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.
UVM Extension has released a report that documents conservation adoption and economic viability on Certified Small Farm Operations. Conservation and Farm Viability on Vermont Small Farms (FBRR035) is available online. This report summarizes responses from over 170 Vermont farms to a 2019 survey. UVM Agricultural Business explores the current situations that business owners face and the major issues moving forward.
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
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
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.
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
Weekly Focus Topics:
April 16th: SBA Emergency Loan Programs
April 23rd: Cash Flow Triage for Small Business
April 30th: Digital Entrepreneurship and Online Marketing
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!
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.
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.
On a recent visit to a diversified farm I noticed a whiteboard posted in the office that listed sales goals for each month. At the end of each month actual sales were tallied and written alongside the goals set back in January.
Goal setting is an important part of the business planning process. People commonly refer to “SMART” goals – usually meaning Specific, Measurable, Achievable, Relevant, & Timely. Setting goals that clearly define success (or failure) make it much more likely that we will hold ourselves accountable for the plans we make. The farm I visited has a prominent display reminding them every day where they are relative to meeting sales goals.
As important as it is to set those goals in the first place, it is equally important to review them, update them, and determine if they were met. Mid-year check-ins can help to identify areas that might be lagging while you still have time to change course.
Don’t let your goals become like New Year’s
resolutions forgotten by Groundhog Day. Keep
them fresh and check regularly to see if you are on track to reach them.
New maple products like sap beverages and infused syrups now join the classic pure maple syrup products on store shelves and online platforms. Will US maple market policy and collective marketing entities innovate in new ways too? What options are available for collective marketing efforts here in the United States?
Two possible options for the maple sector are producer cooperatives and federal market orders. Both options require strong leadership from industry representatives, committed support from members and ongoing management to sustain the effort.
Vidalia onions, “Got Milk”, Florida Oranges…sound familiar? Producers in these industries approved collective efforts funded by small assessments (often pennies per pound) through a Federal Market Order (FMO). FMOs provide a way for producers and handlers to work together to accomplish things they could not achieve on their own. Orders do this by (1) maintaining the high quality of product that is on the market; (2) standardizing packages and containers; (3) regulating the flow of product to market; (4) establishing reserve programs; and (5) authorizing production research and marketing efforts. Read more about current Specialty Crop Market Orders on the USDA Agricultural Marketing Service website.
Producer cooperatives can be formed in many different ways with different goals. Cooperatives could range in size from only a few producer members to thousands. A new Cooperative establishes a legal business entity that is owned and overseen by members. Here is a list of co-op activities that may be relevant for a group of maple producers/members.
Collective ownership of processing facilities to store, process, and package bulk syrup into a marketable format.
Collective ownership of pooled market-ready product and/or active marketing efforts to sell the products.
Supply Cooperative: pooling member demand to access production inputs and supplies at reduced costs to its members.
Establishment of farm gate prices/contracts that eliminate the year to year volatility and uncertainty of final crop sales prices after the production season.
Establishment of verified product standards or unique features that enhance the distinction of coop products from other similar products available to consumers
Coordinating large numbers of participants into a unified and powerful voice for political organizing and communications campaigns that promote the interests of the membership.
Posted by Betsy Miller, UVM Extension Farm Viability Coordinator
On August 13, 2018 Agri-Mark hosted a Dairy Summit in Albany, NY. This was an opportunity for farmers and dairy industry representatives to discuss the current state of dairy pricing and to offer proposals for a new structure.
Proposals posted on the website share a common theme of supply management and price stabilization. Many suggest a pro-active approach lead by co-ops. Expansion of current farms and entry of new farms into the business are both areas that offer challenges to the idea of a quota system. All seem to agree that this is a complex problem that doesn’t have an easy solution.
As global maple syrup production increases the markets, communities, and business owners are facing changes. Vermont has a long cultural heritage of syrup production ranging from subsistence production to commercial activity for over 100 years. 2018 is no different… for every new maple enterprise setting up to tap 50,000 trees we are likely to have 10+ new hobby producers making their own syrup and selling the excess directly in their neighborhood.
Research on farm economics has demonstrated how farms can often get caught in the middle of the push and pull of dynamic business environments and consumer preferences. The 2008 text Food and the Mid-Level Farm (Lyson, Stevenson, Welsh) explains the dilemma that faces “agriculture in the middle.” The super-small farm can often maintain a specialty niche that serves local or direct clientele. It’s common that these farms might be part-time or lifestyle farms. They may be profitable but it may not matter. The largest scale farms are producing goods at low costs and high volumes and they are serving broader markets that value uniform product, lower price points, and require sophisticated supply chain logistics. What’s left is the farm “in the middle”. These farms are full time jobs for their owner -operators that need to earn a livelihood from risky business activity. They are too big to be accepted in niche markets and too small to compete with the big players.
The recent maple price downturn has begun to reveal where the “middle maple producer” may be. Four years of maple finance benchmark analysis has shown how a reasonable owner livelihood can disappear as the business environment shifts. A small sample of 7,500-15,000 tap maple producers in VT has demonstrated the looming risk for a formerly viable owner-operated bulk syrup enterprise that can’t break even if market prices stay below $2.10 per pound. These businesses can be a too big to pivot into niche direct marketing and too small to compete in the larger wholesale markets. We don’t know where the sweet spot for a commercially viable “middle” operation will be but we do know not to assume it will stay in the same place forever. We also wait to see if a group of informed consumers that value the people and practices of “ag in the middle” will persist.