I love new and starting farmers and have helped many over my 40-year career in agriculture. First let’s look at the four ways I have seen new farmers get going. And some thoughts on each.
START WITH THE PARENTS
Starting farming with parents is quickly becoming the main way young farmers can get farming. A few thoughts are in order: Give your parents time to adjust to you; don’t be in too big a rush to change your dad although some dads need to be “improved” on, that’s for sure; be sure to get title to property you are improving; and, understand that most dads didn’t have much training in how to be a partner — they have been independent business people most of their life.
Here’s a situation I have seen often. Son or daughter goes off to university and comes home four years later believing that he or she now knows how to run the farm better than anyone. Guess what? Dad has been home all that time busting his buns and maybe paying the tuition so he rightly believes he knows how to run the farm better than anyone.
And most university ag courses don’t teach a whole lot about how to merge a son or daughter into the farm, and we can be quite sure most dads haven’t had much training in how to give up some control while they take most of the risk.
I can sum things up in a few words — a son or daughter coming into the farm should be more of a friendly merger than a hostile takeover.
TAKE THE TIME IT TAKES
The most successful parent-child farm transfers I have seen have taken about 10 years to develop. If I was going to make suggestions, I would tell the incoming new person to go get a degree in agriculture, find a job close to home and hopefully a spouse with a good education who also loves farming. Of course if the farm can support a new family without off-farm income then the job might not be necessary from the cash flow point of view. But most farms can’t support a brand new family and often don’t have enough work that pays to keep both families busy and working to their potential.
I don’t think the young couple should put themselves in a position where they are stuck in the farm because they did not get the education or develop a skill that could be a career if farming did not work out.
The next step is to show the parents that you are capable of making sound decisions. This includes how you might have to give up going to a football game on Friday or Saturday night because there was crop to seed, spray or harvest. Maybe it means going to the party late, but you need to show you’re committed to the farm, too.
Next the young folks have to understand they “can’t have it all” at once. Yes, sometimes the farm will need the money ahead of, say, a new car.
TREAT THE DAUGHTER-OR SON-IN-LAW FAIRLY
At the same time I would caution the parents to treat the new daughter-(or son-) in-law well. Not extravagantly, but well. After all, if s/ he is on the farm for a few years and ends up unhappy s/he likely has the law on their side and can easily take a good chunk of farm net worth with them if they decide to leave.
In past articles inGrainewsI have written how it might even be a good idea to have a pre-nuptial agreement so everyone understands how assets or cash flow or both will or will not be split if the marriage breaks up. This is often a touchy subject and can lead to feelings of mistrust. It shouldn’t, if handled correctly.
Over time the incoming farmers likely should set up their own farm either as a farm corporation or as a sole proprietor. I have seen too many bad partnership deals so I don’t think partnerships are a good idea except between husband and wife for tax purposes. Joint ventures, yes, partnerships, no.
One detail I look for in parent/ child farms is who drives the half-ton — if Dad is the driver and he keeps the chequebook, odds are the son is a hired hand almost by default and sooner or later that will become a sore spot. The incoming child needs to be responsible for making some key part of the farm work and work well. That includes dealing with lenders, suppliers, marketing people and such.
Some time off and some money should be allocated to both generations.
I also hope that most parents will be patient with the newcomers. They need to spend some time with their friends, take some holidays that match those of their non-farming friends at least for a while. Having a decent job while merging into the farm can help accomplish this.
Keep in mind the son or daughter doesn’t always have to have the non-farm job. I have seen parents go to work so son or daughter can be at home to take over the farm.
Sadly, I have seen farms where the parents gave the incoming farmer an ultimatum as follows: “Well, are you going to farm full time or what?” If the newcomers and parents understood the merger was going to take 10 years, then that question wouldn’t be necessary.
Rest assured, over 10 years it will become quite clear if the parents will let the farm go and if the new farmers are capable of running the farm. And if not, then the young folks can still leave the farm and go on to another career and the parents can “keep their old farm” or have an auction sale.
Finally, if a new generation is going to merge in, I hope the parents don’t “mine” the farm in the years coming up to the merger. A farm that has been mined could take years to rebuild.
GET THE TITLE
If young farmers are going to live on the farm, I like to see them get the title to some land they can call their own, work at, improve and so on. There is a very nice rollover provision in the tax system where parents or grandparents can sell some land to the next generation and pay no income tax on the sale. Talk this over before making any commitments.
KEEP EVERYONE BUSY
The old saying idle hands get into trouble sure works on a farm. If a son or daughter is taking over the work done by full-time hired help, then odds are there will always be lots of work. I hope it won’t be gofer work, but work that produces cash flow.
If there isn’t enough work, either the farm needs to grow, add an enterprise or a parent or child or both need some off-farm work to bring in money and stay busy and efficient.
SET UP THE FIVE-LEGGED STOOL
The five-legged stool is my version of an overall financial plan that can work for young farmers and for the older folks. If the parents have set this up odds are they can phase out of farming slowly, yet have cash flow and things to do and think about with their investments.
If the young people start to develop the five legs over time they will find that they have the skill to manage non-farm assets, and over time the non-farm assets could contribute significantly to the overall cash flow. This could or should reduce the need for off-farm income in a bad year, it could help new moms stay home and could help pay for those extras and vacations that often make the difference between just living and a good life.
I have an essay on the fivelegged stool and if you want it let me know. I will email it to you free. Part of one leg can be the Tax Free Savings Account (TFSA) where we can put in $5,000 a year and all the money that money makes will be tax free. This is an intriguing strategy and I think mostGrainews readers who read my stuff know what this is. I teach readers how to run them in my newsletter (see below for details).
NEW FARMER WITH A DUAL CAREER
Whether starting with an ongoing farm or from scratch, a dual career has become an acceptable way to live in rural Canada. This means a person needs a skill or education that is needed in his or her community or close by. The farm will be a sideline perhaps for 15 or 20 years. Perhaps forever. This is not a bad thing. The fivelegged stool works here, too.
BUY THE FARM
From what I have seen in my career, it is just as much heartache and work and takes as much management to buy a farm lock, stock and barrel and then concentrate on running it well as it takes to grow a farm from little to a size that can be a critical mass.
Both strategies have problems, both have advantages. Buying a farm takes money but these days good farms can borrow what they need and then some. I would caution to borrow properly, according to the life of the assets you are buying.
I coach my farmers to have three to five years’ worth of farm payments squirrelled away in the form of current assets such as spare inventory, RRSPs, GICs and such. That money might not earn much but it can buy peace of mind. Mind you, if you are good at making money on your farm then it might not make sense to shortchange your farm to earn one per cent on your squirrelled-away money.
DON’T OVERLOOK NON-FARM BUSINESS
While running a non-farm business on your farm can be a pain in the butt some days, many nonfarm businesses can be price setters, not the usual price takes that most farms are. There can be problems collecting money so do protect yourself that way. Some farmers add to cash flow with custom work; put a truck on the road; do income tax; run Internet businesses; or, do specialized consulting.
Some farms have gone another direction and set up non-farm businesses off the farm. An example might be a butcher shop added to a livestock enterprise or a bakery added to a grain farm. Yes, there are regulations but regulations on sanitation, quality control and such are barriers to entry so the people who do work within regulations can often have a whole territory of business without fear of competition.
I guess to be consistent I have to say that running an investment portfolio can be a non-farm business that has reversible decisions, is open to pretty well anyone and can be started small and expanded. My stocks are a lot more flexible than many other businesses.
TRY SOMETHING NEW
There are a lot of opportunities in agriculture for farmers. If you plan to go farming don’t plan to be poor. Learn the skills you need to manage the size of farm or combination of farm and other enterprises so you can enjoy a good lifestyle, manage your risk and be proud of your occupation, industry and community.
Andyismoreorlessretired.Alongwithgardening, playingwithgrandchildren,reading andmanaginghisportfolioofstocks,Andy publishesanewslettercalledStocksTalk.In ithetellswhathedoeswithhisinvestments indetail.Ifyouwanttoreaditfreeforamonth gotoGoogle,typein StocksTalk.net, goto form,fillourfourlinesandsubmit.