Population changes signal new business landscape |
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By Laura Miller, Newsletter editor As Iowa’s farming population ages, the state faces a changing of the guard.
Demographic trends, economics and farm policy are fueling some of the changes, which leave many questions unanswered. What will happen to Iowa’s rural communities? Will young people be able to enter the business? How will ownership changes affect the structure and makeup of Iowa agriculture?
A group of concerned individuals gathered at Iowa State University in October to discuss issues related to farm business transfers and farm succession. The one-day event was an outreach activity of the Leopold Center’s Policy Initiative led by Mike Duffy. Co-sponsors were the Beginning Farmer Center at Iowa State University and the Drake University Agricultural Law Center in Des Moines.
Keynote speaker was agricultural economist Andrew Errington from the University of Plymouth in England. Using data collected by his FARMTRANSFERS project, he explained how farm families pass their businesses to the next generation in England, France, Poland, Canada, Japan and the United States. Although farm ownership is handled differently in each country, many aspects of the transition remain the same.
“Very often the older generation is passing on more than just a business but also the experience they’ve gained through the years,” he said. “These intangible assets – how to best raise crops on a particular field, what date it’s best to set out the cows – are passed down in a process that happens over a period of time.”
Errington collaborated with the Beginning Farmer Center in 2000 to survey Iowa farmers about their plans for retirement [see Spring 2002 Leopold Letter, “Who will farm the land?”]. The survey showed that a majority had not made plans for the future of their farming operation, and that half of those who had made plans had not discussed them with anyone.
“Farmers are pretty much the same throughout the world,” Errington said. “They are uncomfortable talking about income, and most farmers are reluctant to hand over managerial control to a successor.”
Surveys showed that the chief objective of a farm family business was not strictly for profitability, but to maintain control and pass a secure and sound business to the next generation. The surveys also showed that retiring farmers expect to have a place to live – a problem in England, which lacks suitable housing in rural areas – and an assured income. “In essence, your son is your pension fund manager,” Errington added.
The phenomenon of semiretirement unique to farming also is common. Farmers in the United States and Japan on average expect to remain active until age 68, about 10 years longer than their European and Canadian counterparts. U.S. farmers also expect to derive about one-fourth of their income from the farm.
Errington’s work points to several models for farm succession. In the traditional “farmer’s boy” model, the successor works alongside the principal operator while making few financial decisions. About 20 to 25 percent of successors in the United States run a separate farm while waiting to take over the family farm. This option has almost been eliminated in England due to high land costs. An increasingly popular third option is the “professional detour,” in which successors work off the farm in an unrelated occupation before returning to agriculture.
Duffy said problems faced by retiring and beginning farmers have some of the same causes, but different outcomes. Higher land values and cash rent help retiring farmers maintain an adequate income, but can keep beginning farmers from entering the business. Few operations raise livestock, which provides opportunities for young farmers to build capital by providing labor.
“The trends continue to move against beginning farmers and will continue unless we have new policies,” Duffy said. “There are options available but it will take a change in mindset, not only with retiring farmers, but the younger people coming in.”
Duffy said the discussion showed the need for more research in this area, especially on the impacts of goverment programs on farm succession planning.
(In a sad postscript to the successful meeting, the Leopold Center was informed that Dr. Errington died in November.) |
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Back to Winter 2003 Leopold Letter
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