allows the retiring farmer to hold on to the golden investment of the land and continue feeling like a farmer.
Without going into the tax benefits of this structure, the main aspects are clear. You continue to have a percentage in active business income while also participating in the appreciation of land. The positive for the other members is that they get to grow their operation and take a percentage of a larger acre base.
It also, in many instances, provides some risk and reward, which is enticing to both sides depending on the risk tolerance. Sometimes, there are parameters that will protect the landlord, but this depends on the agreement.
As we move into the next decade, we are going to see mass land movement because of aging farm owners. I don’t believe that buy and sell will be, or should be, the most popular option given the current interest environment and land values.
More varied options will continue to be used as retirement or legacy options. The adage that family was the only way a farm could have a legacy is no longer true.
