Succession On Farms

M.R. Hastings
Agricultural Training Board, UK


Fear that the business will be eroded by the taxman as it is passed on is one of the greatest worries to the farming community. Considerable energy has been directed to find the most tax efficient methods of transferring wealth and ownership of farms. But the most sophisticated plans will be of little avail if the succeeding generation of farmers is not adequately prepared and competent to take over control of the business. Colleges and training organizations have vitally important contributions to make. However their courses can only lay foundations for the practice and experience that can be gained in a working partnership with farming fathers.

Introduction

In farming circles, even a passing reference to the fact that father and son are working together on the same farm will cause groans of despair, raised eyes and shaking heads. The image of frustrated sons and the despotic father who will see the business sink rather than do the "sensible thing" and pass more control to his sons is commonplace. Perhaps as a result of many years of close contact with farming families the author's view is rather less jaundiced. In fact it was the variation in the relationships, and the effectiveness with which farmers and their children appear to work together which stimulated the interest and motivation for this study.

Apart from the strained relationships, a number of observers have commented on the harmful effect of delaying the transfer of control from fathers to the next generation. Where the fresh ideas and enthusiasm of the children are not allowed to influence business policy there can be a slowing down or stagnation of the business. It has also been suggested that the effect of delaying involvement in management is to reduce the next generation's motivation, confidence and competence to make decisions, thus increasing the risk of expensive mistakes being made (Clark, 1976; Fyfe, 1965).

Twenty-five farmers and thirty-six sons were interviewed and responded to a range of self-completion scales and tests. All interviews were conducted individually although these were usually followed by whole family discussions. None of the farms visited had daughters involved in the working or management of the farm, use of the male gender is therefore factual and not discriminatory.

Throughout the report the convention suggested by Thomas (1980) is followed whereby succession is defined as the process concerned with the transfer of management control. It is therefore distinguished from inheritance, which deals with the transfer of wealth and ownership and retirement, which focuses on the years after active work on the farm. Whilst this distinction is made it must be accepted that many aspects of the three elements are inter-linked.

The Survey Population

The farms ranged in size from 130 to 1000 acres, employed up to three members of staff who were non-family and included dairy, arable, beef, sheep and pig enterprises. Less than half of the farms had been in the same family for more than one generation and only one had been within the family for three generations. In the five years prior to the survey 13 of the farms had increased the acreage farmed either by purchase and/or rent of odd fields or blocks of land sold off from larger farms or estates. Not unexpectedly it was mainly the larger farm businesses which were in a position to negotiate for additional land. A major consideration and incentive for increasing size was the desire to increase the work and income to support the sons and their families.

Twenty-one of the 25 farmers interviewed were farmers' sons and had started work on the family farm immediately following schooling. Six farmers, less than a quarter of those interviewed, had taken part in some form of further education. Twelve farmers had purchased their present farms either with help from their father or his estate on his death and the remainder had taken over the family farm. The fathers had, in the main, taken over the major part of the control of their present farms by their early thirties although in three cases they had been kept waiting until they were between 40 and 50.

The 36 sons interviewed for the survey represented 80% of the total sons of the farmers. Of the nine sons not working at home, two had their own farms, two were employed on farms and the remainder had other careers or were unemployed. Sons' ages ranged from 20 to 37 years and differed from fathers' ages by an average of 32 years. Only six of the sons were without at least C.S.E. passes from school and 22 of the 36 sons had engaged in some form of further education either before or during their first few years of full time work.

Factors Influencing the Timing and Extent of Transfer

Four key factors appear to account for the extent and timing of transfer from father to son. The most important is the father's age, followed by the father's perception of the son's ability, farm size and finally the value that father places on staying in control himself.

Father's Age

The present generation of farmers are keen to continue working and have little desire to "take life easier." Only old age, injury or ill health, usually accompanied by pressure from their wives, will persuade them to slow down and leave more of the control and worry to the sons. Interestingly, two fathers who were already in their sixties when their sons returned home to work were both keen to pass on a considerable measure of control to their sons despite their sons' relative youth. Had the fathers married and produced sons earlier, the sons would probably have worked at home for some years before they were given the same amount of control.

Early retirement from active work is unlikely in the present generation of farmers as this would require a change in basic values, a conclusion similar to that of Anderson and Hepworth (1980).

Ability and Attitude of the Son

The extent and timing of the transfer that father is prepared to allow is strongly influenced by his perception of the son's ability and attitude.

The majority of fathers place great importance on the need for sons to develop their management skills and recognize that this will be an extended and gradual process. They will release control gradually within certain limits but only when they are convinced that their sons will perform the task or make the decision in the same way as they themselves would. Ability to do the job or make the decision is not sufficient in itself. The father must also judge that the son will use his ability in a responsible, mature and caring way. The process and quality of work, handling of staff and care of equipment must all be dealt with to father's own standards. Until the son can demonstrate that he can achieve similar results as the father he will be subjected to what he might view as unnecessary interference.

Very few of the farmers expressed any great concern over possible loss of control of the business, nor any fears for their own financial security. The mistake avoidance strategies described above clearly provide adequate protection against any take-over moves or rash investment and expenditure.

Apart from a general development of skill and appropriate attitudes, sons can achieve greater levels of involvement by developing specific skills and knowledge. Examples included the planning and control of dairy cow feeding, greater financial control arising in one case from use of the on-farm computer and in another as a result of knowledge of investment appraisal techniques.

In addition to pure management activities the son's knowledge of machinery, sprays and drugs, all of which require an ability to cope with changing technology and systems, are common examples of areas where sons can quite quickly take more responsibility. Machinery expertise is a little more complex in its effect than are other types of skill. A good knowledge of makes, types and capabilities of machines will enable the son to be more influential in the selection and purchase of the machines. However, machinery workshop skills are seen only as a service to the production activities and far less likely to result in the transfer of any additional management control.

Farm Size

On larger farms it was easier for farmers to allocate specific areas of responsibility and still feel they had sufficient management work to fill their time and sufficient responsibility to maintain overall control. Sheer physical size of the larger farms makes very tight management control more difficult because the father cannot always be at the right place at the right time. As a result sons are often out of father's sight when a decision is needed. In this situation they are more likely to be criticized for not making a decision and putting off the work than they are for making a bad decision.

By contrast the smaller single enterprise farm creates problems because father and son do not have sufficient space to get away from one another, the volume of management decisions is limited and it is difficult to split off any one part of the decision making. These characteristics were particularly noticeable on the small dairy farms where father and son were forced to continually work within a few yards of one another.

Values Held by Father

The father's perception of his son's ability will influence the extent of control that is transferred. However, this desire to retain control to avoid mistakes cannot be separated from the desire to stay in control to satisfy personal needs. Situations do exist where fathers appear to interfere with the son's activities and decisions without justification. Some fathers have strong feelings of indispensability and find it difficult to accept that someone else is able to manage as well as they are. Adapting to the new role or even wishing to change, is not something these fathers find acceptable or easy, despite the son's apparent expertise.

Other Factors

It was expected that mothers would have more influence on the transfer of control than the results suggest. However an examination of the mother's role does provide some explanation.

Fathers rated their wife's point of view as being quite important. However in discussing the reasons behind this it became clear that the influence was conditional. Mothers would encourage greater control transfer only when they felt their husband's health was suffering and that the sons should relieve father of some of the responsibility and work load.

Mothers tended not to become too involved in management decisions relating to either the farm or what the sons should be doing on the farm for fear of taking sides. They would however act as mediator and attempt to bring father and sons closer in their thinking. The mother's role was not in helping to determine the extent of involvement of the sons, unless father's health was at stake, but rather in smoothing the process of succession amongst the family.

The transfer of control to the eldest son may be delayed slightly until the younger son has returned home so that in the parent's view both sons are treated fairly. Whilst under father's control two or three brothers appear as content with their involvement in management as do single sons which tends to suggest that it is the level rather than quantity of management that is important.

How well father and son get on together seemed to affect the process but not the extent and timing. Lack of involvement in management, interference from father and lack of discussion of father's long-term plans and intentions tended to cause bad feelings on the part of the son but these feelings were a result of what was happening rather than a cause.

Patterns of Management Control Transfer

Under normal circumstances involvement will usually be a slow evolving process unless the son shows particular aptitudes for one specialty area of management or is willing to undertake work which father does not enjoy.

Occasionally sons might insist on their own enterprise as was the case with one son who refused to return home to work unless he was allowed to have his own dairy unit. A number of fathers had made sons nominally responsible for an enterprise but this was usually for convenience, to ensure fairness between brothers or to utilize and develop further a son's interest and expertise in one form of technical management. In only the one case had an agricultural enterprise been developed which allowed the son to work and develop in all aspects of management.

On the whole fathers appeared keen to involve their sons in management to create interest and develop management ability. Some fathers felt involvement should begin immediately after the son returns home, others prefer to wait for two or three years. Whatever the father's approach and philosophy, in the early stages of succession, it is unlikely that he has any grand design, nor will he have any clear view of when he will finally hand over control to the sons. Table 1, which shows the son's mean scores* for the extent of responsibility for management activities, provides some indication of the phasing of control transfer.

 

Table 1: Son's mean scores for extent of responsibility for
management activities and decisions on a 0-10 scale.

Activity/Decision

Son's mean scores

1

Decide when to pay bills

2.6

2

Obtain loans and finance

3.3

3

Negotiate sales of crop/stock

3.3

4

Decide when to sell crop/stock

3.6

5

Decide when to take on additional staff

4.9

6

Make annual crop/stock plan

4.9

7

Decide type and balance of enterprises

4.9

8

Recruit and select staff

5.1

9

Plan capital projects

5.2

10

Negotiate machine and equipment purchase

5.3

11

Decide timing of operations

5.5

12

Decide amount of quality of work expected

5.7

13

Decide type and level of feed, sprays, fertilizers or drugs

5.8

14

Plan day to day work

6.2

15

Supervise staff at work

6.6

16

Decide work methods

6.6

17

Decide type and make of machine and equipment required

6.7

* Note: the results of responsibility scores produced separately by fathers and sons were very highly correlated (Spearman .8060, significant at .001).

 

Movement from one phase in succession to the next is not an orderly or planned process. Exceptions to the general rule occur frequently according to the situation on the farm.

The First Phase

Activities 14 to 17 in the responsibility index (Table 1) represent the management activities in which sons are most likely to become involved, during the first few years at home. Day to day work planning and deciding work methods are the most natural activities as the sons are likely to be doing most of the work themselves, but under father's supervision. Supervision of staff is largely situational as the son becomes a convenient mouthpiece for father and someone to whom staff will defer when necessary.

Initially the son's involvement in such weighty matters as deciding the type and make of machines and equipment appears as something of a surprise. However the explanation is probably straightforward and related to father's perception of the son's knowledge and expertise. Before leaving school many farmers' sons become experts in makes, models and the characteristics and qualities of various pieces of farm equipment. Respecting this knowledge, the father will look to his son to provide an evaluation of the merits of the various machine options and be strongly influenced by the son's recommendations. The father's willingness to defer to the son is perhaps enhanced because inevitably the father had far less contact with sophisticated machines early in his own career. Secondly, change and new technology is something which the farmers always felt their sons would keep up with more easily than they could themselves.

The Second Phase

During the second phase it is likely that the son will also become involved in the planning of capital projects involving new enterprises, buildings, or additional land. The origins of the ideas for these projects may come from the sons themselves. More likely however is that fathers are seeking to expand the business in order to set up two or more sons. The sons are drawn into discussions because usually they will be expected to do the work and the developments will affect the longer term which the sons themselves will be managing.

Knowledge of machinery, which featured in phase one, gives sons the first opportunity to negotiate purchases and sales during phase two. Normally father's approval would be sought before the sons are permitted to bargaining on prices.

The Third Phase

The third phase in succession includes activities five to eight in Table 1. The level of decision-making taken on by the son during this phase is considerably enhanced, though this phase is less distinct and seen rather more as an extension to phase two.

The two main areas within this phase are those relating to staffing and also decisions on annual and longer term enterprise structure of the business. This level of decision has far greater, long term financial implications for the business than anything previously encountered.

The Fourth Phase

The majority of fathers, even those who had purchased their own farms, usually had to wait until their own father's death or failing health before the final phase of succession took place: that involving the control of cash and capital in the business. In this sample there were only three sons who had more than 75% of the management control and whose fathers were more than 65. Examination of the responsibilities of the three sons reveals that they were in total control of all technical management, both long and short term. They had least involvement and control over financial aspects of the business.

The four management activities with lowest mean scores, which indicates limited involvement for the son, are all activities which involved money. Payment of bills and making decisions on loans and finance are two of the key control elements for the current cash and capital position of the business. Deciding when to sell crops or stock is in part dictated by age and quality of stock. However it is probably the fact that farmers pride themselves on their ability to negotiate to obtain the highest prices that causes them to retain these activities. Timing and negotiation of sale will only marginally affect the price received, but could have a major effect on the cash flow position of the business.

Fathers consistently retain control of cash, capital and buying and selling decisions. Although a part of the reason might be situational, it does seem that the checkbook represents father's final bastion of status and control in the business.

It would be inappropriate to create a picture of despotic financial controllers, whose intention is purely to control and manipulate. When sons first return to the home farm, few are interested in the financial aspects of the business. As father grows older he will spend less time on physical work and his natural role is to spend more time on pure management and administrative duties. Thus handling bills and paperwork, judging the market and negotiating with contacts known for 30 plus years is seen as an excellent way of using time. The danger lies in the unprepared son. The son's greatest concerns on final takeover are for the financial activities and decisions usually retained by father. The benefit of any college training in financial management has largely decayed over 10 to 15 years and fathers appear to make little attempt to train or provide any opportunity for their sons to gain experience in financial management or in buying and selling.

Financial Management Experience

The very considerable danger of technically very competent sons being faced with a relatively new world of business management on the demise of their fathers is clear. There are exceptions however, which although they had not necessarily been planned to give business experience do have a similar effect. Here it is necessary to draw a distinction between being responsible for an enterprise and the son having an enterprise of his own.

In a number of instances sons were said to be responsible for individual enterprises, in one case one of the two sons was responsible for the sheep and arable work on the farm. Examination of the son's role revealed that his work was more akin to a working foreman who was responsible for the technical management of the enterprises. Although the son had some influence on when to buy and sell, the final decision and all financial control rested with the father. By contrast the second son in the same business had his own enterprise, the dairy unit. In this case the son controlled all the technical management and by keeping his own financial records, the major share of the financial management. However, even in this case, checks were still signed by the father and when cows or calves were being bought or sold father would always be present to supervise.

The reasons for the son's involvement with specific enterprises varied. In the above example the one son had made the dairy a condition of his return home. To be fair to the second son father had made him responsible for the sheep and arable enterprises. In another example a father had made his son responsible for the dairy unit, partly because of the son's interest and competence but equally important was the fact that father disliked milking.

Starting with day to day technical management the sons gradually become involved in longer term business management decisions. Involvement in anything to do with cash or capital management is likely to be delayed until father's health and age force him to relinquish control.

Despite college training, few sons appear to be prepared through either exposure or experience for financial management. Any involvement in financial management will largely result from the son's own abilities and interest often arising from college training. Whilst total control of an enterprise on the farm, separately costed, would seem an appropriate method of providing the necessary business management training, the option is not commonly adopted by farmers.

The Effects of Involving the Sons

With regard to taking control of the business the majority of sons were quite confident that they could manage if they had to. Interestingly some of the younger sons were amongst the more confident, a feeling which appears to decline as they become more involved in business affairs and see the true scope and complexity of the management activities. The main concerns on taking over were related to those activities that are presently retained by fathers.

Sons were most likely to be upset by lack of management involvement and responsibility, lack of knowledge of father's long term intentions, and interference from father in jobs they were doing. Otherwise, they appeared to be reasonably happy with their role apart from one or two minor complaints and disagreements. However, happiness is relative and the author was left feeling that a number of the sons were accepting their situation as being as good as they could reasonably expect with their particular father.

Apart from a minority of cases there was no overall evidence to suggest any conflict between father and son over levels of payment as suggested by Commins and Kelleher (1973) nor in the son's ambitions for control and wanting to run the business his way as was suggested by Weston (1977).

Father's complaints concerning their sons related particularly to younger sons and their attitudes to work standards. There was also some conflict due to the different values placed on work and leisure pursuits, with fathers puzzled as to why their sons did not want to work the same hours as they did.

Three-quarters of the farmers felt that the son's involvement in the farm had had significant benefits. Twelve farmers were able to quote examples of expansion, new enterprises and improved results as a result of the son's involvement in management. Others provided examples of savings, but these were mainly due to cheaper labor, getting more work done and improved work methods. In one case the son's influence appeared to have reduced profits and in a further two the cost of farm improvements had left a larger overdraft but presumably there would be some long term benefits from these improvements.

Making Transfers Easier

The overall attitude and approach adopted by fathers and their children to working together on the same farm is important. The aim should be to produce a lasting and constructive working partnership where the youth, enthusiasm and interests of the children complement the strengths, experience and wisdom of the father. Partnership is more important than individual power. If the approach is competitive, one of waiting for father to step aside, or expecting too much from the children too quickly, the result will be frustration, arguments and despair.

The secrets of success are that both generations have patience, make genuine attempts to understand one another's viewpoints, which includes listening as well as telling. Perhaps most important is that time is set aside for honest discussions about roles, feelings and future plans.

As a general guide for fathers the following are suggested:

  1. When the children return home make it clear what you expect of them for the first few years. Encourage them to develop any particular interests and aptitudes that they have, but not to the exclusion of other aspects of the business.
  2. Explain your management decisions and policies, look for ideas they might have and encourage them to prepare cash and capital budgets for any ideas before discussing them with you.
  3. As their abilities develop, seek opportunities to give them responsibility for sections of work or specific enterprises. Define their responsibility clearly and don't interfere unnecessarily. Insist on physical records and costings for any enterprises they are responsible for.
  4. If possible encourage the development of a new small business enterprise for which the children carry total responsibility including the accounts and paying bills.
  5. Remember they will need money when they get married and set up their own home.
  6. Encourage attendance at technical and business management courses to ensure they keep up to date.
  7. Involve them in buying and selling decisions and negotiations so that they can learn from you.
  8. If you have not been able to set up a separately costed business or enterprise for the son, begin to transfer control of buying and selling, the accounts and finances to the children when you are 60. This will ensure you are available to help for a number of years before they are left to make all the decisions for themselves.
  9. Give responsibility, say how well they are performing, help them to improve but avoid interfering unnecessarily.

References

Anderson, R. and Hepworth, M.: "Retirement from Farming-Some Economic and Social Considerations." North of Scotland College of Agriculture-Farm Management Review, No. 13, January 1980, pp 1-8.

Clarke, C.J.: "Elderly Farmers in the United Kingdom." Report of a ADAS Socio-Economic Group Working Party. ADAS/MAFF 1976.

Commins, P. and Kelleher, C.: "Farm Inheritance and Succession." Macra Na Fairme, Irish Farm Centre, Dublin, 1973.

Errington, A.: "Delegation on Farms." Ph.D. Thesis, University of Reading, 1984.

Fennell, R.: "Farm Succession in The European Community." Sociological Ruralis Vol. 21, No. 1, 1980, pp 19-42.

Fyfe, M.: "An Economic Study of Cattle Fattening Farms in North East Scotland." M.Sc. Thesis, University of Aberdeen, 1965.

Gasson, R.: "Occupations Chosen by the Sons of Farmers." Journal of Agric. Econ. Vol. xix, No. 3, 1968, pp 317-326.

Northfield, Rt. Hon. Lord: "Report of the Committee of Inquiry into the Acquisition and Occupancy of Agricultural Land." H.M.S.0.-London, 1979.

Thomas, H.S.: "Need for a Business Approach to the Problems of Succession, Inheritance and Retirement." Farm Management, Vol. 4, No. 4, Winter 1980/81, pp 157-162.

Weston, W.C.: "The Problems of Succession." Farm Management, Vol. 3, No. 5, Spring 1977, pp 237-247.


Original article appeared in Ag Manpower, journal of the Agricultural Training Board in the UK. Abridged version for People in Ag: Managing Farm Personnel published in 1985.


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15 November 2004