A friend, a small-town Iowa banker who specializes in working with farmers, offered a local example. It’s time for Mom and Dad to retire, get off the farm and move to town. Much of the time, if no heir is interested in continuing the operation, the farm is auctioned to the highest bidder.It's wrenching, but good planning might have saved the day: the parents establish a legal entity (not a lawyer but likely a corporation of some ilk) in which all the children share equally, with the son who wants to farm an employee/owner. Over time, if the operation is profitable the son buys out his siblings, assuming they don't want any link to the farm.
This time, one son wanted to take over the farm. But there were other children entitled to their share, so the farm went up for auction.
But now they had to compete with larger farm operations. The son “did the best he could,” said my friend, but a big operation “bid it up more than it was worth, some guy from out of town no one knew — probably from one of the big operations up north. The kid didn’t have a chance. It was heartbreaking.”
A couple things of note:
- this proposed sequence means converting a "family farm" into a "corporate farm" even though there may not be much change in the day-to-day operation. Although likely the son who wanted to farm was bearing much of the workload when his parents decided to throw in the towel.
- the "big operation" is unknown, unspecified. It could well have been a neighbor who has the greater access to capital than the aspiring son has. It's logical it's a bigger operation: with everything else equal, the bigger operation will have lower per-acre operating costs than the smaller operation
- the succession problem is one reason why the median farmer is old.
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