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Farm Succession Conference 2002

Younger Generation needs fewer work hours, stable income and greater use of technology to be attracted to farming
By: David Kohl

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What will it take to attract younger people to follow in the footsteps of their farmer parents? A more balanced lifestyle is at the top of the list according to Professor David Kohl of Virginia Polytechnic Institute.

"Lifestyle will drive the new business model for younger farmers. Up until now, it's been the other way around," said Kohl who does not believe the younger generation is willing to work around the clock like their farm parents and grandparents. "Time is the most precious commodity," said Kohl who put a limit of 3,000 hours per year for a reasonable length of time to work on the farm business.

He said the older generation "lived to work" but for "generation X'ers", it's a case of working "to have a life."

Kohl warned his audience that working in excess of 3,000 hours per year can lead to mental, physical and spiritual breakdown. "After that, the business starts to go down and then families fall apart."

Time management, therefore, is a key consideration in structuring the future of a farm business.

But time isn't the only pre-requisite. Kohl said a stable income is also necessary pointing to "contract" farming and diversification as other high priorities. One area of diversification likely to be of interest is what Kohl called "agri-entertainment," more commonly referred to as agri-tourism. He pointed to the case of a farmer in Georgia who has 150,000 school children visit his farm each year. "He charges $5 per student...you do the math." ($750,000 per year).

Greater use of technology as a replacement to human labour and a way to improve overall efficiency is another priority for generation X.

Many, although not all, also want the convenience of being close to an urban area.

The Younger Generation Checklist
To help younger people decide if farming is for them, Kohl presented a brief checklist. Included are the questions:

  • Is the business to be taken over earning between $40,000 and $70,000 per year? If not, are you willing to accept less or do what's needed to make more?
  • Have you worked off the farm between three to five years to gain valuable business experience before contributing to the farm business?
  • Will the retiring parents receive over 33% of their retirement income from non-farm sources such as stocks, bonds and other outside investments?

Kohl sees that last question as particularly important because if the exiting owners are depending too heavily on the farm for retirement income, that will put extra pressure on the new owners.

In addition, he said that net income of the farm should be growing five per cent a year to stay ahead of inflation.

Equally important is the need for a written business plan developed not by a consultant but with input from the entire family (otherwise there won't be any buy-in). Kohl said many farm businesses do not have the appropriate lifecycle planning but instead, operate on what he termed "episodic" planning, or making changes only in episodes of "disaster," mainly the death of the original owner. He noted, "Since September 11, 2001 when the World Trade Center towers were attacked, estate planning in the U.S. went up by 30 per cent."

The Older Generation Checklist
For the older generation, Kohl asks many of the obvious questions such as "Do you have a will?" and "Do you have a written estate plan that has been updated in the last 5 years?" But he also raises some questions that may not be so obvious.

One is making sure you involve your potential successor in management decisions early on. Kohl recommends that after having the younger generation work off the farm for three to five years (which does not include going to university but should include some time in another country), they should then spend five years as an employee on the farm. However, he added, "They need to share in management decisions by the 6th year and if they're not, they'll stay hired hands."

Teaching and sharing, he said, were vital to giving the younger generation the tools they'll need to be effective managers.