Transferring the Farm: Factors of Business Succession

Shannon Dill

University of Maryland Global Campus

May 14, 2024

As family farms evolve, transferring ownership, management, and knowledge is vital for maintaining generational legacies, rural economic stability, and food security. Family farms, constituting 97% of U.S. farms and accounting for 82% of agricultural product value, face an aging workforce, with a 12% increase in farmers aged 65 and older, highlighting the urgent need for effective farm succession planning (USDA, 2023; U.S. Senate Committee on Aging, 2023). This Rapid Evidence Assessment (REA) investigates factors influencing family farm transfer intentions, emphasizing sustainability within a competitive environment. Using the Theory of Planned Behavior (TPB) framework, the REA explores behavioral, normative, and control beliefs affecting succession planning, aiming to facilitate a smooth farm business transition to the next generation (Ajzen, 2011).

Conceptual Framework

Note: Adapted from “The Theory of Planned Behavior,” by I. Ajzen, 1991, Organizational Behavior and Human Decision Processes, 50, p. 182 (http://dx.doi.org/10.1016/0749-5978(91)90020-T) Copyright 1991 by American Press Inc. Permission requested.

Methods

The REA's methodology includes a systematic review of ten relevant articles, analyzed using qualitative coding and the Weight of Evidence (WoE) method for quality appraisal. These articles were selected based on their methodological rigor and relevance to farm transfer, encompassing various research designs, including qualitative, quantitative, and mixed methods. Key themes emerged from this analysis, providing valuable insights into the complex dynamics of farm succession.

Results

The findings from this REA offer valuable insights for farm businesses aiming to transition ownership to the next generation, emphasizing the critical roles of both predecessors and successors. The four significant findings for farm succession factors include:

Finding 1: Family dynamics and connection to the farm

Finding 2: Farm assets, abilities, and innovation for the future

Finding 3: Willingness and mechanisms to transfer the farm

Finding 4: Identifying barriers and conflict in farm transfer

Findings reveal that family dynamics, management of farm assets, willingness, and transfer mechanisms significantly impact the succession process. Family dynamics, including the early involvement of children in farm operations, foster a deep connection to the farm. Seven of ten studies highlight the importance of successors' passion and motivation, driven by their emotional attachment to the family business (Wagner et al., 2022). Additionally, involving children in farm activities from an early age helps develop practical skills and a strong affinity for the land, which is essential for a smooth transition (Bertolozzi, 2024; Carolan, 2018).

Managing tangible assets (land, machinery) and intangible assets (knowledge, skills) is crucial for succession. Nine of the ten articles discuss the importance of capital stocks, financial projections, and the transfer of farming knowledge and abilities (Rosacker et al., 2023; Steiger et al., 2016). Successors must gain experience and utilize elders' knowledge to ensure the farm's long-term viability. Embracing technological innovations and diversifying farm operations are recommended strategies for successful transfer (Wagner et al., 2022).

The willingness and attitudes of both predecessors and successors, along with structured mechanisms like mediation and facilitation, enhance the transfer process. All studies highlight the critical role of intention and attitudes in intergenerational farm transfer. The senior farmer's willingness to participate in the transition and the successor's positive attitude toward responsibility are pivotal for success (Conway et al., 2019). Mechanisms such as mediation and gifting create a structured framework for discussions, helping to address concerns and reach mutually agreeable solutions (Rosacker et al., 2023).

Identifying barriers such as economic constraints, policy impacts, and lack of formal plans is essential to address conflicts and ensure successful transitions. Approximately five studies point to challenges like low profitability, quality of life issues, and resistance to change among older generations as significant obstacles (Bertolozzi et al., 2024; Chiswell, 2018). Policies, tax implications, and legal regulations also significantly affect farm succession, highlighting the need for comprehensive planning and professional guidance (Steiger et al., 2012).

Conclusion

The research's limitations include potential sample bias, reliance on self-reported data, and limited scope, which may not capture long-term trends or external factors. Future research should explore gender roles and psychological factors influencing farm transfer to provide comprehensive support for farming families. Investigating psychological dimensions such as attitudes, motivations, and emotional attachments can offer insights into the human aspects of succession (Jimmieson et al., 2008).

In conclusion, addressing family dynamics, asset management, transfer mechanisms, and barriers can help farm enterprises contribute to food security, rural development, and agricultural heritage for future generations. By implementing these strategies, family farms can navigate the complexities of succession more effectively and ensure a smooth and successful transfer to the next generation.

References

Ajzen, I. (2011). The theory of planned behaviour: Reactions and reflections. Psychology & Health, 26(9), 1113–1127. http://dx.doi.org/10.1080/08870446.2011.613995.

Bertolozzi-Caredio D. (2024). The farm succession effect on farmers’ management choices. Land Use Policy, 137. https://doi.org/10.1016/j.landusepol.2023.107014

Carolan, M. (2018). Lands changing hands: Experiences of succession and farm (knowledge) acquisition among first-generation, multigenerational, and aspiring farmers. Land Use Policy, 79, 179–189. https://doi.org/10.1016/j.landusepol.2018.08.011

Chiswell, H. M. (2018). From Generation to Generation: Changing Dimensions of Intergenerational Farm Transfer. Sociologia Ruralis, 58(1), 104–125. https://doi.org/10.1111/soru.12138

Conway, S. F., McDonagh, J., Farrell, M., & Kinsella, A. (2019). Human dynamics and the intergenerational farm transfer process in later life: A roadmap for future generational renewal in agriculture policy. International Journal of Agricultural Management, 8(1), 22–30. https://doi.org/10.5836/ijam/2019-08-22

Jimmieson, N. L., Peach, M., & White, K. M. (2008). Utilizing the theory of planned behavior to inform change management: An investigation of employee intentions to support organizational change. Journal of Applied Behavioral Science, 44(2), 237–262. https://doi.org/10.1177/0021886307312773.

Rosacker, K. M., Rosacker, R. E., & Fingland, S. (2023). A Monte Carlo Simulation of the Tax Burdens and Impacts Associated With Common Intergenerational Family Farm Transfer Strategies. Journal of Applied Business & Economics, 25(2), 10–23. https://doi.org/10.33423/jabe.v25i2.6093  

Steiger, T., Eckert, J., Gatrell, J., Reid, N., & Ross, P. (2016). Cultivating Narratives: Cultivating Successors. Journal of Agriculture, Food Systems, and Community Development, 2(2). https://doi.org/10.5304/jafscd.2012.022.012  

United States Department of Agriculture, National Agricultural Statistics Service. (2023). Highlights. https://www.nass.usda.gov/Publications/Highlights/index.php

United States Senate Committee on Aging. (October, 2023). Feeding the Future. https://www.aging.senate.gov/imo/media/doc/senate_aging_farmers_report.pdf