Will your farm be in the 97% club or the 3% club?

Will your farm be in the 97% club or the 3% club?

One of the overriding goals that farmers have is that their farm operation continues on to a successor.  Then why is it so difficult to get farmers to put a succession plan in place?    A recent statistic stated that only 33% of all farms in this country will pass to the next generation.  That number does not seem shocking.  Of the farmers that are over 60 years old, representing the “current generation”, it is entirely plausible that only 1/3 of the farms transfer to the “next generation” (i.e. people aged 30-60) over the next 15-20 years when the current generation retires.

               The same statistic source went on to say that of the 33% of farms that transfer to the “next generation” only 10% of those will pass to a third generation.  Whoa.  Let’s take a second and do some math.  We have roughly 2 million farms in this country.  If only 1/3 transfer to the “next generation”, then that means we drop to 660,000 farms in the next 20 years or so.  If only 10% of these farms go to the “third generation”, that means we are looking at only 66,000 farms in this country within the next 40 or 50 years.   This means only 3% of the farms in this Country will remain, and that we lost 97% of the farms that exist today.

               Could this really be possible?  Well, let’s look at historical numbers.  In 1935, we had about 6.3 million farms in this country.   Today, we have 2 million.  Crunch the numbers, and this means over the past 83 years we have had a 68% reduction in farms in this country.   So, assuming various laws of nature, doctrines, and other analytical aspects that are above my pay grade hold true, I tend to think that if we have seen a 68% reduction in the number of farms in this country thus far, it is not out of the question to see a 97% reduction of farms going forward.

              If you would like to see your farm continue for future generations, I would pose the question what are you doing to ensure you are NOT in the 97% club?  Unfortunately, what most people are doing is a whole lot of nothing.  Check out these statistics:
1.      73% of farms in the country have not identified a successor.  Note that we are not talking about having a succession plan, we are talking about having decided who takes over the farm.  I find it stunning that ¾ of farms have no idea who takes over.
2.      31% of farmers recently surveyed said they would “never retire”.  If someone is “never retiring”, do they put a succession plan together??  Likely not.
3.      Of farmers who will retire, 30% say they will do it in their 70’s.  Working later puts off having  a plan in place, greatly increasing the chances the farmer dies without a plan.
4.      54% of farmers are seeking retirement advice from their family.  That’s great if you have qualified people in your family.  Otherwise, does your family really know issues such as Medicaid, Medicare, investment strategies, capital gains and so forth?
5.      45% of farmers surveyed said they are relying on “no one” when it comes to obtaining retirement information. 
6.      36% of farms in the country are still operating as a sole proprietorship, which can greatly limit succession planning options.

Sadly, 80% of farmers surveyed have stated they want the farm to carry on to the next generation or someone who will carry on the farm.   So, if the desire is there, why is the action not there?  Another professional involved in farm succession plan told me:  “People like the concept of succession, but they don’t care for the actual ‘work’ of making it happen. They want the outcome, without putting in the effort necessary for success”.  This strikes me as odd since as farmers we put the work in to raise a good crop, put the work in to grow our farms and so forth, but fail miserably when it comes to putting the work in for a succession plan.   

What’s the answer?  Well, there is no easy answer, but I do think younger farmers need to lead the charge in making sure plans are in place.  After all, why would the young farmer want to stick around if there is no plan in place to ensure their future?  I tell young farmers do not be afraid to throw down the gauntlet in getting their parents or grandparents to put a plan together.  As for the older generation, they should ask themselves whether they want to their farm to be in the 97% club or not.  If you would rather be in the 3% club, then it is going to take some work. 

               People used to be more motivated to establish succession plans out of fear that federal estate taxes would eat up the farm.  Now, with the ability for a husband and wife to shield 20+ million from federal estate taxes, that fear is gone, and so is the driving force for a succession plan.  However, people should not forget about nursing homes.  The cost of long term healthcare continues to rise and I have no doubt we will see more and more farms lost to nursing homes and the cost of long term care.  So, if anything, motivation should come in the form of not having the farm eaten up by nursing home and long term care costs. 

               In closing, if a farmer is thankful for the opportunity to have been a farmer and wants that opportunity to be available to the next generation, then work needs to be done to make it happen.  It is not going to happen on its own.  Else, there is a sure bet the farmer has bought membership into the 97% club.


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