The $50 billion question
A Canadian farm finance perspective from the desk of Brian Little,
Head – Agriculture and Agribusiness, RBC Royal Bank.
Can Canadian farm producers successfully transfer their farm assets to the family’s next generation, in a manner that works for all concerned?
For Canadian agriculture, this is the $50 billion question. According to some estimates, this is the total of farm assets that will be transferred during the current generation. Between now and 2010, according to one calculation, 120,000 Canadian farmers will turn 65.
On one level, farm succession is an everyday commercial transaction. A buyer and a seller agree on a price, the terms of purchase and a means to finance the deal.
Of course, it’s seldom this simple. Typically, a family farm succession is loaded with a wide range of emotional and family issues. These can involve disagreements between parents and children over the valuation of farm assets, and the varying treatment accorded to children who intend to farm and those who don’t.
Over the years, we’ve all seen family farm successions that worked like a charm. The assets are transferred, the parents retire in comfort and the next generation makes the farm an even bigger success. Conversely, we’ve also seen a number of farm succession disasters that resulted in hurt feelings, damaged family relations and even the eventual loss of the farm itself.
In my experience, a farm transfer plan is successful when it answers these questions:
- How much money do mom and dad need to retire comfortably?
- Is the next generation ready to take the reins?
- How much income can the farm reliably produce in future years?
- How much equity can be taken out of the farm without impairing the balance sheet?
- How are the needs of farming and non-farming children accommodated?
While the questions seem straightforward, the answers rarely are. Farm succession is not a one-time event, but a long-term process. The process benefits greatly from outside expertise to analyze financial issues, to help the family communicate and to determine the best way to structure credit and investments.
Your RBC Royal Bank farm finance specialist knows the issues, and can put together a team to create a successful farm transfer for your family. We’re here to help.
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