Passing on the Farm

9/15/2012 7:00 AM

CDE, Family Business Center Partner to Tackle Dairy’s Transition Mission

Charlene M. Shupp Espenshade

Special Sections Editor

ELIZABETHTOWN, Pa. — In the life of a family farm, there will come a point when the business will need to be passed on. This can be a tricky time as generational differences, different goals and experiences collide as to what is the “right” way to run a business.

Farm transition is one of the topics of conversation that Center of Dairy Excellence Executive Director John Frey hears when talking to dairy farmers. It continues to be rated at center events as one of the top issues facing the dairy industry.

For the older generation, they want to pass on the farm. For the younger generation, they are looking for their turn at the dairy dream. But it is the road through the transition process including business planning, family dynamics and financial and tax implications that can make it a bumpy journey.

On Aug. 29, Lancaster Farming visited with Mike McGrann, executive director of the S. Dale High Center for Family Business at Elizabethtown College and Fry to talk about the hurdles of moving a farm through the transition process.

Frey said he became aware of the family business center about three years ago. It started with McGrann speaking at a dairy profitablity event, but the discussion has continued regarding the issues surrounding transitioning family dairy farms.

They have also partnered on farm transition facilitator trainings.

“The degree to how we are successful (in the dairy industry) is based on how successful we are at running family businesses,” he said.

McGrann compared the failure to plan for the future to a garter snake under the kitchen table. The snake begins out small, but as time passes, the snake continues to be fed and grow, eventually becoming too much to manage. Putting off the discussion can make the choices more difficult and limit options the longer they wait.

As a facilitator, McGrann said the most difficult reality is when a transition facilitator is brought into the family business too late and nothing can be done.

Business transitions are an emotional process, he said, especially in farms because “there is such an incredible emotional tie to the land and animals.”

The arduous part of a family business transition is family dynamics. With those dynamics come the preverbal “elephant in the room” that no one wants to deal with, but for business success they need to be addressed.

For example, “sometimes the oldest son is not the best to run a business,” McGrann said, instead the youngest daughter might have the required skills to successfully lead. Another debate is how to treat the farm and non-farm siblings “fairly” in the process.

Each family business or farm transition has its own unique set of circumstances.

One farmer told Frey the most daunting part of getting started with the transition process was himself. The farmer said to move forward he was going to have to adapt to allow his children the ablity to excell in the farm.

There are a few common generational themes arising as businesses begin transitioning from the Baby Boomer generation and Generation X. For those in their 50s and 60s, McGrann said the focus has been on building the business for their children, putting in long hours and a 7-day-a-week focus. In contrast, the younger generation, he said, grew up “without seeing much of mom or dad” and deciding they don’t want that type of lifestyle. This generation wants a more “balanced” approach to business and family time.

“So who’s right?” asks McGrann. They both have valid points, and based on the desires of both generations, the business model might have to change to remain profitable and meet their lifestyle goals.

“This is why we have seen several robotic dairies built in Pennsylvania,” Frey said. A robotic dairy is a more cash-intensive option, but it is providing that balance that several younger dairymen wanted.

Statistically, one-fouth of family businesses will transtion to a second generation, only 9 percent of family businesses will transition from a second to third generation. Some will exit the businesses by choice, there is no interest to continue the operation by a younger family member. Others, because of the inability to develop a successful business transition model will be forced out.

Farm kids graduating from college have the choice of deciding to return to the family farm or opt for another career. McGrann said he shares a story of a young man who had the same dilemma at college graduation — return home to the family business or opt for a career elsewhere. The student had a job offer from a commercial bank, but still wanted to go home. When asking about what options would be available to return to the business, the family refused to discuss it. “What I tell students — if the senior generation is willing to have the conversation, follow your heart” They might not have the answers at that point, but it indicates a willingess to talk. “If not, that is a red flag.”

On Nov. 20 the centers will sponsor a farm transition meeting where certified farm transition advisers and a farm family can begin the planning process. Frey said the meeting will be in the Harrisburg area.

For farm families facing a farm transition, McGrann said the time to start talking is now. “You have to keep talking, keep pushing,” he said and it will not be easy. He views the choice as following two paths — the first is to let it drop and linger. Then at a later point, the family could be at risk of losing the farm. The second, begin the discussion, it will be a painful process, but the end result will have a more positive outcome.

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