WILMINGTON — The next generation of farmers is typically already on the land, serving as apprentices, according to Dr. Donald Chafin, Professor of Agriculture at Wilmington College. “They are the sons and daughters of current farmers and land owners.”
U.S. Department of Agriculture Census data shows that the age of the average American farmer is increasing in almost lock-step with the calendar. Many, including the USDA, interpret this data to project that all farmers will soon retire and further insinuate that no one will be tilling the soil for food production in the future.
“Wrong,” says Chafin. He says 97 percent of commercial farms are owned by farmers and their families, not cooperations. “Many sons and daughters are working along side dad or grandpa to produce the abundance of commodities that become the U.S. and world food supply. These sons and daughters stand ready to take over the farm when elders retire. Unfortunately to some extent, mechanization is taking over so rapidly that fewer workers and managers are required,” Chafin said.
Should there be no heirs wanting to farm, current operators typically identify an eager young person in the community who wants to expand the size of their current operation, Chafin said. Rental agreements and creative purchase-of-deed contracts can be written to serve both the operator and landowner interests.
He said operating farmers have typically borrowed money to purchase farmland. “They paid on mortgages over, say a 25-year time span. At age 65, they have a built-up equity in the land as their retirement fund. Instead of investing in stocks, they invested in land, using borrowed money.”
Farming produces a dual income to the operator of the land and to the owner of the land, he pointed out. When the farmer is both, he or she receives both payments. Farmers are usually cash poor paying off the mortgage, but they retire land rich. “When a farmer retires he or she can still receive the ownership return as cash rent or through a buyout arrangement,” Chafin said.
He points out that a retirement plan and a succession plan are equally important. “Mom and dad need to calculate their income requirements to cover living expenses, retirement activities, health care, and late life obligations in order to budget their lifestyle.”
Fortunately, inheritance taxes do not loom as a threat to most farms. The Center on Budget and Policy Priorities notes that in 2013 only 20 farm and small business estates owed any federal estate tax. The death-tax score that
“The death-tax score that threatens family farm sell off is bogus. Up to $11 million of asset value can be passed on by a couple tax free. Furthermore, land in estate valuation is calculated at its CAUV price for farming, not the subdivision market value price,” Chafin pointed out.
Retirement and second generation succession require tough business decisions. Emotions, inertia, and procrastination complicate the process. The Wilmington College agriculture professor says outside specialist and advisors who understand farmers, rural life, financial planning and agricultural law can be important in the family decision-making process.
“At times, an outside perspective and voice can be most valuable in that they help initiate and move along the difficult decision-making process,” Chafin said.