Monday, November 08, 2010 |
By Gord Gilmour, CG Associate Editor
FARMAGEDDON
By now we’ve all seen the reports and the newspaper stories. It doesn’t matter exactly which ones. They’re all more or less the same, starting with the “fact” that tens of billions of dollars of farm assets must somehow be transferred to the next generation of farm operators over the next few years.
Is it really a “fact?” And if it is, is it really going to cause massive upheaval in Canada’s farm sector?
Take the recent report from Statistics Canada as an example. Based on the 2008 Farm Financial Survey, the federal number cruncher lays the scope of the issue out in black and white: 53 per cent of the farms in Canada are operated by a farmer 55 years of age or older. Those farmers hold the majority — about $134 billion — of Canada’s total farm assets of $247 billion.
“Most of those are expected to retire over the next 15 years. Consequently Canadian agriculture will lose significant expertise as these operators retire,” reads the report in part.
That StatsCan report isn’t the only one out there. It’s just among the latest.
One of the first salvos in the farm succession challenge came from Guelph’s George Morris Centre about 10 years ago. Larry Martin was the lead author on the report, which told agriculture that it should expect huge asset turnover — as much as $50 billion — and as many as 120,000 farmers of pensionable age by 2010.
Martin’s report was one of the catalysts creating a whole trend towards fretting over farm succession in Canada, and over the past decade it has seen governments and farm organizations press for bigger, better and costlier programs.
But when Country Guide contacted Martin about the study, he spoke frankly about its limitations.
“I think if I were asked to write that report today, I’d either say no, or I’d write a completely different report,” Martin says candidly.
New thinking
The talk of big dollars turning over and a greying farm population is fine as far as it goes — and it remains an accurate portrayal of the most experienced and established farmers in the country. But that talk fails to address other, more heartening trends that Martin now sees eddying below the surface in the up-and-coming generation.
“I’m not worried about attracting good young people to agriculture in Canada — not one little bit,” Martin says. “The quality and skill level of the new generation of farm managers I’m meeting is just phenomenal.”
Martin meets a new crop every year through the centre’s Canadian Total Excellence in Agriculture Management program, which offers a group of predominantly younger producers an annual ongoing educational and networking opportunity. He says based on this experience, he’s convinced there’s a new breed of farm manager sinking their roots in Canadian soil.
Martin says these managers are frequently farm kids coming home in their 30s after an extensive off-farm career, or even high-powered professionals with no direct connection to the farm. They’re bringing innovative new management ideas that accomplish a lot of things, including finding ways around the seemingly perpetual problem of financing the establishment and growth of a new farm.
One of Canada’s top agriculture lenders echoes that sentiment. Rémi Lemoine, chief operating officer of Farm Credit Canada (FCC), tells Country Guide that succession planning isn’t something that can be ignored — but there aren’t any signs that it’s a pending crisis either.
After all, the StatsCan numbers are talking about the industry in its totality, and while they’re an important piece of context, each succession plan is unique and finds its own innovative way past these hurdles. Lemoine describes a fast-changing landscape where young farmers are open to new ways of doing business that their predecessors never even considered. He doesn’t quite come out and call it a generation gap, but it becomes clear as he speaks that this is exactly what he’s describing.
“When I was coming into the business in the 1980s — I’ve been in agriculture lending for more than 25 years — there was this idea that you had to own all the assets,” Lemoine explains. “You bought the assets and paid them off as quickly as possible, even if you struggled on the income side.
“The new operators today are much more open to different ideas like long-term rental arrangements,” Lemoine says. “In many cases they’d prefer someone else carry some of the risk of land ownership, and they’d prefer to make their investments in other areas.”
Cameron Short, executive director of the policy division of Agriculture and Agri-Food Canada (AAFC), agrees farm transfer is a big dollar issue — but he joins his counterparts in questioning the occasionally overhyped nature of the discussion. In fact farmers don’t tend to turn 65 and pull the pin. They’re engaged in a business they enjoy and few of them circle their 65th birthday on the calendar as some sort of escape plot.
“To the average farmer, turning 65 isn’t some magic number,” says Short. “They’re like most small business owners in that way. Many of them really like farming, they’ll continue long after they’re 65, and they’ll retire gradually.”
That trend dovetails nicely with the realities of farmland ownership in Canada. In many cases retiring farmers are, not unnaturally, reluctant to turn their backs on a lifetime’s work by selling their land. Many of them prefer to retain ownership through their retirement years, relying on the rental income to supplement government pensions and other investments.
And eventually, when the retired farmers pass away, more and more of their children are opting to retain land ownership.
“I think that’s something you’re going to see more and more,” says Martin. “It’s become very common down in the U.S., where you might see someone who lives and works in Denver owning and renting out what was the family farm in Iowa.”
In most cases that land goes to another local farm, but Martin says there are also farm management companies in some parts of the U.S. that will manage the day-to-day farm operations for landowners as well, something that could potentially emerge on this side of the border in a big way. And then there’s also the issue of outside investors.
“There are a number of operations, some in Ontario, some on the Prairies, whose business plan is to buy land and hold it long term and rent it back to farmers,” Martin says. “They say they will be — and they appear to be — holding it long term.”
All of these one-off solutions give just a hint as to some of the ways the farms of tomorrow will grow and thrive despite the challenge of farm asset transfer.
Getting started
Putting such strategies to work means sitting down to honestly evaluate the operation and the goals of the various family members who will be affected by any future succession plan. Starting early gives operators and heirs time to manage tax implications and to adopt strategies ranging from downsizing to using insurance to offset farm asset inheritances.
There’s only one problem — nobody wants to do it. Elaine Froese is a farm family business coach, public speaker and consultant who works closely with families to conquer some of the interpersonal issues that inevitably surround any attempt to talk these issues through. She spoke to Country Guide recently by telephone from her family’s operation near Boissevain, Man.
“These topics are very, very sensitive ones, especially these days, with so many zeros trailing around behind all the numbers,” Froese says. “The value of farms has gotten so much greater over the past few years.”
Froese also says that the farm community is, generally speaking, not necessarily well equipped to have these discussions. Farm operators and their families tend to be hard workers and problem solvers, but they also as a rule tend to be more comfortable with technical rather than interpersonal challenges.
“We don’t deal with these issues very well at all,” Froese says. “We prefer to push them off as long as possible.”
But that’s a terrible strategy, she says, because no matter how invincible any of us may feel, the day will come when our will is opened up. And if the issues aren’t talked through ahead of time, someone could be surprised and angered — and the fact that they’ll likely be grieving at the same time will raise the stakes even higher. Froese says she’s seen plenty of examples first hand of families being irrevocably fractured.
Abe Toews grew up on a dairy farm near the city of Steinbach in southern Manitoba. These days he operates StoneCreek Financial Group in Regina, where he advises businesses of all type about business issues including succession planning. Like all succession advisers, Toews told Country Guide that there’s a right way to do these things and a wrong way.
“I’ve been involved in and seen some really good plans, and others that were, well… not good,” Toews says. “And when it’s not good, it can really be a disaster.”
Both Toews and Froese had no shortage of horror stories to share — something they say is a reality for anyone who’s in the business. Assets can get hung up for years at times, leaving multimillion-dollar businesses twisting in the wind. Siblings can refuse to speak to each other for years on end. Or lawsuits start flying, eating up the hard work of a lifetime.
Toews agrees that sitting down and talking frankly about these issues with family members is the first and most important step. He also says that doing it now allows a farm operator to explain a few of the facts of life to non-farming heirs, facts such as the reality of needing to keep assets together to ensure that the business remains viable, and the contribution that the farming heirs have made over the years to building the business.
“It’s the old question of fair versus equal,” Toews says. “In a lot of cases, an equal division of assets would actually be very unfair to the farming heir.”
Making the headlines
While the big numbers in the farm succession reports are grabbing all the attention, the people in the know say there’s the danger that the problem is being overblown a bit.
AAFC’s Cameron Short says one issue that’s frequently overlooked is just what definition is used to determine what’s a farm. In a lot of cases there are farms with tiny annual sales — about $10,000 for example — that are included in the global industry figures.
“A lot of these small, hobby-type operations actually hold a surprising amount of the total value of the assets,” Short says.
That’s because they tend to be retirement or hobby enterprises that are clustered in desirable areas or around major cities, where other forces like general real estate pressures have a major effect on asset values.
Farm Credit Canada’s Rémi Lemoine says there also appears to be little evidence that young farmers who do want money to purchase assets are having trouble finding it. He cites his organization’s loan portfolio as just one example.
“Last year about 34 per cent of the loans we made were to people under 40 years of age,” Lemoine says. “And those have been loans to every possible type and model of farm operation.”
In fact, Lemoine says one of his growing concerns these days isn’t the scope of the farm succession issue. It’s that the industry is paying too much attention to this picture and risks painting an unattractive self-portrait at a time it needs to sell itself to new entrants.
“If I’ve learned one thing over the years, it’s that bad news gets out very quickly and good news doesn’t,” Lemoine says. “Sometimes I think this doesn’t project the industry in a very good light and it might actually scare new entrants, rather than attract them.”CG
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“ The quality and skill level of the new generation of farm managers i’m meeting is just phenomenal.” — Larry Martin
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It Turns Out The New Generation Is Making Business Moves Their Parents Never Dreamed Of
AgCanada
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