Perspectives on agricultural business succession

The farming population is aging and fewer and fewer young farmers are ready to take over. This applies to Europe, the Netherlands and certainly Limburg. Alarm bells have been ringing for years, but the most recent figures give no reason for optimism. Who is worried and why? And is anything being done to turn the tide?

Diving into the subject of farm succession, the many sides of the story are striking. The lack of a successor is only part of the problem. In some cases, there is a successor, but they do not have the resources to take over. Or there is a successor, but the family aspect complicates the takeover. This article explores the background and available figures of this complex issue.

Fewer and fewer farms

The number of agricultural businesses has been declining for years. According to the latest count by the CBS, the Netherlands had 52,695 agricultural businesses* in 2020, 3,653 of which were in Limburg. In 2010, these were 72,324 and 4,938 farms, respectively. Looking another decade earlier, there were 97,389 in the Netherlands and 6,942 in Limburg. This means that in 20 years the number of agricultural businesses both nationally and in Limburg has almost halved. The main cause of this is farm termination at generational change. Farms are becoming increasingly capital intensive. When the farmer retires, this makes it increasingly difficult for a successor to raise the money to take over the farm. Changing and stricter regulations in agriculture also play a role; some parents do not see farming as a viable outcome for their children. Added to this, especially in recent years, is the social debate.

*Farms producing agricultural products for the market, with headquarters in the Netherlands, and an economic size >= 3000 euros SO (Standard Revenue).

Family farms

Many agricultural businesses are family farms and this plays a major role within the issue of farm takeover. In October 2020, CBS published figures that provided insight into the number of family farms in the Netherlands in the period 2015 - 2018. Of all Dutch companies and agencies in 2018, 19% were family businesses*. Within the agricultural sector, that share was much higher. Of the 75,485 companies in agriculture, forestry and fisheries, 36,995 (49%) were family businesses. Limburg's figures match the national figures. Limburg had a total of 100,385 companies and agencies, of which 21,895 were family businesses. At 22%, this is slightly higher than the national average. Of the 4,840 agricultural, forestry, and fishing businesses, 49% (2,390) were family businesses, just as at the national level.

*A family business, in CBS' definition, is a business in which one family directly or indirectly holds a majority of control and is formally involved in management. Companies of self-employed persons without employees are counted by CBS as a separate group.

Followers

Where Limburg does differ from national figures is in the number of successors. A other study by CBS provides insight into this. In 2020, there were more than 52,000 farms in the Netherlands, of which more than 27,000 had a farm head aged 55 or older. Of these farms, about 11,000 had a business successor and 16,000 (59%) did not. Especially for small and very small farms, a successor was often not available. The larger the business, the more likely it was that there was a business successor.

In Limburg in 2020, CBS counted 1842 farms with a farm head aged 55 years or older, of which 631 had a successor and 1211 had no successor. That means 66% without a successor, significantly higher than the national figure. In previous years, this percentage always hovered around 70%, with an outlier to 73% in 2008. The study also shows that farm type certainly makes a difference. Limburg arable farms with a farm head aged 55 years or older had no successor in 69% of cases in 2020 (395 out of 573), while for dairy farms it was only 38% (80 out of 211). That does not mean there is no problem for dairy farms. A toekomstanalsye from Wageningen University & Research (WUR) predicts that 41 percent of all Dutch dairy farms will have stopped by 2030 due to the lack of a successor.

The stopper's perspective

The issue of farm succession is never easy, but not all older farmers will feel the same way about it. It makes a difference whether or not a successor is ready, whether or not the successor is a family member, and what the farmer feels is important at the time when continuing by himself is no longer an option. Is the priority on preserving the farm or on the financial outcome? How much time is left? It is certainly not an issue that can wait until the last moment. Both the road to business termination and business acquisition is long and complex.

Stopping

There are some farmers who accept that there is no continuation of their business and hope mainly for a nice retirement by selling rights, land, livestock and machinery. Yet even then, quitting is not easy because it ends a way of life and having a daily purpose. Do you do it abruptly or do you build down slowly? Other farmers do not want to quit, but have no choice because there is no successor to find for their farm. Many different consulting firms and coaches assist farmers with possible farm termination. Specialists indicate that many different routes are possible and therefore customization is important. In addition to all the legal, tax and financial components, the emotional value of the farm also plays an important role.

A successor within the family

For farmers with a successor within the family, the difficult process of transferring the farm begins. The family farm acquisition process is complicated because there are both family and business interests involved. The most important decision is determining the acquisition value of the business. What will any siblings get with it? Is there confidence in the business successor? Is the acquisition price sufficient for the parents' retirement provision? Thereby, the acquisition price is often below market value. In many cases there is plenty of advice available about the business side of business succession, but less attention is paid to the 'soft' social and emotional side.

From the Nederlands Agrarisch Jongeren Kontakt (NAJK) and the Ministry of Agriculture, Nature and Food Quality (LNV), the Sustainable Business Succession policy program was launched in 2019 to increase the number of successful business transfers. The main focus is on family farms. The research project follows fifteen agricultural families over two years at different stages of acquisition, and in different roles, such as transferee, partner, sibling, or exiting. Their experiences will be visualized (anonymously): what goes well, what can be improved, what constitutes an emphatic priority, which pitfalls must definitely be avoided? Based on this input, a concrete step-by-step plan is made, which families and students at agricultural colleges can use as support for future company takeovers.

Based on this input, a concrete step-by-step plan is made, which families and students at agricultural colleges can use as support for future company takeovers.

In Limburg, family businesses up to 50 employees are supported by the initiative "TOF Trots Op Familiebedrijven" of MKB-Limburg and Maastricht University. Experts from the university have developed a program covering aspects such as finding a successor and investing in development and innovation. The kick-off took place on March 18 and can be looked back online.

A successor outside the family

Is there no successor within the family? Then the farmer must look elsewhere for a candidate. And that doesn't prove to be easy in practice. Sometimes there is interest from an acquaintance who has been visiting the farm for some time, but the relationship has to be really good if you want to dare to enter the often years-long process of a takeover together. The chance that the seller will actually receive the value of his or her company from such a successor is small, and the question is whether the future plans are compatible. Granting and letting go are thus important aspects in such an out-of-family takeover.

Since recently the NAJK has set up the initiative 'Boer zoekt Boer', in which young people who are looking for a farm to take over can be paired with farmers who cannot find a successor within the family. Within this program, both parties are provided with knowledge and information and can be asked for support with various steps in the extra-familial farm takeover.

The young entrepreneur's perspective

Choosing a life as a farmer is not nothing. First and foremost, you must already have the sense to throw yourself into the animals or plants seven days a week. For young people who are convinced that this is their passion, other questions come around the corner after that. Will you get the funding? How deep are you willing to go into debt? Is the business future-proof? Can you deal with the growing social backlash and complexity of laws and regulations? Is there a business you can take over and are there family members to consider?

Despite the lack of successors on existing farms, it is still sometimes impossible for young people to get land. Land prices are often so high that acquisition is simply not an option. In 2019, there was a lot of attention for two young farmers who started a new business concept of land on loan with the name Mobile Land. Here the land comes not from farmers but from private individuals who are willing to give it on loan in exchange for a share of the harvest. However, such a mobile existence will not be the goal for many young farmers.

Young farmers struggling with the issue of farm takeover can turn to the NAJK. They offer various courses to make the farm takeover process run more smoothly, but are also actively involved in the government policies being made on this subject.

The government's perspective

Not only for those directly involved is farm takeover an issue, the Dutch government is also concerned. It is important that sufficient healthy food is produced, agriculture provides many jobs and plays a major role in the Dutch economy. The European Union has also been focusing for years on a policy that encourages generational change among farmers. This is done through subsidies that are only available to farmers under the age of 40. According to the European Court of Auditors, between 2007 and 2020, the EU spent a total of 9.6 billion euros on subsidies to support young farmers in taking over a farm. This includes, for example, the Young Farmers Regulation (JoLa) within the Rural Development Program (RDP).

In addition to existing schemes for young farmers, the Dutch government introduced the Garantieregeling Vermogensversterkkende Krediet (VVVK) in early 2019. This came about in close consultation with the Nederlands Agrarisch Jongeren Kontakt (NAJK). Within the VVK, a total of €75 million is made available to make it easier for young farmers to start or take over an agricultural business. The scheme works to lower the threshold for financiers, because the national government is a guarantor.

The future

Are these types of subsidies successful? In September of 2020, the Telegraaf published an article stating that until then only one farmer had used the VVK. After parliamentary questions Minister Schouten boasted that the scheme was still underused. The uncertainty of the coronavirus was mentioned as a possible explanation. Yet even before the outbreak of the corona crisis, the success of this type of scheme was questioned. A report by the European Court of Auditors concluded in 2017 that EU aid should be more targeted to promote effective generational renewal. An article by independent news website Follow the Money from January 2020 shows that both in the Netherlands and Europe, despite all measures, the percentage of young farmers continues to decline.

For some of the young farmers who took advantage of a subsidy, it did not win them over. They would have taken over the farm anyway, even without a subsidy. This raises the question of whether the schemes are really creating more young farmers. It also seems that many farmers are not necessarily after subsidies. What is important to them is that they can produce for a good price. Beyond that, it is also possible that the subsidies did help and that the aging population would otherwise have hit much harder.

Choosing to live as a farmer is certainly not a purely financial issue, that much is clear. The social debate, many hours of work, laws and regulations and family circumstances are other factors in the decision of potential young farmers. The question of whether the tide can still be turned thus seems as complex as a farm takeover for the time being.

For those interested in reading more on this topic, a comprehensive dossier is available at Groen Kennisnet. Also read our interview with (young) farmers and administrators in Limburg about business succession.