NASHVILLE (DTN) -- Farming as a team is not easy. In fact, not every collaborative farm operation stands the test of time, noted Danny Klinefelter, ag finance professor and economist with Texas AgriLIFE Extension and Texas A&M University. When Klinefelter organized a National Collaborative Farming Conference this spring, he included a section titled, "When Bad Things Happen to Good Plans."
As margins tighten, more solo farm operators are joining forces with neighbors to gain efficiencies and economies of scale. Some aim to expand without bidding themselves into bankruptcy. Others want to build a path to retirement without a six-figure income tax bill at exit. Ag business consultant Moe Russell with Russell Consulting Group in Panora, Iowa, has seen dozens of successful partnerships blossom, but nine or 10 collaborative farming groups have failed over the past few years. In DTN's third Team Farming installment, we'll examine what can go wrong in partnerships.
DESIGN A TRIAL MARRIAGE
In one case Russell studied, what started with six partners and 4,100 acres in 2003 quickly grew to 18,000 acres by 2009 before disintegrating because of financial stress. The partners were undercapitalized and financed their equipment at 80%, Russell noted. And they were locked into six-year land leases that automatically renewed, even if commodity prices dropped.
"What could possibly go wrong?!" Russell asked, raising his hands in the air. "Obviously, they got over-extended."
Besides taking it slow after you form your team, John Gladigau of Alawoona, South Australia, advised a courtship before the initial financial investment. "You will need a good 18 months to set up a collaborative arrangement," said Gladigau who farms with a non-related partner and consults other farm operations. "I encourage 'dating time' in those 18 months. You should work together for an entire season without a financial commitment. Be sure you can work together. I've seen farm operators trying to set things up in six to eight months. That was a mistake," he noted.
Chris Barron of Rowley, Iowa, likes to take several years to add a new partner. "Combining bushels sold to market your grain together is what I would consider the 'dating period,'" said Barron. "Then you start sharing financials and purchases together. When you collaborate on equipment purchases -- that's the 'engagement ring.' Total management consolidation is the marriage. You better be sure you'll want to stay together forever at this point," advised Barron.
Also, putting together a farm team is not a quick path to save your farm from financial stress. That's what Gladigau found out when his crop suffered from an extreme drought the first year he joined with his partner. If he and his farm partner hadn't both been financially healthy going into farming together, "we wouldn't have made it," said Gladigau.
In one collaboration that didn't make it, members depended too much on their charismatic leader. His partners had too much confidence in him without examining the numbers and questioning projections, said Russell.
Transparency is key to keeping partners satisfied about how fees are set and where the money is going. Iowa farmer Barron knows exactly what every piece of equipment costs at the field level and shares that with his seven farm team members who rent the equipment.
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It can be an accounting nightmare, admitted Rick Fruth who farms with three partners in Napoleon, Ohio. But it's critical to the success of the operation to have comprehensive, detailed numbers and have someone (and everyone) dedicated to pulling those numbers together.
As with a marriage, you may be taking on someone else's problems if they are heavily indebted. "At first, we didn't want to 'pry' into each other's financial situation, which was a mistake," admitted Gladigau. "Although it has worked out, we would have made different decisions [early on] if we had known each other's financial situation and what each family expected," he explained.
"Also, we didn't pay ourselves enough at the beginning," Gladigau added. "We said we'd take our share of lease payments after harvest to help the business -- which is fine until things get out of balance. My advice is to pay commercial wages, rents and equipment lease rates. No sweetheart, in-house deals. These eventually lead to resentment."
Another problem is decision making. In one case, all partners serving on the board had an equal vote and one of their inexperienced board members should not have been a voting member, Russell said.
"When my partner, Robin Schaefer, and I first set up our partnership, we decided we would be equal in the decision-making process. That lasted three months," Gladigau admitted. "We needed to make decisions in our area of expertise. We wish we would have done that from Day 1."
Gladigau and his partner also recognized the need for an independent voice to hold each accountable to the success of the operation. "We hired a 'chairman of the board' who reviews our decisions. He gets a retainer and a profit-share for helping take our business to a new level.
"He reviews decisions as complicated as how best to expand the operation. Or, it can be as simple as questioning why the farm was providing me a pick-up. My partner works fulltime for the business which provides him a pickup truck, laptop and phone. I, on the other hand, work only halftime in the business, since I also do consulting. Our chairman asked why the farm was providing me a pickup. The phone and laptop made sense because I use those to keep in contact with the farm when I'm on the road. But the pickup? I now buy my own pickup."
GUARD AGAINST INEFFICIENCIES
"When you get big, it's easy to lose some accountability," said Gladigau. "You get a little sloppy about saving money. 'Oh, we can replace that.' You make purchases for the wrong reasons."
Also, when there are more people in the operation, it is easier to hide your mistakes. To counteract this, Barron's operation has a self-report policy. "If you do something wrong, you have two-hours to self-report and explain the steps that caused the mishap. Then, you're not in trouble. If you're tired and make a mistake in the field, I want to know about it," said Barron.
BE AWARE OF YOUR IMAGE
When you grow larger than most of the farmers in your area, you invite extra scrutiny. "We are very mindful of anything we put on social media," said Gladigau. "Also, we keep very good records about our farm operations. If there is a complaint, about pesticide application for example, the regulators come after us -- even if it's not our farm. Our records prove we didn't cause the complaint."
Russell stressed the value of being a "good neighbor." "In 2003, when my nephew wanted to build a 7,200 wean-to-finish hog facility, we had 42 mad farmers at the county board of supervisors meeting," said Russell. "We then put in place a public relations plan for our farm. If a hog breaks his leg, we take it to the locker and give free pork to the neighbors and personally talk to them. The high school environmental science class tours once a year (they shower in and shower out). Five years later when we wanted to add another 7,200-head facility, there was only one farmer at the county board meeting and he was in favor."
Gladigau hires one trucking firm for all his trucking needs. He asked the firm, 'What can we do to help you?' As part of their relationship, he hires some of its employees during the slow trucking season which falls during his planting season. During the drought the first year, other trucking companies were cheaper, but Gladigau stuck to his exclusive arrangement. The next year was the biggest crop in history and no one could find enough trucks, except for Gladigau. "We got all the trucks we needed."
WORK AS A TEAM
Respect for your players unifies the team. Gladigau provides a gourmet meal in the field for Saturday lunch during the busy season. Barron's group produced a video of the "rock team" of high schoolers picking rocks on the farm. Successful collaborative farms respect each other up and down the organizational chart. Sharing the same values and building win-win scenarios are also essential to a strong team. "To keep everyone on the same page, there is a constant need to communicate," added Barron.
Agriculture is going to continue to grow and consolidate. Early collaborators are changing because they see the light, said Klinefelter. "The rest of the population will change when they feel the heat."
Elizabeth Williams can be reached at email@example.com
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