When the latest USDA Ag Census was released earlier this year, it provided a case for the importance of transition planning. More than 33 percent of all farm owners in Pennsylvania are above the age of 65 years old, while only 13 percent are under the age of 35 years old. In other words, it’s likely that 33 percent of our farms or more will have to transition within the next 10 – 15 years to remain sustainable businesses.
Unfortunately, the cards are not stacked in favor of successful family business transitions. A Businessweek article from 2010 cites a study that shows only about 40 percent of family-owned businesses in the US transfer to the second generation, while only 13 percent are successfully passed down to the third. Less than 3 percent survive to the fourth generation. The average life span of a family business, according to the article, is only 24 years.
Today the stakes are higher when it comes to farm transition compared to 50 years ago. In just the last three years, USDA estimates that land values have increased by 57 percent. The capital investments needed to farm now are at all time high levels, with total farm sector debt increasing to a record high level of $535 billion in 2023, according to the Economic Research Services. Without a solid transition plan, just the capital requirement alone makes transitioning into farm ownership extremely difficult.
But often what we see at the Center is that the greatest barriers to successful farm transitions are not the financial ones. The greatest roadblocks often arise from a farm family’s inability to lean into those softer issues. Things like having a willingness to plan, seeing multiple perspectives, practicing open communications, and having mutual respect for each others’ perspectives and talents can make all the difference. Also, successful transitions can often depend on everyone’s ability to recognize that everyone is working toward a common goal.
That is where having an outside consultant guide you through the process of transition planning can be incredibly helpful. An outside consultant can facilitate discussions and make sure everyone’s goals and perspectives are known and heard. They can often also uncover hidden issues that may boil up to breaking points if they are not uncovered early enough in the process.
In a recent article, Monica McConkey, a rural mental health specialist with Eyes on the Horizon, shared helpful tips for navigating the transition process. A few of her tips included:
- Embrace open effective communications. This is critical to any successful farm transition. If you cannot communicate effectively without a neutral party, the Center and others can provide farm transition consultants who can help.
- Be willing to disagree. Disagreements will happen, especially when family is involved and the stakes are high. You need to go into meetings with a problem-solving mindset and a willingness to compromise.
- Seek to find common ground. Have one of your first conversations be about legacy, values, and goals of the operation. Explore your purpose for operating the business and how that can be shared as it moves from one generation to the next.
- Openly discuss roles before, during and after transition. Talk about who will be in charge of what and who will make what decisions. Whose job is it to manage employees, and who will complete what tasks? The more clearly roles are defined, the less opportunity there is for confusion, frustration, and inefficiency.
- Remember and operate under the golden rule, “Do unto others as you would have them do unto you.”
In late April, I had the opportunity to facilitate a panel with an older generation from one farm, a younger generation from another farm, and a transition consultant sharing their perspectives on the transition planning process. One of the questions I asked the panel after they were finished presenting was, “When is the right time to begin transition planning?”
All three panelists agreed that it is probably ten years before you think it is time to begin transition planning. Too often, we hear stories about an 85-year-old passing away with the farm still in their name and no transition plan, even though their 60-year-old son has spent the last 40 years of his life there working. That is when it is too late to plan.
Fortunately in Pennsylvania, lots of resources exist to help you with transition planning for your farm. The Center for Dairy Excellence is one of those resources. We offer a transition team planning grant that can help dairy farm families with the cost of paid team members, like attorneys and accountants, to navigate the transition process. We also have two transition consultants – Dr. Brian Reed and Dr. Charlie Gardner – who are available to help you and your family walk through a transition plan. Call us at 717-346-0849 to find out how we can help.
Editor’s Note: This column is written by Jayne Sebright, executive director for the Center for Dairy Excellence.