Better Farming - October 2016

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Better Farming October 2016 Farm News First > 11
GENERATIONALTRANSITION
Growing up on the family farm
near Princeton and working
with his dad, Gary Brittain
hoped one day he would take over the
family farm. His family had founded
the operation on 100 acres in 1923.
Over the years it had evolved into a
cattle feedlot with a capacity of 270
animals and 500 acres for cash crops
and corn for the feedlot.
But early on in his career it didn’t
look like farming was in the cards.
Brittain apprenticed in metal fabrica-
tion. He got a shift work job.
Yet he couldn’t shake the dream.
“It was just too much to walk away
from,” said Brittain, today 29 years
old.
So, in 2014, Brittain returned to
the farm which he now operates with
his father, Allan.
The 2011 Census (2016 has not yet
been published) shows 48.3 per cent
of farm operators are over the age of
55. Over the next decade or so, their
$134.2 billion farm assets need to be
passed to a new generation.
But how will the next generation
acquire these assets? And who will the
next wave of operators be?
Larry Batte, an agricultural
accountant at Collins Barrow KMD
LLP’s Stratford office, predicts they
will be people like Brittain: people
who have a family connection to the
current generation of farm operators.
The road is practically barred to
people without such a connection.
For starters, a young person isn’t
likely to have access to the kind of
money needed to acquire all of the
components needed to launch a new
operation, Batte said. (The 2011
Census showed the average assets per
farm in Canada exceeded $2 million).
Money is also needed for other
expenses and operational costs, he
added.
Even if the land is paid for, for
example, there could be buildings
and equipment that need to be
financed or quota payments. Cash
flow, the difference between how
much money there is at the beginning
of a financial period and at its end,
becomes critical to pay down such
debt. The cash flow needs to be
positive, something that a well-
established business may be better
equipped to achieve than one just
starting out.
The family advantage
Because they already hold assets,
Ontario’s older generation of farmers
is well positioned to lend the younger
farming generation a helping hand by
creating ownership transitions that
do not necessarily rely on a large
amount of up front cash, Batte said.
That family advantage, however,
creates other challenges that someone
without a farm connection may not
encounter.
On the Brittain’s farm, for in-
stance, both generations are active in
the farm operation. So a farm that
was supporting one family now
supports two.
“For a young farmer, an off-farm
job is a necessity,” said Brittain, whose
wife, Nikki, also works off-farm as a
nurse. “You can’t have everything tied
up in one area of work.”
To finance his return, Brittain
realized he needed his own gig where
he could set his hours and plan
around the farm’s busy times.
“You need something to pick up
the slack,” he said.
He quit his shift job and started an
excavation business.
Today, the formula seems to be
working. Beef prices are low this year,
and a lack of rain has affected crops.
But the excavation business is doing
okay, he said.
One business, several to support
Eventually, the farm will have to
support Gary’s family, and ensure
Gary’s parents have enough for their
retirement.
This is a scenario Lindsay Folk,
director, pricing and product solu-
tions at Farm Credit Canada, sees all
the time. It is for this reason the
Crown lending corporation
developed financial products de-
signed specifically with farm transi-
tion in mind. One of those products
is a transition loan, which is typically
used by the older generation to
gradually sell the farm assets.
“You need to have a vendor who is
willing to take the purchase money
over time,” explained Folk. “Say the
purchase price is $500,000 and the
vendor is willing to take $200,000 up
front, and the rest over the next four
years. In the first year, the purchaser
only makes payments on $200,000.
This creates lighter interest payments
for the purchaser, and FCC guaran-
tees the vendor that he will receive
the full selling amount.”
Managing payments from the
farm’s cash flow requires expertise,
advises accountant Batte. “The rules
surrounding property, succession and
general business issues in agriculture
are significantly different than other
businesses,” he said.
Setting a value on farm assets is an
example. Batte said the transition
price of the assets needs to be realistic
according to the market, and the
process of arriving at a selling price
needs to be transparent to tax
authorities. If the purchaser doesn’t
use professional expertise, he or she
risks experiencing a Canada Revenue
Agency reassessment of the property
and possibly incurring a penalty.
Batte recommended those under-
going a transition develop a transi-
tion team. “Where everyone (in the
family) is in agreement a transition
team might consist of an
accountant, a lawyer and a facilitator
to handle family issues.”
The relationship dynamic
Differing expectations among
siblings, where some might want to
stay involved in the farm operation
but others don’t, is one of the most
common family issues, Batte said.
“That’s why estate planning should
always be part of a succession plan.
The first thing we do is ensure the
business remains viable, then we look
by JEFF CULP