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Friday, 09 October 2015 10:51

Special report: Handing down the family farm

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Tony and Diane Fincutter and their younger son, Steven, operate a third-generation farm in the town of Spring Prairie. Tony Fincutter said he understands why profit margins, little time off and competition from large farms might keep the younger generation from going into farming. Tony and Diane Fincutter and their younger son, Steven, operate a third-generation farm in the town of Spring Prairie. Tony Fincutter said he understands why profit margins, little time off and competition from large farms might keep the younger generation from going into farming. File photo by Dan Plutchak/staff

STATELINE NEWS -- The U.S. Department of Agriculture estimates that more than one-quarter -- or 500,000-plus of the nation’s 2 million farmers -- will retire during the next decade, but the decision can be fraught with difficult financial and emotional issues.

“For so many farm families, home is a part of their business. You can retire from a job in town, but you’re not asked to leave your home,” said Joy Kirkpatrick, outreach specialist with the University of Wisconsin Center for Dairy Profitability in Madison. “With farming a lot of times, you’ll see an older generation as they age go from dairy to beef cattle, or get rid of their livestock entirely, or maybe crop for a while and then rent out the land to neighboring farmers.

“There’s a kind of shifting of gears for your later farming years, but if you don’t have a successor identified, you might not prevent a takeover of the farm from strangers.”

For many farmers, like Tony Fincutter of Spring Prairie, the decision of what will become of his dairy farm is family-driven.

His father, Ray Fincutter, was a dairy farmer who moved from Illinois to southeastern Wisconsin, where in 1972, he purchased farmland and started milking 42 cows.

Of the 10 children in the Fincutter family, Tony was the one who bought the farm, building up the herd to 110 cows and raising corn and alfalfa on more than 200 acres in the town of Spring Prairie.

Today Tony works alongside his younger son, Steven, 23, who’s actively involved in the operation.

“He’s wanted to do this since he was 4 years old. He would follow me around the farm,” Tony said. “Since he was old enough, he’s been riding tractors and showing animals at the fair.”

Steven’s older brother, Patrick, 25, went to college and ended up working for Groupon, a Chicago-based e-commerce company.

“Patrick loves coming home, but he’s not interested in working on the farm,” Tony said.

Of the area farm families he knows, Tony said they are pretty evenly divided between children who want to continue to farm and those who don’t.

He isn’t surprised. There are more challenges in farming now: rising costs for land and equipment, roller-coaster milk prices, competition from corporate mega-farms.

“You need really strict management to take a profit, and there’s not a lot of time off in farming,” Tony said. “A younger generation sees that and doesn’t want to deal with it.”

As a result, many farmers just keep going, well beyond the traditional retirement age.

“Dad never retired,” Tony said. “At 83 or 84, he was still driving tractors.”

In Walworth County, 20 percent of farm operators are age 70 or older, according to the National Agricultural Statistics Service, said Peg Reedy, agricultural agent for the Walworth County University of Wisconsin Extension.

“That’s a little disturbing,” Reedy said, particularly in cases where the farmer has no successor.

In a UW-Extension transition survey, of those respondents who had a successor lined up, only 30 percent to 40 percent said they shared operational decisions with that person, Reedy noted.

“We’ve got a lot of work to do with farm succession training,” she said.

More to consider

Reedy described farm succession as a three-legged stool: transitioning the farm business to a successor -- whether that’s a family member or someone else; creating a retirement or semi-retirement plan; and estate planning.

When farms were smaller, tax rates weren’t as significant and profit margins were higher, a farmer could pass down the family farm through his will by transferring ownership of the property. Now the transition has more complications, from estate tax implications to whether the farm can financially support additional farmers.

“A generation ago, one family milking 100 cows was making an OK living, but if you bring in a second family, is there enough income to cover both of them? Will they need to add more to generate income? Will they have to work off the farm?” Kirkpatrick said. “There are basic points of consideration operators have to make, and it really depends on the farm.

“If there’s a lot of debt right now, should they generate income to pay this off? If they haven’t set aside money in a retirement account, they may continue farming, or sell the livestock or land to get a nest egg. Not all farmers put any and all profits they make into their capital investment, but they may not separate retirement income and savings from that. Some say, ‘My farm is my retirement nest egg.’”

“Farmland prices have shot up since the ’90s,” she said. “Younger people are finding that the land their parents might have bought in the 1970s costs thousands of dollars more now. That’s a big asset and a big tax base.”

Family matters

Farmers often hesitate when it comes to planning who will get the farm, sometimes fearing contention among family members.

“I see a lot of people struggling with the idea (of) what’s fair versus what might be equal. What if there’s one child who since age 18 has helped build the farm, but there are four other kids who are not working on it. What do you do for an inheritance: Divide completely equally, or look at who’s contributed more in sweat equity?” Kirkpatrick said. 

She suggests farmers attend a transition or succession workshop, often offered through the UW-Extension and organizations such as the Center for Dairy Profitability, which can help them plan. The workshops deal with everything from financial considerations for retirement to tax considerations in farm transfers.

“I’d encourage farmers to start thinking about these issues and think about who might be needed to help them, such as an attorney if there are tax implications. And start a family conversation,” she said. 

Nick Baker, Rock County UW-Extension agricultural agent, said he’s seeing more farms creating limited liability companies, which make transitioning the operation easier.

“A lot of the more progressive farmers are talking with financial planners, organizing legal teams, getting good estate plans when they set up as an LLC or corporation,” Baker said. “I think the smaller, more traditional ownerships, especially those with family members not involved in the farm, they need an exit plan but a lot of farmers don’t want to think about it.”

Baker said family farms “need to stay ahead of the curve” as a business, with challenges that come through everything from more traffic on the roads to the possibility of lawsuits.

The trend is toward larger, more efficient farms, he said.

“Larger farms mean it’s a good thing for liability and easier to plan for,” Baker said. “More farmers are developing a business plan earlier, whereas with small farms, everyone kind of kept the business plan in their heads.”

In a 2014 survey of beginning farmers in Wisconsin, conducted by the Wisconsin Department of Agriculture, Trade and Consumer Protection’s Farm Center, out of 1,084 respondents, 61 percent said they were the first generation on their own farm, despite the fact that 66 percent of respondents said they’d grown up on a farm. 

Angie Sullivan, an organic and specialty crop consultant with the Farm Center, said those stats may indicate the parents of a family farm weren’t ready to transition yet, but younger farmers were eager to get started.

Seventy percent of respondents in the beginning farmers survey are between 26 and 55 years old.

“The younger generation is interested in where food comes from, particularly organic farmers,” Sullivan said. “To some young organic farmers it’s a lifestyle choice, but farming is a venture and a business, not just a philosophy.” 

Still, Reedy remains hopeful for area farmers.

“I think the future of farming is still real strong, and over three-quarters of these farmers (responding to the UW survey) expect a son or daughter or someone will still be involved,” she said.

“And we still get a small but regular number of calls in the office from those who have no land, but are still interested in farming.”

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