The reality of just how capital-intensive farming can be becomes apparent when it’s time to pass on the business — the next generation needs capital to get in and the retiring generation needs to take it out to fund retirement.
Why it matters: The experiences of three families shows that the right risk-mitigating investment strategies and an understanding of the goals of each party can help families develop succession plans that take advantage of the younger generation’s enthusiasm and the older one’s experience.
Angus MacLaughlin, a dairy farmer from Napanee, decided to pursue a career on the family farm after his third year of university. With their 75-cow tie-stall operation, he and his father saw succession planning as an opportunity to modernize. That meant switching to a robotic milking system and building a new barn to accommodate it.
The plans were not formulated overnight. MacLaughlin says he and his father discussed the farm’s future every time he returned from university in the summer. Much of what was discussed had to do with their own goals and expectations, the role new technology might play, and where they should both invest resources.
“We needed the ability to expand the herd,” said MacLaughlin. “Dad was really good and open to new ideas. It was a long feeling-each-other-out process.”
That willingness to discuss needs and wants coalesced in a mutually beneficial business structure, specifically a corporation freeze where MacLaughlin owns a percentage of all new additions to the farm after a given date, while his father retains 100 per cent ownership of everything present before that date.
“Succession planning may not be as big a deal as some people think it might be. It’s definitely a long process. It’s important to know where each other’s mind is at,” said MacLaughlin.
Familial share cropping
For Lauren Benoit, an agricultural graduate student and grain farmer from Exeter, getting involved with her family’s 100-acre grain farm started with making her own proportional capital investments, as well as recognizing the importance of her father’s experience and business expertise.
Originally, Benoit asked her parents to let her take charge of one corn field. Citing the need to understand the whole three-crop rotation system, however, they suggested she take a more general approach.
Benoit, who is currently attaining a master’s degree at the University of Guelph’s Ridgetown College, now rents one-third of the land and pays for one-third of the inputs. This provides her with an opportunity to present and benefit from new ideas such as experimenting with cover crops, and to learn from her more experienced parents.
Her family’s relatively small acreage, she said, made the arrangement easier to manage. Good co-operation and communication also helped eliminate undue or unnecessary business risks, as did additional financial knowledge, some of which Benoit credits to attending the Agri-Food Management Institute’s Advanced Farm Management program with her father.
“It was good for both of us. It kind of forced us to have conversations that we might not have had,” said Benoit.
She added they both have different areas of expertise, and their current arrangement allows them to separately employ those strengths to support the business as a whole.
“I do a lot of the marketing and weed scouting, things like that. Dad takes care of a lot of the nutrient and fertilizer concerns. We still try to run important things by each other first.”
Phil Kroesbergen, a veal farmer from Strathroy who moved home after completing university two years ago, says understanding what his father financially needed from the business was the prime consideration when broaching the succession subject. Having started the farm in 2001 and slowly tripling its size, they now market between 1,600 and 2,000 veal calves each year. Kroesbergen says his father is mainly content with where the business is at.
“The debt load now is much less oppressive,” he said. “Dad’s getting older and doesn’t want to take on more debt. Being too ambitious would definitely be a problem.”
With this in mind, Kroesbergen initially adjusted to fit his father’s already-established and successful business model focused on slow, steady growth through strategic investments.
The most recent involved consolidating their operation from many smaller barns spread over a wide area to two more centralized barns, one built in 2015, then expanded earlier in 2018.
“We basically consolidated to make the operation more efficient,” he said.
That consolidation also gave Kroesbergen the opportunity to change how they bought calves. Rather than purchasing calves through a buyer, he convinced his father to let him buy from friends and school acquaintances directly. Doing so cut out the middlemen and saved money.
While a formal succession plan is still being hashed out, Kroesbergen says making production changes is much more practical now that both of them work for the business full time.