Keeping family in the farm

Ruth Vander Zaag is running late. “We hit a bunch of rotten potatoes,” she explains.

It may seem like an unusual reason for a 26-year-old woman to be delayed, but Ms. Vander Zaag has been involved in the family potato-farming business since she was young.

She planted and harvested her first crop on her own when she was in Grade 12, taking out a loan to finance the 5.6-hectare field. Now she and her husband manage close to half of 440 hectares of potatoes with her parents in Alliston, Ont., about an hour north of Toronto.

“Growing up, I always wanted to be like my dad and be a farmer,” Ms. Vander Zaag says. “My parents always supported me in that.”

None of her five siblings were interested in taking over the farm her parents started in 1990. (The family has been farming in the area since the 1940s.) But with Ms. Vander Zaag’s interest, her parents had someone to pass the business on to. Now they have yearly meetings with a financial advisor to plan for her parents’ eventual retirement, about three to five years down the road, she says.

The fact that the Vander Zaags have a plan in place sets them apart when it comes to many agribusiness operations, says Plamen Petkov, director of provincial affairs for the Ontario branch of the Canadian Federation of Independent Business.

“A number of issues come up when it comes to succession planning and the top one is not having a succession plan in the first place,” he says, noting that many families may discuss it in passing but do not hammer out the details.

Mr. Petkov says a CFIB survey of Ontario agribusiness owners conducted over the course of 2010 asked respondents whether they had a plan to sell, transfer or wind down their business in the future.

While 52% had no plan at all, only 17% said they had a formal, written plan. Another 31% said they had only had informal discussions within the family.

Peter Brown, director of agriculture services and commercial banking at Bank of Nova Scotia, says this failure to communicate often plagues small business and farm succession attempts.

“Getting very clear on what your goals are — for all of the individuals in the transition, including the non-farming children — is very important at the outset.”

Mr. Brown also notes that given the highly capitalized nature of farming, it can be hard to ensure the retiring generation has enough to live on and pass the operation on.

“There can be real difficulties in going to the next generation, simply because of the cost of the capital assets to get into it [farming],” he says.

When it comes to planning, it helps to have a steady buyer for a farm’s product. The CFIB’s May 2011 agribusiness barometer, which measures sentiment during a three-month period, found insufficient domestic demand was the biggest business constraint for respondents. But the Vander Zaags sell about half of their crops to Lay’s — Ms. Vander Zaag was loading a trailer with potatoes stored since last year’s harvest to send off to a processing facility in Cambridge, Ont., when she came across the rotten spuds — and have worked with the company for decades.

The Murphys, another Alliston potato-farming family, are also a long-term supplier to the potato chip brand, which is owned by PepsiCo’s Frito-Lay. They now sell about 80% of their potatoes, grown specifically for chips, to Lay’s and have worked with the company since the 1980s, says Jack Murphy, adding that not having that business would be a concern.

He began farming full-time in about 1990, right after graduating from university, taking over the majority of responsibility from his father, John. Like the Vander Zaags, the Murphys seem to be outliers on the issue of farming succession. Jack’s 15-year-old son, Jake, is already next in line to carry on the family business.

“I like farming a lot and it’s definitely something I want to do,” says Jake, who has been working on the farm since he was 11, helping to spray, plant and harvest. “I’m young yet, but I’m pretty sure I’m going to be taking it over.”

His father says they have yet to have detailed discussions about Jake taking more responsibility on, but he plans to take a proactive approach.

“I believe if you have all your options in front of you and you have the information to analyze those options, you’re going to make a more informed choice,” Mr. Murphy says. “Farming’s not the type of thing you want to jump in with both feet and then five years later go, ‘Geez, I didn’t know that was involved.’

“With a family business, whether it’s farming or anything else, you might not be aware of a lot of the expenses that are actually there. You might know the big numbers but you don’t know all the little numbers that add up to big numbers. I think it’s important to have a real sense of what’s actually involved to make a true decision,” Mr. Murphy says.

Even with a clear plan in place, letting go can be tricky he says, pointing to his 83-year-old father, who still helps out around the farm.

“Hopefully you know when to step aside and let them take the reins and make all the decisions,” he says, adding, “With farming, you never truly get away from it if it’s in your blood.”