Farm Transfer Can Happen Outside the Family

By Tony Kitsos, Dairy Business Program Manager

I recently had the opportunity to work with and advise three farm business owners in structuring the transition of their businesses to prospective buyers who were not family members or neighboring farmers. As advisors, we often hit a wall when farmers express to us that there is no “next generation coming along”; that their children and relatives are not interested in becoming farm owners. Many family members state that they have no interest in working that hard for so many hours only to have too little money to show for it. Others say that they just want to follow their own path to success, usually outside of agriculture and the family business. Such was the case for all three of these farm businesses.

Each farm took a couple of years to find a young, knowledgeable and energetic person to bring in to their thriving businesses. They wanted to show them the ropes while they had the energy and health to provide mentorship. Let’s face it… with the way values of farmland, cattle and machinery have risen over the last 20 years, it’s extremely difficult for a young farmer to walk into a bank and borrow enough money to buy the business and then survive through the first two years of operating expenses unless there is plenty of cash to start with. Lenders do not want to see a new farmer fail for lack of cash and equity. The current owner has to make a decision: Do I sell outright to another farmer or bring someone new into the business? The approach is similar to that of a typical transfer – determine a period of time to “get up to speed” on the existing business, another block of time to begin the sure and steady transfer of certain assets to the incoming owner and then an outright purchase at the end of the trial period.

In each case, the owners had set up a combination of asset transfer for revenue increases over a specified schedule. The implicit agreement was: “Make this business better and more profitable over the transition period and it will be good for both of us.” In these scenarios there is mutual benefit from the continued and increased success of the business. Careful attention must be paid to the development of a sound exit strategy – one that covers both parties in case of a falling out or a change of heart. So gather in all of your trusted advisors, lay out a plan, let them shoot holes in it, restructure, and most of all don’t give up. There is a new generation of farmer anxious to get started with the right tools for success.

New Grants for Vermont Farm Covid-19 Business Recovery

The Vermont Agency of Agriculture, Food and Markets has announced it will begin accepting applications the week of August 17th for the new Agriculture and Working Lands Assistance grants program. This program is designed for non-dairy farmers, poultry/livestock producers and farmers’ markets. Applications will be accepted and awarded on a first come-first served basis until October 1st. VAAFM is hosting online informational webinars for applicants and service provider organization supporting the business owner application process this week and next week. See the VAAFM grants webpage to get application and grant information: Agriculture and Working Lands Assistance grants program.

The Vermont Agency of Agriculture, Food and Markets is also offering the Dairy Assistance grants program and the Agricultural Fairs grant program that support enterprises that have prior or ongoing income loss or increased costs due to the Covid-19 economic impact. Both programs have online applications available now.

Northern New England Dairy Webinars from UNH, UMaine, and UVM

By Tony Kitsos

On May 5th and 7th I had the opportunity to represent Vermont as part of the Northern New England Dairy Discussion webinars hosted by the University of New Hampshire’s Elaina Enzien. Extension dairy specialists Peter Erickson, Mike Sciabarrasi, Carl Majewski and Seth Wilner (New Hampshire), Gary Anderson and Rick Kersbergen (Maine) and I offered participants some sound dairy management strategies to help deal with the recent low milk prices and new pricing models. We focused on “right sizing” animal numbers, switching from 3x to 2x milking frequency, ration adjustment and using milk to feed animals on the farm as means to achieve cooperative reduction goals.

Also on the webinars were Catherine DeRonde from Agrimark, and Leon Berthiaume from DFA /St Albans to discuss the two-tier milk pricing model and what producers in each cooperative can expect for the remainder of the summer. Milk market volatility is now being driven by supply and distribution chain challenges brought on by the COVID-19 pandemic, with both cooperatives forced to take measures to reduce the flow of milk coming in to their plants.

The series proved to be timely and very popular, with over 140 participants registering for the two-day session. A link to presentation materials and the video recording of the webinars can be found HERE at the UNH website. We plan to continue the series throughout the summer, with the next session being held on Tuesday, June 16th. Find more information and register HERE.

UVM Extension Agricultural Business To Host Weekly Web Forum

For the remainder of April UVM Extension Agricultural Business will host a 30-minute web forum every Thursday at 12:30pm to keep pace with emerging COVID-19 issues faced by farm and forest businesses. Each session will include an update on market situations for our farming sectors and information on hot topics, as well as time for questions and discussion.

 Weekly Focus Topics:

  • April 16th:  SBA Emergency Loan Programs
  • April 23rd:  Cash Flow Triage for Small Business
  • April 30th: Digital Entrepreneurship and Online Marketing

Please register in advance for this web meeting.

Contact Mark.Cannella@uvm.edu to register.

Watch for updates about this series on our blog.

UVM Extension Agricultural Business Educators are available for consultation

If your farm, forest or maple business is under pressure to plan for COVID-19 disruption, our educators are available for business coaching and can assist with locating resources. We can help with critical business decision-making, assessing changes to markets, financial planning and other issues facing your enterprises.

Contact one of our educators by email or leaving a voicemail to make an appointment:

Farm, Forest and Maple Business Clinics

UVM Extension Business Specialists Mark Cannella, Tony Kitsos, Chris Lindgren, Betsy Miller and Zac Smith are available to work one-on-one with farm, forest and maple businesses on their finances. Reserve a 1½ hour appointment to prepare documents that will help manage the business. Use the time to develop a balance sheet, update financial statements, review a business plan, consider changes to the business and more. Bring your financial statements, recent records and questions!

➥ 1½ hour, private meetings
➥ Nearly 100 appointments available from February – April 2020
➥ Held at UVM Extension Offices in 9 locations (Online or phone meetings are also available)
➥ FREE!

Business Clinics Information Sheet (PDF)

Contact Christi Sherlock at Christi.Sherlock@uvm.edu or 802.476.2003 to register for one of the appointments listed below.

To ensure adequate preparation, reservations must be made by the Thursday of the week before your appointment. If you require a disability-related accommodation to participate, please call at least three weeks in advance of your scheduled session.

Useful Farm Tax resources…or are they?

by Betsy Miller, Farm Management Educator

I work with many types of farms and farmers in business planning.  I don’t keep track of the percentage, but I would say a majority of the folks I work with hire a professional to prepare their tax returns. However, I am a firm believer that a basic understanding of the rules is helpful even to those who hire a professional. 

When I sat down to write this I planned to share a few links of resources that would be helpful to farmers who either prepare their own returns or just want a better understanding.  What I found was a little disturbing.  Many of the sites that I used to find helpful are now out of date.  We all expect things to change from one year to the next, but there were some big changes in 2018 and many of the farm tax resources out there do not reflect or even mention those changes. 

I urge any of you who use the internet to find tax resources to check the dates on what you are reading. Make sure you are getting current information.

The one link that I will recommend is the IRS Pub 225 Farmers Tax Guide

Sugarbush Rental Rates

The number of maple taps in Vermont has doubled in the last 10 years. Many producers are expanding and securing a lease on a maple sugarbush can be a viable alternative to purchasing the land.

Photo Credit: Mark Isselhardt

Maple stand quality, accessibility, access to power and other factors will impact the rental price. Cash rental rates are common for maple forests. A typical rate in recent years has been about $1.00 per tap. In competitive maple regions in Vermont rental rates are $1.50 or more per tap. In regions with less demand or less desirable forest parcels $0.50-$0.99 is observed.

Setting flexible terms is an option for parties that want to share profits or risk between tenants and landowners. A flexible cash rate can be written so that the annual rate adjusts for the market price of syrup. Rental rates could also be adjusted for a variable crop yield.

UVM Extension is working on rental resources and maple lease templates this fall. New resources will be presented at Vermont Maple Conferences in January and made available online. Register now for the 2020 Vermont Maple Conferences in Middlebury (January 11th), Brattleboro (January 18th), and Hyde Park (January 28th).

Any Given Timber Harvest

by Chris Lindgren, Forest Business Educator

There must be as many ways to harvest timber as there are loggers, likely more. Every approach may not be “best,” but most are acceptable.  Each logger has a different set of equipment and a different crew with a variety of experience and skills, forest landowners have varying visions and objectives, and forest managers approach forest systems and forest operations based on their sensibilities. Each of these variables factor into a logger’s approach.

Whatever the circumstances, all parties desire a positive economic outcome. At all stages of production those who add value want to be fairly compensated for their work. The win-win result hopefully applies to both the cash value of materials harvested and the impacts on the residual stand, as well. Clearly, this is not always how it works out.

When I first began business planning work with logging contractors, one of the first workshops I attended was with Steve Bick of Northeast Forests LLC. I “got” to play a game Steve called penny logging.  This game was like production and assembly exercises I had encountered at various lean trainings over the years.  The objective: given certain constraints, arrange assets and production to achieve the smoothest, most economic output. Over the years I have become keenly aware of the constraints (terrain, soil, weather, ownership, regulation) on any given timber harvest. The harvest in the video above is an example of loggers using the constraints to their advantage, creating an exciting and elegant material flow. Enjoy!

Maple Planning Tools are Now Available Online

University of Vermont has created a suite of short-form business planning tools for maple operations. The Maple Business website provides web-based modules that include a yield calculator, a pricing tool with a sales forecast report, and a budget tool with a cost analysis report. A self-guided business plan is also available for users to draft and print sections of a written business plan. The modules offer an optional log-in feature that enables users to save their progress and return to work on their plan at another time.

Are you developing a new marketing plan? Using the Gross Sales Forecast a maple producer can take their entire maple crop and assign it to different container sizes and prices. Here is a sample report for 6,000 tap enterprise selling 80% of the crop as bulk syrup and 20% in retail containers.

More Maple Business Coming in 2019

Northeast Maple Producer Survey: In late August UVM Extension will be sending a survey across the Northeastern United States inquiring about business practices, business outlook and forestry practices.

Maple Leasing Resources: In Fall 2019 UVM Extension will begin publishing a series of maple leasing templates and legal resources to guide the development of business partnerships and other business-to-business relationships.

Are you looking for a new resource or business calculator to move your decision-making forward? Contact Mark Cannella at UVM Extension Maple Business today and share your ideas!