NASHVILLE (DTN) -- You stare at your financial records. Can you squeeze more profit from the acres you have? How can you justify that $200,000 sprayer you thought was a good deal? How can you add more acres without bidding yourself into bankruptcy? And maybe a more personal, but tougher question, how can you spend more time with your family?
Crop and livestock producers wanting to grow their businesses are looking for answers to these difficult questions. A possible answer for some farmers is starting to emerge -- collaborative farming. It's a phrase to describe a new form of farm partnerships designed to help midsize operators grow. It's also a model that can help elders without a successor phase out of farming without a huge tax liability.
"Farmers, in general, are an independent lot. They want to be in control," said Danny Klinefelter, ag finance professor and economist with Texas AgriLIFE Extension and Texas A&M University. "But farmers who position their operations to run at the highest efficiency with the proper skills set in place will be those who survive and thrive, no matter where in the price cycle we are."
In the past, farm children took over from their mom and dad and the family farm continued. Now, as farmers in their 50s and 60s survey the landscape, several scenarios are prompting them to explore other options: Their adult children aren't coming back to operate the farm; their offspring may not have the range of skills needed to operate a high-tech, high-risk, capital-intensive farm operation; or, the size of their current operation can't support another family or two.
DTN is covering this topic in a three-part series. We'll look at why you should consider collaborating with another farmer, or two or seven. Then, we'll examine several different business models farmers have used to join forces. Lastly, we'll look at what can go wrong with collaborative farming and how to avoid mistakes others have made.
WHY CONSIDER COLLABORATION
1. Farm more ground.
This is generally the main goal of most crop farmers who want to grow their business. But taking a different approach than others may get you there faster.
When Chris Barron of Rowley, Iowa, returned to his home farm, his family had also sold Pioneer Hi-Bred seed for 20 years. Chris's dilemma was how they could expand without irritating neighbors by bidding up rents or by renting land away from their customers.
Barron's collaborative approach brought him to his 60-year-old neighbor. Barron asked him if, as he got closer to retirement, whether they could share equipment some day or work together. "Two days after we had that conversation, the neighbor who farmed 1,100 acres called me and he said two other neighbors had approached him and said, 'When you think of quitting, I'd like to rent your ground.' The farmer told me that kind of pissed him off. He said he'd rather work with us, so we drew up a seven-year plan that allowed him to retire and helped him mitigate a $215,000 tax liability he otherwise would have owed."
2. Retire at the pace you choose.
The previous example shows how one farmer orchestrated his retirement the way he wanted by joining forces with Barron. Also, he might have inspired another close-to-retirement neighbor. Barron got a call from an area farmer who owned 3,000 acres debt-free who said, "I'm 68 years old and I like to drive a tractor." However, from the other aspects of farming he wanted some relief.
So Barron said, "You can farm your own ground. We'll collaborate on seed, chemicals and fertilizer purchases. You can rent our equipment and the labor that you don't want to provide. You can sell your own grain, following our recommendations or not." No financial strings attached. Forty-five minutes later the elder farmer told Barron, "I'm in."
3. Gain economies of scale.
When John Gladigau of Alawoona, South Australia, returned to his diversified family farm of 5,000 acres, he concluded it wasn't the most efficient size in his area. He found a neighbor who shared his values and they determined that 10,000 acres would be an "efficiency cell," calculating optimal equipment use, input volume purchases, trucking needs, capital needs, etc. And together the two of them could handle two "efficiency cells."
"Does that mean we couldn't add more acres if they became available?" asked Gladigau. "No, we could add more acres but we would need to hire someone to custom farm that until we grew to an efficient size to justify buying more equipment and hiring more labor."
Another bonus: When you get to a certain size companies notice, reported Rob Rettig who created New Vision Farms in northwest Ohio with three other farm partners. "It's a bigger deal than I thought," Rettig said. "You are perceived differently in the marketplace. We've been offered trials, deals, etc."
Gladigau agreed. "We are using technology we only dreamed about," said Gladigau. "We have a $250,000 WeedIt precision sprayer with infrared sensor that only sprays the weeds it senses. We reduced our chemical use by 85%-90% across our farm. In addition, John Deere is using us as a test model, giving us access to state-of-the-art technology."
"End users such as food companies also prefer working with a few quality producers," added Klinefelter. "They are looking for farms that can deliver quality, consistency and traceability and if you can deliver that in large quantities, even better. That's worth a premium to them."
4. Become more professional in your operation.
"When you farm with another person, you step-up your game," noted Rick Fruth, from Napoleon, Ohio, who farms with Rettig. "You don't want to let them down, so you work a little harder at being a better manager. That was another advantage I didn't foresee."
Also, better efficiency allows you to afford to hire people who have skills you lack, advised Klinefelter.
Rettig and Fruth hired an agronomist and operations manager for their operation. Gladigau and his partner hired a "chairman of the board" who acts as a "referee" to keep everyone in the operation accountable and makes sure their decisions benefit the business.
5. Spend more time with family or outside interests.
The best part about farming, say most farmers, is they're their own boss. However, it's often hard to find the time to do everything. When Iowa farmer Barron started collaborating with two neighbors who were contemplating retirement, he also got a call from a 30-year-old farmer. The young farmer asked, "What's going on with your operation? The thing is, I want my wife to like me. I work for the county plus I farm 650 acres. I'm working all day and night. Maybe I can help you out and you can help me out." Over a three-year-period that young farmer is now a part of Barron's operation.
Forming a collaborative farm operation "changed the world for us," said Fruth. "My quality of life improved. My partner Mark Schwiebert got involved with the National Corn Growers Association. I became involved with the U.S. Grains Council. I've travelled to 30-40 countries. I never could have done that before."
You can't say enough about the improved quality of life, agreed Barron. "It gives you peace of mind to know you are on a team. My son went out for golf and the high school season is during planting. I went to every one of his golf meets and was able to see his exciting finish at the state golf tournament. It was a very emotional moment. That's something we'll always share," said Barron.
"You have to ask yourself: Why are you farming?" advised Barron. A successful collaborative farming arrangement offers the flexibility to farm profitably, see your family or see the world.
EDITOR'S NOTE: DTN's next installment in this series on Team Farming will look at different models that farm operations deploy to join forces and grow their businesses. Part 3 will look at what can go wrong and how to avoid others' mistakes.
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