Who will farm the land? No easy answers

Iowa is losing farms, farmers

By Mike Duffy, John Baker and Adrienne Lamberti *

Who will farm the land? Under what conditions will it be farmed? Will there be any young farmers left? These are tough questions and ones for which there are no solid answers.

To examine these and other questions about farm succession plans, the Iowa State University (ISU) Beginning Farmer Center conducted a mail survey of Iowa farmers. The survey was conducted by the Iowa Agricultural Statistics Service in the first quarter of 2000. There were 418 useable responses.

The survey is modeled on one developed by Professor Andrew Errington of the University of Plymouth in England. Errington conducted a series of surveys to examine farm succession and retirement plans in England, France and Canada. The Beginning Farmer Center also has been instrumental in helping several states conduct similar surveys.

According to the survey results, a majority of Iowa farmers have not made plans for the future of their farm businesses or for their retirements. Only 29 percent said they have identified a successor for their farm businesses.

Age is not a significant factor. The average age of those with a known successor was 58, while the average age for those who have not chosen their successor was 52.

When asked about their retirement plans, slightly more than one-fourth (27 percent) said they do not expect to ever retire. Another 38 percent said they expected to semi-retire at some point and the remaining 35 percent said that they were planning to retire.

For those farmers planning to retire, 32 percent have a known successor and 36 percent do not. At the opposite end of the spectrum, among farmers who say they will never retire, 18 percent have a successor, while 31 percent do not.

Almost three-fourths of these farmers who said they would retire or semi-retire, 73 percent, also said that they expect to receive 29 percent of their retirement income from the farm business. Therefore, in addition to the income necessary to support the farm business operator, the existing farm will be expected to generate almost one-third of the retired farmer's income.

Average Iowa farmers report that they plan to retire or semi-retire at age 66. The average age of farmers in the survey was 54 years old. More than half of the farmers, 52 percent, had not discussed their retirement plans with anyone. Of those who had discussed their plans, 83 percent, had discussed their plans with their families.

A study from Laval University in Canada notes; ". . .overemphasis on the economic aspects of farm transfer obscures the important role that human relations play in the successful transfer of family agricultural assets." Discussions with the family are critical for intergenerational transfer."

Forty-five percent of the Iowa farmers indicated they had made an estate plan. The average age for those with a plan was 58 years old while those without a plan averaged 50 years of age.

It is disturbing to see that Iowa farmers are not preparing more carefully for the future. Granted, approximately one-fourth say they will never retire, which is in a sense formulating a plan. But, as a rule, farmers do not appear to be making retirement plans in the real sense of the term.

Another aspect of farm succession is how the transfer is being conducted. Errington coined a term "succession ladder" to describe the gradual passage of the farm decision making to the next generation. The ladder's rungs are passing on the skills regarding technical, strategic planning, supervisory/managerial, financial, and finally, what Errington describes as "control of the purse strings." French and Canadian successors move up this ladder fairly rapidly, while British and American successors only gradually assume control of the farm.

A successful transfer involves more than simply identifying a successor. As the Laval study notes, "The process is fraught with pitfalls as young farmers seek to take their place in running the farm while owners gradually yield responsibility." Several studies have shown that there are a number of the eventual farmers who will be clearly unprepared to make decisions. Both parties must act to help integrate the young farmers as quickly as possible.

One of the issues facing farmers in developing a succession plan is how to treat all the children fairly. It is important to remember that the sibling who stays with the farm contributes sweat equity. Such an investment has to be recognized in an equitable estate plan.

Some have argued that they are not surprised at the low percentage of farms with succession plans because of the poor farm economy. However, in another study conducted during the same time period, more than 85 percent of the farmers said that if they had it to do over they would still choose farming as a career.

Farmers have worked hard to build their businesses. It is a shame to see these enterprises broken up and sold in pieces. Too many Iowa farmers shut off the combine in the fall and say they are going to retire, and then think they can have a feasible plan in place by the next planting season. It just doesn't work that way.

* Duffy is associate director for the Leopold Center and professor-in-charge of the Beginning Farmer Center; Baker is an attorney-at-law and administrator for the Beginning Farmer Center; and Lamberti is a graduate student at ISU.

Iowa is losing farms, farmers

The latest report from the U.S. Department of Agriculture confirms what those who work with Iowa farmers have known for some time: Iowa is losing farms at a rapid pace, more than three times the nationwide rate.

The number of farms in Iowa dropped from 96,000 in 1999 to 93,500 in 2001, the latest period studied by the National Agricultural Statistics Service of the USDA. Iowa lost 2,500 farms, or 2.6 percent, compared to the nationwide decline of 0.7 percent. Hardest hit were midsize farms, defined as having an annual income between $10,000 and $99,999, whose numbers fell 2.9 percent for a loss of 1,100 farms.

Iowa also has many farmers approaching retirement, and few younger farmers getting into the business. The U.S. Census shows that in 1997, 22 percent of Iowa's farmers were over age 65 and 10 percent were under age 35. Twenty years ago, the opposite was true. Ten percent of Iowa's farmers were over age 65 in 1978, and 21 percent were under age 35.

The report does not show the distortions caused by the current definition of a farm. For almost 30 years a farm has been defined as a place that sells $1,000 or more of agricultural products. This definition makes statistics difficult to interpret, masks the true nature of changes in farming, and limits the effectiveness of programs designed to help midsize family farms.