Iowa Farmers’ Business and Farm Transfer Plans: A Comparison between 2019 and 2006

Contributed by Beatrice Maule, undergraduate research assistant, Wendong Zhang, assistant professor and extension economist, David Baker, Director, Iowa State University Beginning Farmer Center

The loss of farmers that Iowa has witnessed in the past 70 years is strongly linked to the attitudes and mindsets towards farm succession. The number of farms has decreased and their sizes increased. On top of that, the average age of farmers has increased and they progressively started to keep more and more responsibility in the farm, even though their successor was well into adulthood and consistently helped on the farm. This, together with low incentives, has kept young farmers away from the land. However, Iowa’s economy needs young farmers to remain competitive and strong. This article is a short synthesis of a longer policy brief published in December 2020 that examines Iowa farmers’ business and farm transfer plans, retirement plans as well as successors.

Background

In 2019, a survey of family farms in Iowa was conducted with the main scope of comparing dynamics and attitudes behind farm succession. The focus was mostly on intangible assets and one of the key components of the survey was the comparison with the 2006 Iowa Farm Transfer Project. The population of the study consisted of 739 farmers, age 18 and older, who operated the farm in 2019.

The average age of farmers who responded to the survey was 61 and they indicated that they have been responsible for their farm for 40 to 50 years. The average age has increased since 2006, when the average was 56.

Sixty-five percent of respondents indicated that they grow corn and/or soybeans in their farm, and 60% consider farming their primary occupation, a moderate change since 2006, when 54% indicated the same answer. On average, they indicated that they mostly are not first generation farmers and that the farm has been in the family since 1927.

It is interesting to note that the majority of respondents acquired their farm by purchasing it from family members. However, 79% of respondents indicated that they receive some sort of off-farm income. Almost as many respondents acquired their farm in other ways, including by purchasing it from non-relatives. Most farms are largely a sole proprietorship, with a partnership with a spouse the second most common response. It is important to note, however, that the number of farms that are in a partnership are almost half that of sole proprietorships.

Eighty-seven percent of respondents indicated they have a will, a slight increase since 2006, and 28% have a trust. Overall, 57% also stated that they have considered estate taxes when making a decision about succession, and a little less than 35% consider estate taxes extremely important.

When asked about their highest education level achieved, 41% of respondents indicated that they have a high school degree, 25% had a 4-year college degree and 26% had a technical degree. These have all seen a significant increase since 2006.

Lastly, farmers mostly get their succession information from their banker or accountant, followed by ISU Extension and Outreach and from their attorney. Not extremely significant but well-worth noting, there is also a number of respondents that stated they get most of their information from magazines and articles.

Retirement Plan Analysis

When asked about retirement plans, 56% of respondents indicated that they will semi-retire, 23% stating that they will completely retire and 20% that they will never retire. It is important to note that, when comparing these responses with the 2006 Farm Transfer Project, the number of farmers who will retire has remained unchanged, while the number of those who indicated they will never retire decreased significantly. On average, farmers plan to retire at 67 years old. When asked the main reason why they would retire, respondents indicated that it would be because they are “getting too old.” A further analysis indicated that, among those who indicated “getting too old” as a reason for retiring, the majority indicated they would retire between 70 and 79 years old. When asked what type of involvement on the farm they would have upon retirement, 25% indicated they would have the same as now, just less intense, followed by “helping out during busy times only.” Close to 7% indicated they would have no involvement on the farm in retirement. The majority also stated that they wouldn’t move from their current residence upon retirement.

Figure 1. Source of income for farmers who plan to retire or semi-retire, 2019 (percent)
Figure 1. Source of income for farmers who plan to retire or semi-retire, 2019 (percent)

When asked how they plan to finance their retirement, Figure 1 shows that almost 58% indicated that they will rely on Social Security and 52% on income from the farm. It is important to highlight that in both 2006 and 2019, the sale of property, farmland, livestock and other farm assets was the least common answer. The majority of respondents indicated that they will rely on income from the farm to support between 50% and 75% of their total retirement income, immediately followed by 25% to 50%. This shows that the majority of farmers plan on relying heavily on this source of income which results being mostly in the form of a formal cash rent farming agreement.

When asked what they will miss the most about farming once retired, 76% of respondents said that they would miss the “way of life.” Additionally, 36% indicated that they will be pleased to give up the long hours on the farm and 34% were happy to give up the manual work that their profession requires.

It is important to note that 66% of farmers do not have a formal succession plan and 40% have identified a successor. Sixty-two percent of respondents have discussed succession with their spouse and 48% with their children. Around 22% haven’t discussed plans with anyone and 31% haven’t identified a successor. Among the respondents who have not identified a successor, the majority are confident that a family member will inherit and keep the farm; very few indicated that it will be sold. When it comes to identifying a successor, Figure 2 shows that a little under 58% of respondents indicated their son or sons will take over the farming operation and 8% indicated their daughter or daughters will. The latter has been a decrease compared to 2006, when 16% indicated their daughters. Other common answers are niece/nephew(s) and non-relatives. The average age of the identified successor is 33. The majority of respondents indicated that the successor already works on the farm, either part-time or full-time; however, 63% of respondents stated that they have family members who will inherit part of the farm but will not run it.

Figure 2. Who is the successor of the farm business, 2019 (percent)

Decision making and the role of the successor on the farm           

When it comes to making decisions on how to run the farm and the business, 59% of farmers responded that they make decisions alone, without any successor input, an increase since 2006. Nothing stood out as being run by the successor alone, and, on average, only 18% indicated that they make decisions with some successor input. Both have seen a decrease from 2006.

Decisions taken by farmer alone (percent)20062019Farmer > 70, 2019Successor > 35, 2019
Plan day-to-day work18%54%32%41%
Make annual crop/livestock plans19543842
Decide long-run mix and type of enterprises16543641
Decide input level use25584247
Decide the timing of operations15543442
Decide when to sell crop/livestock27644549
Negotiate sales of crops/livestock31644649
Decide when to pay bills44715559
Decide type and make of machinery and equipment16523940
Negotiate purchase of machinery and equipment23583844
Decide when to hire more help21594546
Recruit and select employees24604645
Decide amount and quality of work24594244
Supervise employees25574343
Decide work method/way jobs are done18503237
Decide and plan capital projects24554344
Identify sources and negotiate loans47664751
Livestock management19564750
Keeping farm records45655353
Decide whether to participate in conservation programs (and, if so, which options to take)614246

Table 1 indicates the percent of respondents that make their decisions alone without successor input. In the first column there is a list of decision-making areas, the second and third column are a comparison between 2006 and 2019 on the percent of farmers that make decisions alone. Lastly, the final two columns show farmers get less involved in solo decision making when either they are over 70 years of age or when they have a successor who is 35 or older. Even in these cases, the farmers are making decisions and not necessarily involving their next-generation successors 40% of the time in the farm business activities. It is also important to note that the number of successors that are employed on the farm rose from 21% in 2006 to 28% in 2019.

Only 35% of respondents said that their successors had total responsibility for the farm. Among those who said their successor had total responsibility of an enterprise, it is indicated that the majority owns or rents their own farm, sometimes from their parent. Other activities include daily or seasonal jobs and responsibility for cattle and livestock. Furthermore, the percentage of successors that had at least a college degree increased significantly from 2006, as well as the number of those who have a postdoctoral degree. The number of successors who left high school before graduating has significantly decreased.

Future plans for the farm

When asked what their plans for the farm are, most respondents agreed that it is best to keep it in the family no matter what. However, the majority indicate that the inheritance should be fair to the successors, but not equal. In particular, the vast majority suggested that they’ll give most, if not all, the property to the farming heir. More specifically, some respondents suggested that they’ll give most shares to the farming heir and give cash, life insurance or rental payments to non-farming heirs. Other stated that they do not want the farm to be sold or rented out, and suggested that they will split equally among heirs and let the farming heir buy or rent-out the land from non-farming heirs. Another possible solution that has been suggested is to put the farm in a trust and clearly state in their will that their land shall not be sold, only possibly rented out.

Some also believe that renting the farm out for cash, both as a whole or by splitting it, would be a good investment and a great additional source of income, regardless of whether the heirs farm or not, and allowing the family to retain ownership.

Respondents also indicated feeling the need to give the whole farm to only one successor because of the very high land values and rental rates—they feel the heir will not succeed otherwise. Another solution suggested is to put the farm in a corporation and gift shares to the heirs. Few, but definitely present farmers said that they have no choice but to sell the farm; either because none of their heirs would farm or because it wouldn’t be a great source of income, but they are heartbroken about it. It is important to note that it is not uncommon to see comments such as: “Waiting to see if daughter marry [sic] someone who might want to farm (plenty of people to rent to)”, or some stating that the daughters would end up renting the farm out. One comment particularly stood out: “A leading factor in the decline of rural communities is absentee landowners with no interest in the farm other than the income from cash rent. Farm management companies and outside investors exacerbate the problem.”

In conclusion, it is safe to say that farmers and farming families, differ somewhat from other professions, are very attached to their land and their way of life, to the point of working the land for their entire lives. Often this makes it harder for a newcomer to start their own farming business, this is an important aspect to take into consideration when creating new policies and solutions that target inheritance and beginning farmers.

See the Center for Agricultural and Rural Development paper for additional details on the survey.

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Client Corner: How should I structure my farm business for multiple generations?

Contributed by Kelvin Leibold, ISU Extension Farm Management Field Specialist

What is the best business structure to use when looking to set up a business with multi-generations? I heard it was an LLC.

The “best” business structure decision involves looking at many different issues. These include the number of people involved, tax issues, the expected life of the business, and the relationship between labor, capital and management to name just a few. To get some general background on different types of business structures, the Iowa Secretary of State offers some background information. Take a look at https://sos.iowa.gov/business/FormsAndFees.html to learn more. For further information, consider consulting with professionals that work in the area of business structures.

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