Good Fruit Grower

December 2012

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Family Succession Transition brings UNCERTAINTY Opening up the lines of communication is critical Kevin Moore, agricultural economist at the University of Missouri, Columbia. I to the successful transition of the farm to the next generation. by Geraldine Warner n a family farm business, there's often the hope or expectation that the next generation will return to work on the farm. But young people who are think- ing of returning to the family business today face greater uncertainties than at any time before, says Bringing in the new generation exposes the business to more financial risk and vulnerability because it's often necessary to grow the business to generate income to support the extended family. Farmers are living longer, and the farm might have to cover health-care costs and retirement income for the generation leaving the business as well as salaries for the generations still involved. "At any point in time, the farm might be supporting three or more generations of that family," Moore said. The keys to successfully transitioning a farm to the next generation are good communication and plan- ning, Moore says. During the farm financial crisis of the late 1980s, the university launched an extension class called "Returning to the Farm" to help students and their families decide if and when college graduates would go back to the farm and help them make the transition successfully—if that's what they decided to do. At the time, land values had plummeted, and many farms—orchards included—faced foreclosure or bank- ruptcy. It was a time when farmers could barely survive, Kevin Moore let alone try to bring a younger generation into the business. Just as challenging UMC still offers the class, but as an upper-level under- graduate class. Moore said transitioning a farm to the next generation is just as challenging today, though for different reasons. "To me, the uncertainty we face today is almost greater than at any period of time I've ever seen," he said. Now, land values are high, which can create cash-flow problems. Farms have become more sophisticated tech- nologically, and machinery is increasingly expensive. No one can predict where oil prices will be over the next five or ten years. "We have very low interest rates, which make some of the financial plans look a little bit better, but how long can they stay this low?" he asked. "There's only one direction they have to go, and that would be up. There are so many ways that the farm's bottom line is being affected, and I think it makes it very difficult to plan," he said. "Returning to the Farm" is an upper-level class taken S.S. EQUIPMENT HORT New Holland T4040V with Low Prof ile Saf-T Cab by students who are mostly not ag economics majors. Typically, they've taken an introductory economics class but then gone on to study production agriculture of various types. "They've learned a lot about becoming better produc- SPECIALS SEE OUR See us for BIG SAVINGS on Rental Tractor & Bin Trailer Returns 509-547-1795 509-522-9800 541-567-3001 509-787-3595 509-488-9606 MOSES LAKE PASCO WALLA WALLA LAKEVIEW 12 DECEMBER 2012 GOOD FRUIT GROWER HERMISTON CHRISTMAS VALLEY QUINCY LA GRANDE HINES OTHELLO FULL LINE Special Year-End Deals on SPRAYERS S.S. EQUIPMENT S.S. EQ UIPMENT tion scientists, but haven't learned how to treat the farm as a business," Moore said. "The class really helps the stu- dents get exposed to some of the business and financial planning skills that are important for them to be able to evaluate the potential success of going back to the farm." During weekly classroom sessions, students develop and evaluate a financial plan, looking into the feasibility and profitability of returning to the farm. Family mem- bers and business partners take part in weekend work- shops with the students to cover topics that need input from all involved. Most valuable part "What the students would probably say is the most valuable part is opening up the doors of communication with family, because they have to talk about goals, and look at the compatibility between the goals of the differ- ent generations, and about estate planning," Moore said. "It's hard to talk about when mom and dad are going to pass on, but it's an important thing to discuss. The class gives them a reason to talk about the things that every- one's wondering and worrying about, but are hard to bring up. It provides a forum to do that." Moore said the older generation often find it difficult to be totally open about the financial picture, especially on the liability side of the balance sheet. "Kids have seen the income, and they're familiar with what's produced on the farm, and what its value is," he said. "They have an idea of the productive capacity and the income capacity, but the information they're not exposed to is how much debt exists on the farm. "We've had some parents who've declined to share that with their children, and that usually results in the kids saying, 'I can't go back and put my future on the line with- out knowing what the actual financial structure of the farm looks like and how much debt there is.' It makes it a very scary thing to go back to." Courtesy of university of Missouri, ColuMbia

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