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 also Limburg. The 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?

If you dive into the subject of agricultural business succession, the many sides of the story stand out. The lack of a successor is only part of the problem. In some cases there is a successor, but he or she does not have the means to take over. Or there is a successor, but the family aspect complicates the acquisition. This article explores the backgrounds and available figures for this complex issue.

Fewer and fewer agricultural businesses

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

* Companies that produce agricultural products for the market, with headquarters in the Netherlands, and an economic size >= 3000 euro SO (Standard Revenue).

Family farms

Many agricultural businesses are family businesses and this plays a major role within the issue of farm acquisition. In October 2020, the CBS published figures that provided insight into the number of family businesses in the Netherlands in the period 2015 - 2018. Of all Dutch companies and entities in 2018, 19% were family businesses*. Within the agricultural sector, that share was much higher. Of the 75,485 companies in agriculture, forestry and fishing, 36,995 (49%) were family businesses. The figures for Limburg are in line with the national figures. Limburg had a total of 100,385 companies and institutions, 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 on the national level.

*A family business, in the CBS definition, is a business in which one family directly or indirectly has a majority of control and is formally involved in management. Businesses owned by self-employed individuals without staff 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 over 52,000 agricultural businesses in the Netherlands, of which over 27,000 had a farm manager aged 55 years 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, there was often no successor available. The larger the business, the more likely it was that there was a business successor.

In Limburg, CBS counted 1842 agricultural businesses with a farm manager aged 55 or older in 2020, of which 631 had a successor and 1211 without a successor. That means 66% without a successor, significantly higher than the national figure. In previous years, this percentage always fluctuated around 70%, with a peak of 73% in 2008. The study also shows that the type of farm certainly makes a difference. In 2020, 69% of Limburg arable farms with a farm manager aged 55 or older had no successor (395 out of 573), while the figure for dairy farms was only 38% (80 out of 211). This does not mean that there is no problem for dairy farms. A futureanalsye by 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 perspective of the quitter

The issue of business succession is never simple, but not all older farmers will feel the same way about it. It makes a difference whether or not there is a successor ready, whether or not the successor is a family member, and what the farmer considers important at the time when continuing on your own is no longer an option. Does the priority lie on maintaining the business or on the financial outcome? How much time is left? It is certainly not a subject that can wait until the last moment. Both the road to business termination and the road to business acquisition are long and complex.

Stopping

There are farmers who accept that there will be no continuation of their business and mainly hope 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 gradually phase out? Other farmers don't want to quit, but have no choice because no successor can be found for their farm. Many different consulting firms and coaches assist farmers with possible farm termination. Specialists indicate that there are many different possible routes and therefore customization is important. Besides all the legal, fiscal 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 business begins. The acquisition process of family farms 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 brothers and/or sisters receive? Is there confidence in the business successor? Is the acquisition price sufficient for the parents' retirement provision? The takeover price is often below the market value. In many cases there is plenty of advice available on the business side of business succession, but there is less attention for the "soft" social and emotional side.

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

In Limburg, family businesses will be given the opportunity to express their views on the future of the company.

Within 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 in which aspects such as finding a successor and investing in development and innovation are addressed. The kick-off took place on 18 March and can be viewed online.

A successor outside the family

Is there no successor within the family? Then the farmer has to look elsewhere for a candidate. And that does not appear to be easy in practice. Sometimes there is interest from an acquaintance who has been around for a long time, but the relationship has to be really good if you want to embark on the often lengthy process of a takeover together. The chances that the person stopping the business will actually receive the value of his or her company from the successor are slim and the question is whether their plans for the future are compatible. Granting and letting go are therefore important aspects in such a non-family acquisition.

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 perspective of the young entrepreneur

Choosing a life as a farmer is no small feat. In the first place, you must already have the desire to throw yourself seven days a week at the animals or plants. For the 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 resistance and complexity of laws and regulations? Is there a business you can take over and are there family members you need to consider?

Despite the lack of successors on existing farms, it is sometimes still impossible for young people to get land. The price of land is 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 Gaard. Here the land does not come from farmers, but from private individuals who are willing to lend it in exchange for part of the harvest. However, such a mobile existence will not be the objective for many young farmers.

Joung farmers who are struggling with the theme of taking over a business can turn to the NAJK. They offer various courses to make the process of taking over a farm smoother, but they are also actively involved in government policy on this subject.

The government's perspective

Not only for those directly involved is the agricultural business takeover an issue, also the Dutch government is concerned. It is important that enough healthy food is produced, agriculture is good for many jobs and plays a major role in the Dutch economy. The European Union has also been focusing for years on a policy that stimulates 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 taking over a farm. This includes, for example, the Young Farmers Regulation (JoLa) within the Rural Development Programme (RDP).

In addition to existing schemes for young farmers, the Dutch government introduced the Guarantee Scheme for Enhancing Credit (VVK) in early 2019. This came about in close consultation with the Dutch Agricultural Young People's Association (NAJK). Within the VVK a total of €75 million is made available to make it easier for young farmers to start up or take over an agricultural company. The scheme has a lower threshold for financiers, because the government guarantees.

The future

Are these kinds of subsidies successful? In September of 2020, the Telegraph published an article stating that until then only one farmer had used the VVK. After kamervragen minister Schouten estimated that the scheme was still underused. The uncertainty of the coronavirus was mentioned as a possible explanation. However, even before the outbreak of the corona crisis, there were question marks about the success of this type of scheme. A report by the European Court of Auditors concluded in 2017 that EU aid should be more targeted to promote effective generational change. An article by independent news website Follow the Money from January 2020 shows that both in the Netherlands and in Europe, despite all measures, the percentage of young farmers is still declining.

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. Also, many farmers do not seem to be looking for subsidies per se. What is important for them is that they can produce at a good price. Apart from that, it is also possible that the subsidies have indeed helped and that the ageing of the population would otherwise have been much more severe.

Choosing a life as a farmer is certainly not a purely financial issue, that much is clear. Social discussion, many working hours, laws and regulations and family circumstances are other factors that play into the decision of potential young farmers. The question of whether the tide can still be turned therefore appears, for the time being, to be just as complex as taking over a business.

For those wishing to read more about this topic, an extensive dossier is available at Green Knowledge Network. Also read our interview with (young) farmers and administrators in Limburg about business succession.