As a MU Extension dairy specialist, I rarely focus on these statistics; I specialize in dairy farm consulting and ruminant nutrition. But recently I’ve witnessed the process on several Missouri farming operations in transition. When looking at the process of transitioning the farming operation, some farm families do this gracefully, and some do not.
The most frequent question is how to navigate inheritance tax and to estimate farmland values, and I prefer to reframe the discussion. While these are important questions to ask, it is not in the wheelhouse of my skillset as a ruminant nutritionist. What I’ve found is much of the hard work and decisions on this matter are done around the kitchen table. Until the family goals align, the specific tax details don’t matter.
I recall hearing a prevailing statement by the older generation over and over when talking to farm families, “I didn’t have this farm given to me,” referring to the transfer of the operation from their parents. Depending on how the statement is framed, this mentality has the opportunity to either contaminate or enhance the farming operation going forward. The 60- to 70-year-old farmers lament about the struggles repaying dad or uncle for the family’s land base, especially through the 1980s farm crisis, to persist and stand today to make this transition decision. No one debates that this was commonplace and very much reality for many young farmers 40 years ago; however, today the assets needed for a dairy to be successful are vastly different.
Missouri producers take great pride in accumulating land assets to ensure high-quality, homegrown forage for the cow herd. This blessing can create a financial challenge for the incoming generation as land prices on average have increased 6% annually over time.
Every operation is different. We typically start with a balance sheet of assets and a discussion of goals when beginning the dairy farm succession process. As facilitator, I’m often a trusted voice to help neutralize challenging conversations between the generations. The conversation is the first step, then determine if the agreed-upon solution is feasible with the current status of the operation.
Regardless of desire and work ethic, a young person seeking to continue an operation must possess the tools they need to be successful. When an operation is split with critical assets going to nonfarming siblings the long-term impact typically results in a net decline in overall cash receipts due to a decrease of productive potential. The farm just continues to shrink until there is not enough usable acreage remaining to be viable.
A favorite Wesley Tucker quote I like is, “How many times does the family have to purchase the same farm?” This statement is important especially when considering the status of existing infrastructure. Several dairy farms with much needed deferred maintenance piling up should consider the next generation’s investment in infrastructure as “buy in” for a feasible solution for enterprise transfer.
If the older generation is interested in seeing the operation perpetuate, I encourage them to consider infrastructure reinvestment by the farming heir as a means to buying the operation. When you include the purchase of the land in addition to a major piece of infrastructure, such as a parlor, the cash flow rarely works.
Consider creative ways to ensure your operation succeeds to the next generation. Ideal opportunities to reinvest in a dairy operation infrastructure will look different for each farm.
Many Missouri dairy farms should explore:
- Parlor size and technology improvements
- Robotic milking installation
- Pack barn construction
- Freestall expansion
- Manure management improvement
- Enterprise expansion or diversification, such as feeding beef crosses
- Irrigation to ensure forage availability
- Commodity shed construction
- Needed equipment, combine / mixer
If the farming heir makes an investment in the operation today that will result in improved net income for the senior generation immediately, why shouldn’t that be considered as their in-kind purchase of the operation going forward with compounding improvement? Each one is a significant investment that would advance the operation today and for years to come. While costly, infrastructure improvements hold the potential to aid in improving farm resilience, net farm income, and therefore overall farm sustainability.
Before proceeding, take time to think through the next steps for your operation and answer a few questions:
- How important is it to you to see the farm continue?
- How can you set up the next generation to ensure success?
- Who should be on your team of trusted individuals to help craft this plan?
The farm family is a beautiful network of hard-working individuals who coalesce together to ensure success and create our rural communities. However, this same passion and grit can block our view of the best route forward.
Please don’t let the neighbor’s gossiping voice generate a prideful fog over the most obvious solution to ensure the future of the enterprise. It’s no one’s business if you decide to “give” the farm to the individual who has farmed right next to you for the past several decades and wants to significantly reinvest in the future of your family’s name. Ultimately the decision made around the farm’s family kitchen table will craft the trajectory for generations into the future.
