Those looking to pass their operation on to next-generation farmers can show them how to plan strategically and make decisions under poor market conditions, says business planning specialist Angela Gloy.
“This type of real-world, real-time education cannot be simulated in the classroom, nor is it necessarily intuitive,” she says. “Good managers will recognize and act upon opportunities to teach the next generation about which cost-saving measures you’re implementing, the trade-offs involved in one choice over another, and the short-run and long-run implications behind each decision. In short, you’re teaching how to manage under conditions of not just price volatility but also extremely low price levels.”
One of the financial benefits of a recession is that it can be a time of low interest rates, which helps young people buy into a portion of the farm business, if they are prepared.
To make a successful transition in management, each farm should have a plan outlining leadership roles, marketing strategies, the direction of the business and other related concerns, Gloy says. Bringing in another generation affects the operation in so many ways that strong planning is a low-cost means of reducing some risks.
“There can be very negative consequences for the farm business in the absence of a plan,” she says. “Farm families could jeopardize land and other assets.”
There also are personal considerations, such as whether potential partners could work well with each other, says Robert Taylor, professor emeritus of agricultural economics. They also should consider whether the farm would generate enough income for each to make a living.
“If we make a decision, it’s got to be good for both of us,” Taylor says. “It doesn’t work if the decision is good for me and bad for you. Set the business up so that the decisions that are good for one guy are good for the other guy also.”
Each person should work hard to improve the business relationship, Taylor says.
“Make very sure I’m doing the best I can to be a good young or old partner,” he says. “Each person needs to recognize there is potential for difficulty. I need to work hard and not be difficult.”
He believes communication is important in a partnership, including understanding each other’s goals. The partnership can run into problems if each person heads in a different direction.
More than 95 percent of new farmers begin on their family farm. But if there are no children to take over the business, a farmer might look for a young person outside the family who wants to get into farming, Taylor says.
“The young guy gets the chance to farm, the old guy continues to farm and do what he can and be a part of the ongoing, vibrant business,” Taylor says. “He’s not chasing the cows when they’re out, but he’s helping with government programs because he can do that. So he gets the chance to continue farming for many years.”
Taylor says young farmers should provide both labor and management, which includes identifying problems and suggesting solutions for how the farm could improve. PD
—Excerpts from Ag Answers, an Ohio State Extension and Purdue Extension partnership, December 2010.