Cover Story: Six farm families and six solutions to handing down the family farm
Saturday, May 10, 2008
Succession can be one of the biggest hurdles a farm family faces. And with today's larger, more complex and investment-heavy operations, more people are usually involved than in the past. Here Better Farming looks at how six Ontario families coped
by KATE PROCTER AND MARY BAXTER
It's no secret that Canada's farm population is aging. By 2006, the average age of the Canadian farmer had crept up to 52 from 2001's average of 49.9. And with advancing years comes the challenge of transferring the farm to the next generation.
For most farmers, succession involves more than provisions in a will. The Ontario Ministry of Agriculture, Food and Rural Affairs website defines succession as "a continuous process to plan for the transfer of knowledge, skills, labour, management, control and ownership of the farm business between one generation and the next." What the books don't say, but anyone who has been involved will readily admit, is that succession can be one of the biggest hurdles a farm family faces.
Some handovers can be simple and straight-forward, but others "can be very difficult, in particular if there are several siblings involved in the business," observes veteran farm accountant Alan Enns, whose practice is based in Aylmer. The parents may want to treat all children equitably, he says, but this may be impossible to achieve without having a disastrous effect on the family farm business and those who take it over. Or there may be conflicts - between the generations or within the same generation - about business directions.
At one time, the solution was easy - strike out on your own, says Richard Cressman, a Wellington County communications facilitator who specializes in farm succession. For those who founded Canada's agricultural industry, there was plenty of land to be had.
But today, with the type of investment now involved in a farm start-up, it has become harder for younger generations to follow in the independent tradition of their forebears. At the same time, farms are getting larger, more complex and consequently more difficult for one individual to manage.
More and more, people are faced with having to work together.
Co-operative arrangements bring with them other problems that a farm community immersed in the culture of individualism isn't necessarily equipped to deal with, says Cressman. What do you do when visions differ? What do you do when the partnership dissolves? Cressman always makes it a point to ask families to consider what will happen if their partnerships break up. "That freaks farmers out because they don't like to think that far ahead," he says. "But if they do, they will be more successful in the long term."
It might be harder to strike out on your own, but Carl Moore is adamant that this is the way to go. "I just hate partnerships and corporations," says the Woodstock area financial planner.
The trouble with sharing is that, somewhere along the line, more players may enter the picture. As the old adage goes, too many cooks spoil the broth. "Once you get several family members in it, you might as well wind it up right away," says Moore.
So is sharing an approach to be avoided at all costs or to be embraced as a new reality?
Here is a look at how six Ontario farm families have addressed sharing in their succession plans.
The Nyenhuis and Aitchesons of Perth County
For Perth County's Rob Nyenhuis and Brian Aitcheson, succession arrangements got under way in 2002, when the pair - Aitcheson is married to Nyenhuis' sister, Marloes - spun a sow operation business venture from the farm of Nyenhuis' father.
The approach not only offered the two a chance to get into farming, something they both wanted to do, but also provided an opportunity for Nyenhuis' father, Huub, to expand his business.
"Originally my dad's was a 180-sow, farrow-to-finish," says Rob. "The sows came over here and we went to 540 sows, and he tripled his finishing capacity."
The pair established their operation on the Aitcheson's family farm, where they built a new barn and renovated an existing barn. Initially, they used the farm's land base to dispose of manure and grow feed to supply Huub's finishing operation (each farm now grows its own crops to supply its operation).
The venture was set up as a corporation with investment coming from both families to help get the two started. Brian says that the decision to incorporate was to clarify the relationships of all of those involved and to facilitate buyouts.
Both Rob, 28, and Brian, 33, wanted to end up owning their own business. Brian would eventually take control of the sow business while Rob would buy out his parents, who would then retire. Their holdings might eventually be independent, but their plan was to work together "as a family loop." Sharing ideas and trading labour between the two businesses would also be a part of the relationship.
Rob explains the arrangement's appeal: "Working within the family, there are relationships that allow for give and take as opposed to working with an arms-length type of party, where you sell the pigs and they give you a cheque, that's it."
In the same way, with Huub Nyenhuis' operation providing a guaranteed market for their animals, the young farmers had a sense of stability. Then, last fall, Ontario's hog industry plunged into crisis as a result of the rising value of the Canadian dollar and escalating input costs. The two families put the final stages of the succession plan on hold.
Since then, Brian and Rob have formulated a plan to get them through to early next year. If worst comes to worst, they know that the framework they've set up for this interim stage of succession will leave their families protected. "We don't want to lean on anybody else (both sets of parents) either," says Brian. "If something goes wrong, we take the fall."
The Millers of Jarvis
If you get negative, you'll never win anything. You just have to keep driving on," says George Miller, who farms with his son, Dwayne.
"I love what I do," says Dwayne, when asked why he decided to make a career of farming. "I like the lifestyle.
I like the flexibility of being your own boss and I like being outside," he adds.
George and Dwayne, both graduates of Ridgetown College, work about 2,000 acres on the shore of Lake Erie, near the town of Jarvis. They have 40 purebred Charolais cows and 90 Simmental cross commercial cows. They feed their own calves and also buy enough locally-produced calves to finish 400 per year.
Dwayne started by buying his own cows and land. But keeping the operations separate got difficult, so, George explains, they formed a company with both parties owning shares. George and wife Dianne hold the majority of the shares now, but the structure provides Dwayne with the opportunity to build up his share in the business gradually.
George has some experience with a co-operative approach. When he graduated from Ridgetown in 1967, he came home and worked with his father and uncles. As more people got involved, they decided to separate the business, although George still works with one of his cousins by sharing machinery and cropping. They grow beans, corn, wheat and alfalfa.
Both George and Dwayne agree that the biggest challenge is the tight margins in farming today. Dwayne is responsible for pricing inputs to reduce costs.
The two work well together, drawing on each other's strengths. "We have our differences but, at the end of the day, we come back together," says George. "We work well as a team," adds Dwayne. He says his parents both encouraged him without pressuring him into farming.
The Egos and MacPhails of Orillia
Ten years ago, after graduating from university, Kristin Ego MacPhail returned to work on the farm of her parents, Laury and Lorraine Ego, near Orillia. The farm grows fresh fruits and vegetables to sell in an on-farm store and in farmers' markets. It also contains a greenhouse operation specializing in hardy nursery stock that is sold wholesale.
When she and her husband, Gary MacPhail, married in 2003, they faced a major decision. Should they live in Toronto, where Gary worked, or near Kristin's family? They opted to remain in the Orillia area, but realized that they needed more in the future than just being employees on the family farm. "If I'm investing more of my life and making life choices, then I want an ownership position," Kristin says.
At the same time, the business was growing and needed another manager to come on board. Discussions turned serious, involving everyone in the family - Kristin's parents, Gary, and her two brothers, Kevin and Bryan. While all three children were interested in farming, Kevin worked in the United States, and Bryan, the youngest, had just begun university.
The family hired a mediator to help with a plan and establish market values, not only for the physical assets such as machinery and greenhouses but also the retail business. Kristin and Gary bought the business, its inventory and equipment over two years and opted to rent the land at first, with an option to buy it later on at a set price.
"We tried to be fair with everything, but they (her parents) weren't trying to get the best deal from us," notes Kristin. Her parents continue to work in the business, so they also receive salaries.
The approach to succession addressed one of Kristin and Gary's biggest challenges. Even though they had other properties, they also had other mortgages, making it difficult to obtain the financing to buy her parents' property. Delaying its purchase has helped, as will her parents' willingness to hold a mortgage when the time comes.
The couple incorporated the business operations but hold their properties (they own other farms in the area) personally. This arrangement clearly separates business from family and is the beginning of their own succession plan, says Kristin.
Her youngest brother is now finished university and works on the farm as a field manager. He wants to be more involved and she sees an opportunity for him to rent or buy one of the other farms and perhaps spearhead a value-added venture related to the family business. The challenge "would be to grow the business in order to accommodate that (venture) and give him enough cash flow to then be able to manage a mortgage," she says.
Kristin believes one of the greatest benefits of undergoing the succession process was that it pushed them to build a better business plan and ensure that everyone's needs were met. "I had a new appreciation for some of the things my parents had done," she says.
Buying outright also instilled a sense of ownership. "I never really felt like I was just trapped into taking over the same business my parents had run," she says.
The Pelleboers of Sarnia
At 16, Brenten Pelleboer is already getting into his parents' farming business. His father, Brian, explains that Brenten is the only one of eight children interested in farming, so far. "He's got to set his own course and he's just starting," says Brian.
Brian currently has about 200 Angus-cross cows on his Sarnia-area farm. Brenten bought his first cow and calf when he was 10 and now owns 14 cows plus four bred heifers and is feeding some calves in the feedlot. He enjoys looking into the breeding and trying to get a better, more marketable animal, and likes the variety that comes with working on the farm. Brenten plans to learn a trade, such as carpentry, before coming home to farm full time.
Brenten may be only 16, but his parents are already thinking about succession. Brian and his wife have always invested money in something other than agriculture, which will allow them to help their children into the business.
Brian's parents came from Holland in the 1950s. The land they bought has passed to Brian and he expects that Brenten will eventually buy it from him. Brian thinks about how much money has been spent on interest over the years as the land has passed from generation to generation. "It is the same dirt - we just want to be able to make a living," he says.
Acquiring land is the biggest challenge that Brenten sees in getting started in farming. Brian thinks his biggest challenge will be economic sustainability. The weakening American dollar has had a big impact on the Pelleboers' business. "Everything we trade is related to the American dollar," says Brian. However, he points out that interest rates are a lot lower than when he started.
Adaptation and willingness to change are vital to making a farm business successful, he adds. One of the big differences he sees in farming today, compared to when he started, is that "you're forced to think of it like a business," he says. However, farming is "more than just a business, it is who we are."
The Leslies of Georgetown
There may be a 10-year difference in age between Chantelle Leslie, 27, and her brother, Philip, 37, but when it comes to their family's farm, a 250-acre, 40-cow dairy operation, the siblings share a similar vision. They both want to farm and they both want to make sure the seventh-generation Georgetown-area farm remains in the family.
Philip has worked on the farm full-time with his father for more than 15 years, while Chantelle juggles part-time work there with a full-time job at the Ontario Federation of Agriculture.
A few years ago their parents, Tom and Sally, made some succession arrangements, most notably adding both of their children to the ownership of their dairy quota to make sure that, no matter what happened, business could go on as usual. But it wasn't until a year ago that the family began to look more seriously at how to transfer the enterprise from one generation to the other.
Their parents wanted to retire but were wondering how to do it "without selling cows and quota to continue on," says Chantelle. From the outset, they worked with a mediator, a presence which Philip suggests is essential for anyone dealing with the issue.
The transition hasn't been easy and not without some family disputes. A neutral presence at the table "really helped calm the waters," says Chantelle.
They chose a financial planner both generations could respect, another decision that Chantelle feels was key.
So far, they've taken things slowly, in "small steps," as Philip puts it. They havereorganized financial control so that Philip can now authorize bill payment. They have struck plans for Philip and Chantelle to buy the business and arranged a salary for Philip.
Farther down the road, there are other changes they'd like to see happen yet they realize it's important to give their parents the time to adjust. Moving too quickly can also pose a risk for business, Chantelle notes. "I've seen too many farms or just businesses in general, family businesses where they take a big chunk too much, too fast and it doesn't go over well either emotionally with the family or financially."
Although they see sharing as the way to go for now, the ultimate goal is for each to own a farm and remain supportive of the other's endeavours.
Being frank about their goals, not only with their parents but also with each other, is vital, Chantelle says. She's heard too many stories of what happens when goals aren't clearly outlined, where siblings don't want the farm but feel entitled to their share. Then "that one person who's farming full-time has to pay off all their siblings and lose the farm (in the process). That's not their fault; that's the fault of the parents."
The Dodges of Strathroy
His sons' enthusiasm gives Delmar Dodge optimism for farming's future. Michael graduated from Ridgetown College in 2006 and came home full-time to their Strathroy-area farm. His other son, Jeremy, is also interested and works on the farm, but has an off-farm job as well.
The Dodges finish between 10,000 and 12,000 early wean pigs per year and the calves produced by their 60 Red Angus cross Simmental cows. They work in partnership with Del's nephew, Steve Dodge, to help crop their 750 acres. In 2006, they began working with a neighbour to increase their number of market hogs and now feed all the crops they grow. Michael runs the feed mill, the finishing barn and looking after the cows, while Del works as the overall manager.
"The opportunity was there and I couldn't pass it up," says Michael. His biggest challenge is running the business side of the operation. However, he feels that the courses he took at college helped open his eyes to the realities of farming.
As with most farmers, Del sees cash flow as the biggest challenge for the future. He also cites the high cost of land, which sells in his area for between $4,000 and $5,000 per acre. There are not many For Sale signs in the neighbourhood, he adds.
In spite of this, Del is optimistic about the future of farming. "We are producing a commodity that everyone uses and the population is growing," he says. BF
Canada's - and Ontario's - aging farm population
- In 2001, only 12 per cent of Canada's farmers were under the age of 35. That's a far cry from the 40 per cent of Canada's entire labour force which fell into that category during the same year.
- In 2006, just nine per cent of Ontario's farm operators were under the age of 35, while 43 per cent were 55 years or older.
- The average age of Ontario operators in 2006 was 53, a year older than the national average age of farm operators.
Four key questions when considering a succession plan
If your family is beginning to talk about transferring the farm from one generation to the next, here are four key questions communications facilitator Richard Cressman suggests you consider in sequence:
- Does the farm have the capacity to provide cash flow for a second generation in the business profitably?
- Does the younger generation have a big enough dream to get out of bed for the next 20 to 25 years and do what it takes to make the payments on this enterprise?
- If there's going to be more than one individual in the family involved, have they had the training, or are they willing to get it? And do they have the desire to do whatever it takes to work together effectively?
- Do Mom and Dad have confidence that the younger generation are able to do the work that it takes to provide the retirement that Mom and Dad want and deserve?
If the answer to the first question is no, "that's where it gets pretty tough," says Cressman. In a lot of cases, that's where the stopping point should be, but sometimes those in either generation refuse to accept it and still push ahead. Sometimes it works, but often "you end up trying to eke out a living when you would have been better off doing something else."
Yet, he observes, the desire to "farm and farm at all costs" is powerful in some people, who may be farming for reasons that aren't necessarily financial. "Frankly, as a member of society, I'm glad that there are a lot of farmers like that," he says. But it's tough "when you're behind the eight-ball before you start." BF