Many farm families are wrestling with farm succession planning, which includes transfer of the farm assets and business to the next generation. The federal estate tax provisions have forced that to emergency status for many farming operations. But in addition to the farm assets and transferring that value is also transferring the management of the farming operation, which is a different question. Good farm managers and asset heirs are not always one in the same.
Eighty years ago the US hit a peak in the number of farms, and since the early 1930’s that number has been declining as the number of farms declines and their average size increases. One factor contributing to that is the lack of a direct heir to manage the farm. In many cases non-farming heirs will sell the family farmland and someone else farms it, but in others an heir will take over management, helped by on the job training and a good asset base. Those issues were all studied by Purdue ag economists and published in the April edition of the Purdue Agricultural Economics Report. They report that expansion of on-going operations is a function of another family’s exit from farming.
They report that for most operations management succession takes place over time, in which individuals from different generations jointly manage the farm. Such an apprenticeship program combines an impending retirement and the ability of the younger generation to take over managerial responsibility. The economists indicate the process many involve few or many years with increasing responsibility of the young generation and decreasing responsibility of the senior generation. Timing of the change will differ due to characteristics and goals that are unique to each farm family. Their research focused on multiple generation farms, separated by at least 20 years or more. Using USDA data, 72% of the farms indicated the older operator was the primary manager on multi-generational farms.
The researchers found that increasing age of the senior generation increased the chance the farm had passed the majority of managerial duties to the younger generation. They report that plays out in a number of ways as authority is given to the most active person on the farm and the senior generation takes on an advisory role, “farm operators achieve peak productivity at middle age due to both physical and human capital accumulation. Beyond this peak, farm productivity gains tend to wane for a variety of reasons, including the process of an older generation establishing a set of standard practices. Younger generations may then bring innovative technologies or strategies that help keep productivity gains high.”