Saying the Quiet Part Out Loud: Agricultural Succession is Failing

The statistics don’t lie: agriculture – both primary producers and consultants – has a failing grade when it comes to succession.

For consecutive years, the Texas A&M Executive program has demonstrated negative growth in succession and transition planning within agriculture. This program, which includes both Canadian and US farms, has tracked these metrics among the “progressive” growers for the past 20+ years. The data is clear; agriculture is going backwards when it comes to planning the next generation of farmers.

What is happening in the industry is not okay. Growing up, we used to call all the new crop input products that were being pushed on producers snake oil. Today, the snake-oil salesman wears a suit and tie and calls themselves an expert. We need to stop treating succession as a family issue and start treating it for what it is: the transfer of roles, accountability, and capital of a multi-million-dollar business.

The Incoming Generation

I am reminded of the quote, “There is no crying in baseball”. In no other industry would you take on a job that does not compensate you fairly, provides you no responsibility or growth, and gives you an IOU for the future. Speaking across North America, I am continually hearing the same stories.

In the end, this will all be yours.
We will make sure that the estate takes care of the farm.
You don’t need to know our plan.
When the time is right, you can manage the business.

The truth is, without the next generation allowing this to happen, the farm most likely would already be sold. In many situations I have seen through the years, the new generation is doing the majority of the labour and management, while still splitting the growth and income with the existing ownership. If this were a negotiation, and this were not family, you would not allow this. It is time to set parameters, and that might mean drawing lines.

However, make sure you have self-awareness. Are you actually performing ownership or management-level responsibilities? If the older generation stepped away today, could you succeed, or would the complexity and stress of the farm crush you? I also have seen the other side, where the next generation is “pushing” out the past generation well before they’re ready. Don’t fool yourself, the phrase “be careful what you wish for” is all too commonplace in primary producer operations.

The Outgoing Generation

If you are trying to hold onto a purpose, shift your mindset. The majority of problems I see arising from baby boomers is that they have not set themselves up for retirement success. This may be because they have no outside hobbies or interests outside of the farm operation (no, this is not healthy). This may also be because they have not removed any investment personally over their careers, so they require the farm income just to live. Lastly, the ability to trust or not have guilt is a skillset – learn it before they inflict bad decision-making on the next generation.

Here’s the bright light: whether through luck or skill, you have acquired more wealth than any other agricultural generation in the past. You should be compensated fairly for this, just not in the way that the real estate agents would like. Selling a farm numerous times will crush future success as it will hinder any chance of expansion and growth outside of the current acre base. However, being paid rent for your land base, equity for your capital contribution, and a fair salary for your labour and remaining management has been earned. Too often, we provide “gifts” to the next generation to get them started. Last time I checked, a $500K quarter of land is not a gift; that’s a sure-fire way to reduce the motivation to not be complacent. Today, the largest risk on family farms is complacency; no reason to manage the significant areas of business.

Start looking at the farm as an asset and wealth mechanism. Too often, we believe the legacy is the farm; this is incorrect. The legacy is the family (they just happen to farm). Non-farming siblings are no less important to the “family legacy” than those who decided to farm. Treating them differently because you haven’t taken the steps to equalize an estate is not the answer. Make them a part of the family office, allowing them to earn an annual return on the assets without forcing the farm to buy them out. I believe that any consultant who says “fair is not necessarily equal” is uninformed enough to realize the possibilities of generational wealth. Not just of the next generation, but for the grandkids and future lineage of the family. You want to be remembered for more than one generation.

The Snake-Oil

I will take some hate for this, but there are very few “succession experts” I trust in agriculture. In fact, I don’t even use the term succession anymore because of how bad the concept has become; I use transition. We are not trying to avoid family fights in succession; we are trying to avoid business failure. If the operation is not the main priority in your expert’s arsenal, you have the wrong expert.

Now, this isn’t saying that the process is not emotional; this is saying that if the driving force always appears to be emotion, then the farm is built to sell. The waters have been muddied by decades of poor advice, making this discussion more about personal communication and feelings. In every other industry, transitional planning is around fair and equal compensation, communication and merger structures, roles and responsibilities, and accountabilities to the ownership group. We need to quit putting agriculture on a pedestal and saying we are different; we are the same, we have just been told we are the only family-run businesses in the world (which is high sarcasm on my behalf).

A true transition plan requires the following items to be successful in the long run. A plan based on family cohesion and feelings may work in the short term, but it will ultimately fail through the generations.

A sound business structure built on a vision, core values, and strategy.
Long-term goals for both the farm and the family office or unit in terms of wealth distribution across the entire family tree.
Internal strategic operation procedures around communication, transparency, and decision-making cadence.
Compensation based on fair distribution for capital resources (equity), real estate (land), labour (seat time), and management (risk and reward).
A long-term “right to use” agreement between the land holdings and the farming operation; farming does not come with a right to the family real estate; it comes with access to the family real estate.
Full transparency between all generations, including farming and on-farming siblings of the plan and strategy. It is not the next generation’s responsibility to distribute your estate plan; it is yours.

The most important factor of all is that you should not “require” a transitional expert past the implementation stage. If your consultant is trying to remain “sticky” by making themselves a keyman in the process, move on. The goal of consultants is to assist you in building a process that works and then getting out of the way. Too often, consultants look for renewable revenue by inserting their importance into your operation. In succession and transition, this is a red flag.

To those who have ever discussed this with me, I live what I preach. Within our organization, I won’t take on a client who believes transition is about family feelings and “Christmas dinners”. I go by the approach that Christmas will not be fun if the business is bankrupt. In taking on a transition client, they need to understand that business comes first when the stakes are this high, and people and processes are the determining factor in success.

Repeating a quote that I have used many times in these blogs, “Rule 1 – never lose money, Rule 2 – never forget rule 1” – Warren Buffett.