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By Amanda Smith

Farming is really more than a livelihood, it is a lifestyle…and for those who have been blessed to grow up within a family farm, it is very much a legacy you wish to protect.  The desire to protect the family farm is inherent, the process by which that is accomplished, however, can be daunting and cumbersome.  Unfortunately, an overwhelming majority of family farm operations wait until tragedy strikes to approach this conversation…resulting in partitioned land, broken relationships, and legacies left in the hands of the courts.  This series of articles will be aimed at giving practical strategies and solutions for addressing the personal, business, and tax implications of protecting and preserving the family farm.

Part 1 of Livelihood and Legacy: Fair vs. Equal in the Family Farm how to sell a farm I interited family farm real estate Geswein farm and land

A proud hardworking grandmother and grandfather, walk hand-in-hand with grandchildren in a field of corn, on the Indiana family farm that will someday belong to them.

To make any attempt to create a plan for transitioning a farming operation to the next generation, or even to disperse the assets of an operation that has reaching the end of its lifespan, requires first understanding the dynamics of your family itself.  How many children are involved?  Which, if any of those children, have an interest in the management of the farm, and are those who have an interested qualified and capable of doing so?  Can the current size and scale of the operation effectively support the families contained within it?  How does your family define fair, and does fair mean equal?

Classically, there are two definitions of fairness.  The Roman definition lends towards “giving each what is due to them”.  The Greek settles on “fair and fair alike”.  If the Greek perspective drives the decision-making of the current farming generation each sibling, regardless of their education, family situation, and contribution to the farm has an equal claim to future management and distributions.  The Roman definition says that while no heir has less value than another, the management and profitability of net income should be allocated relative to each’s demonstrated dedication to the business.

The August 2017 Purdue Agriculture Economics Report takes a closer look at how family businesses define fairness, and how their viewpoint of fair relates to profitability.  According to the survey, family businesses can choose one of four definitions of fair.  The can choose to treat each family member according to their needs, according to their contribution, the same regardless of need or contribution, or the can simple choose not to define fairness at all.

The results of the survey conclude that coming to a decision about fair, or choosing not to, most definitely has an impact on the firm’s profitability.  There were two different surveys conducted, with varying differences in what percentage of firms define fairness in each of the four possible ways, but the profitability question was raised in one survey, and its results are eye-opening.

Families who choose to treat each member according to their contribution reported the highest incomes.  Because they likely focus on what is best for the business, they are able to maximize profitability.  This observation could conclude that they choose managers according to their ability to lead, and award responsibility and compensation accordingly.  This does translate to higher levels to tension between family members when there is resentment towards this method of defining fair.

Conversely, when family firms choose fairness as treating each according to their needs, profitability takes a back seat to compassion, and business profits often suffer.  Decisions are often made based on the needs of the individual family member, rather than the best interests of the firm.

Regardless of which definition you choose, based on your own family dynamics, there are consequences to that decision.  Once the choice is made, your business structure, plan for transitioning to the next generation, and methods to reduce tax liability can be addressed.  In the articles to come we will specifically address business structure options and their general benefits and challenges, how each impacts transition to the next generation, and the tools within succession planning that can reduce, if not eliminate tax liability. 

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Blog

By Amanda Smith

“The earth will not continue to offer its harvest, except with faithful stewardship.  We cannot say we love the land and then take steps to destroy it for future generations.” –John Paul II

There seem to be two schools of thought in life, and in farming.  There is the school which maximizes productivity, striving to utilize resources to their highest degree, and making the most of every opportunity for advancement.  The other would be that all things in life are somewhat fragile, and that the proper care and preservation of resources not only provides inherent productivity, but also sustainability of the resource for many years to come.  For the average human being, and the average farmer…the trick is finding a balance of these two schools.

Few would argue that the face of family farming has changed drastically over the last handful of decades…and that this balancing act becomes increasingly difficult.

I sat down with Leslie Fisher of the Benton County Soil & Water Conservation District, and Cindy Johnston, NRCS District Conservationist to discuss the current picture of farmland conservation efforts.  I opened our conversation by sharing a story.

Sometime around 1990 my dad and I constructed a 7th grade science fair project demonstrating the effects of conservation tillage.  It consisted of three tracts of varying residue coverage, tilted at a slight angle, collecting the runoff in quart mason jars.  A simple scale model to demonstrate a revolutionary conservation practice.  With the assistance of a county-level SWCD Conservationist of the Year (a.k.a. Dad), it was award-winning!

The environmental and agronomical impact of conservation tillage has become, three decades later, a common knowledge amongst farm operators and farmland owners, and its implementation can be seen across the corn belt, and here in Indiana.  Here on Indiana farms in Benton County, recent torrential rains have left convincing evidence along areas of greatest flooding that no-till practices impact topsoil erosion.  There are lots of sources validating that covering soils with decaying row crop residue impacts erosion and the sustainability of the soil.

New conservation technology suggests that covering our soils with living plant matter can create even greater benefit.  My questions for our local soil conservation professionals were targeted at assessing current implementation of cover crops, and evaluation of the economics of this practice.  Both Fisher and Johnston indicated that there is a rising popularity of cover crop questions coming into their respective offices.  Despite targeted attempts to educate producers by both NRCS and SWCD, interest in cover crop utilization seems to most often be the result of curiosities founded in what is happening on the other side of the fence row.  Conversations often start with, “I noticed my neighbor is…” and continue with a hypothetical “if I were to consider cover crops, how would I get started?” 

According to the Sustainable Agriculture Research & Education Center (SARE), cover crops work in the following ways to enhance soil health:

  • Feed many types of soil organisms.
  • Increase the number of earthworms.
  • Build soil carbon and soil organic matter.
  • Contribute to better management of soil nutrients.
  • Keep the soil covered.
  • Improve the biodiversity in farm fields.
  • Aerate the soil and help with water infiltration.
  • Reduce soil compaction and improve soil strength and structure.
  • Greatly reduce soil erosion.

Johnston indicated that 75-80% of the contracts she has administrated recently have cover crop implementation as a component, making it the highest funded conservation tool in the area.  All combined, the SWCD and NRCS funded over 6100 acres of cover crop implementation.

The environmental impact of the 1595 acres funded by SWCD resulted in 1636 tons of sediment prevention, and a reduction of 2300 pounds of phosphorus application and 4594 pounds of nitrogen.  It is estimated that the impact of this small acreage could be equated to the prevented contamination of 55 million gallons of water above drinking water standards.

The greatest hesitation for many with regards to cover crops may be adding one more management practice to an already difficult growing season calendar.  Or perhaps the concern with the cost of additional input costs compared to expected benefits.  So I asked the question, “What is the lowest risk method to try this out?” Cooperatively, Fisher and Johnston encourage producers to start with the simplest recipe of an aerial-applied mix of oats and radish.  This combination is a winter-kill mix, eliminating the need for any extra pre-plant management.  Funding initiatives through the NRCS Conservation Stewardship Program and the SWCD Section 319 Grant, which can be piggy-backed in priority areas of targeted watersheds, will nearly, if not completely cover the input costs for up to 3 years.  Essentially, operations can try this program on for size over several growing seasons, and assess the impact on their farms with very little economic risk.

In addition, farming input retailers are developing programs to assist farmers in managing input costs, maximizing productivity, improving utilization of USDA EQIP funding, and preserving land resources through partnerships.  Technologies being used by these retailers can assist farms in evaluating the impact of various conservation practices, including conservation tillage and cover crop plantings.

The most common question asked to farmland realtors is one of farm real estate market value.  Land is a capital investment for farmers, and its use must be balanced with maintaining its long-term value.  Would it be fair to equate protecting the land investment with cover crops to maintaining the roof on a large manufacturing facility?  Spending time and money on a roof may not add immediate value to the commodity being produced under it, but it has to be maintained to protect the product.  Likewise, our soils are the manufacturing facility for our food, and their preservation and protection are imperative to maintaining their value.
For every individual farmer, the balancing act of stewardship and profitability is a delicate matter.  Tasked with the challenge of feeding an exponentially growing population on a decreasing amount of land has to be weighed against preserving our land and waters for future generations.  Cover crops are just one tool in the box, but one that can improve our land and our yields.
For more information regarding cover crop implementation and funding availability contact:

Leslie Fisher, Benton County Soil & Water Conservation: 765.884.0660 or Leslie.Fisher@in.nacdnet.net

Cindy Johnston, USDA NRCS: 765.884.0660 or cindy.johnston@in.usda.gov

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