Klinefelter: By the Numbers

Farm Like a Team Player

Business partners in Carson and Barron Farms include neighbors near retirement, employees and young farmers looking to expand. (Courtesy Chris Barron)

I've written several articles on producers going together in joint ventures, pooling arrangements, alliances and closed cooperatives. The last few years at executive farming events, more growers have been discussing the benefits of collaborative farming. Chris Barron of Carson and Barron Farms in Rowley, Iowa, and John Gladigau of Collaborative Farming Australia (CFA), are two notable examples.

All of the arrangements I am familiar with are structured somewhat differently. Some of these are essentially operating-entity partnerships where the senior partners rent their land to the operating entity, or the operating entity custom-farms the member's land.

Young farmers such as Barron found this arrangement a way to partner with older neighbors who wanted help farming in their golden years, but couldn't justify investing in new equipment that a larger, expansion-minded partnership could. Some involve just two persons working together to double acreage under management, such as Gladigau's "Bulla Burra." Others involve multiple family farms under a single business structure. Extended families such as brothers, cousins, uncles and nephews refined this model, but what makes these new collaborative arrangements different is that they can involve non-relatives, neighboring business owners and even employees.

Like traditional partnerships, the parties have to be compatible, have a common vision and trust each other. Transparency is critical and everyone involved needs to be accountable. Emotions and personality differences are probably the biggest threats to any collaborative venture's success.

There are many reasons to consider a collaborative arrangement:

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1) To allow people to do what they do best: operating technical equipment, equipment maintenance, managing livestock versus crops, agronomy, accounting and financial planning/analysis, marketing, purchasing, selling and building relationships, managing people, etc. Like any successful team, by capitalizing on strengths and compensating for weaknesses, the whole can be greater than the sum of its parts and people are happier and more motivated doing work that uses their talents and lets them focus more on what they enjoy doing.

2) To allow farmers, who don't have a successor but who are retiring or nearing retirement, to see their business continue. Many older farmers don't want to quit, they just want to cut back, so they can work seasonally or fewer hours. This arrangement can also provide the principal operators access to an experienced, skilled and responsible work force.

A retiring farmer can also minimize the tax consequences of liquidating assets. In many cases, farmers who have older, too small or technologically dated equipment can trade for fewer pieces of larger, more up-to-date equipment that the collaborative enterprise needs and then lease them to the operating entity or use an installment sales contract rather than selling out.

3) To combine smaller and medium-sized operations for economies of scale in purchasing or marketing in larger quantities. It can also allow the operation to fully use equipment that is sized to the scale of the business. Many smaller farms either don't fully use the equipment they have or can't justify the cost of more efficient or current technology.

4) To boost efficiency. Purdue economist Mike Boehlje often talks about building efficient-sized units and then replicating or scaling the business up in units of optimal size and efficiency.

5) To afford professionals. If the skill set needed for some jobs doesn't exist, a larger operating entity may be able to afford to hire and fully use an employee with the expertise needed.

6) To allow ease of ownership. A collaborative operating unit can be organized in a way that permits fractional ownership where the parties can earn a return on their labor, management and invested capital relative to the extent it is used. It is usually less expensive for younger people to buy into an equity interest in a separate operating entity than it would be to buy into an operation that includes land among the assets.

7) To broaden collective wisdom. Another advantage is the opportunity to bring together the different points of view and experiences of people who have run their own operations. Most collaborative operations have regular meetings of the collaborators to discuss current status versus plans and to get everyone's input on major decisions. Obviously, someone has to have the final say on major decisions or a policy basing decisions on a majority or specified super majority vote needs to be adopted before the collaborative arrangement is consummated. Votes may be based upon one person: one vote, or be weighted based on ownership percentage. There also needs to be essentially a buy-sell agreement, which specifies the terms of exiting the arrangement.

As consolidation continues and farms get larger, as management and management specialization become even more critical, and as farmers with no qualified successor get closer to retirement, I think we'll see an increasing number of collaborative arrangements.

For more on John Gladigau's model of Collaborative Farming Australia (CFA), http://www.collaborativefarmingaustralia.com.au/…

Chris Barron was featured in the May 2010 The Progressive Farmer, "Why Farm Solo?"

Editor's Note: Danny Klinefelter is a professor and Extension economist with Texas AgriLIFE Extension and Texas A&M University. He is the former director of The Executive Program for Agricultural Producers (TEPAP), a management short-course for farm producers held each January, and its alumni association, AAPEX. For information on the course and DTN's TEPAP scholarship program, go to http://tepap.tamu.edu/…

(SK)

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