Selling the Farm to Save the Business?

Farm Business Management Update, April/May 2006

By Keith Dickinson, (keith.dickinson@vt.edu), Extension Agent, Farm Business Management, Northern District

If you talk to nearly anyone in the farming communities in the northern half of Virginia, an issue that you are likely to hear discussed before long will be "growth." Communities that were once very remote and rural are quickly finding themselves closer and closer to the edge of urban and suburban regions. The housing boom of the past several years, fueled by steady job growth in northern Virginia and surrounding areas have led to a strong demand for new housing and commercial development. In the areas further out from the primary growth areas, demand for single family homes and country estates is increasing as folks from more urban environments look to escape to the country as they approach retirement. As these changes to the rural communities occur, these communities are certainly impacted and finding a resident who does not have some sort of opinion on the subject is difficult.

As land development in rural communities changes from agricultural uses to housing, commercial or other non-farming uses, the impacts on the agricultural industry can be significant. When residential populations increase, farmers find more traffic on roads, which can lead to frustrating and even dangerous conditions when moving farm equipment from one field to another. New residents to the changing communities often are not accustomed to the smells, sights, and common practices necessary to support a thriving agricultural community. At the least, farm operators view these residents as a nuisance to conducting their normal farming operations. At the worst, the new residents can put pressure on local governments to enact public policies which can be detrimental to the viability of an agricultural business, such as a repeal or revision of Use-Value taxation.

Beyond the annoyance or nuisance issues created for an agricultural industry by increased urban pressure, the economic impacts on the industry can be considerable. Residential and commercial development nearly always replaces agricultural development. An open farm field is not undeveloped land. That field, when part of a farming operation, has been developed for agricultural use through the management of a farmer. An increase in the level of commercial and residential development in a community nearly always means that the level of agricultural development is decreasing, and, therefore, that industry is in decline within that community.

When the number of viable farming operations decreases in a community, the portion of the agricultural industry which supports the farming operations also must decrease or adapt to the changes in the community. The result is that farm equipment dealers will change their focus to lawn and garden and small "estate" equipment sales rather than the sale and support of large farm equipment. Feed and fertilizer dealers will shift focus from supporting large farms to supporting small scale agriculture. The availability of custom farm services will decline as the number of farms in an area decreases. As the businesses that help support farming businesses decrease their availability and service to farms in a community, the remaining farms must go further and pay more for these services.

Many agricultural producers find themselves facing difficult decisions about the future of their farming operation as the communities around them grow. Some will see the growing community as an opportunity to diversify their farming operations into producing crops, products, and services that can be marketed direct to the consumer at a higher value, such as nursery crops, fresh produce, value-added products, and agri-tourism enterprises. Unfortunately, these opportunities generally are few in number and require a management skill set that many producers do not possess, or the producer simply does not want to move into these areas of production. Many more producers are faced with the difficult question of "Should I stay, or should I go?"

The decision to sell the family farm in the face of urban pressure can be a very emotional and stressful one. Sentimental ties to the land that the family has farmed for generations can run very deep. Often the attitude sets in to the farm owner that the farmland must be preserved at all costs. While this approach will certainly preserve the sense of heritage and ties to the family farm, it may not always lead to the desired results of keeping the family farm intact. As the aforementioned economic stresses take their toll on the farm business, its viability can suffer, and the owner may eventually be forced to sell as a means to avoid bankruptcy or, even worse yet, as a result of bankruptcy. During the long downward spiral towards bankruptcy, a farm owner can endure many stresses, including depression and a sense of failure, because he or she could not find a way to make the business survive.

Another option for farm owners is to consider the other business opportunities presented by the encroachment of urban pressure on their community. As property values rise, farmland become more valuable for non-farming uses than for farming uses. In some cases, the best business decision for a farm business in the face of intense urban pressure may be relocation. In nearly every industry, relocation of factories, retail outlets, and other infrastructure is common as the local and even national economies change. If a farm is being managed as a business and not as a family heirloom, relocation should be considered as an option for maintaining the farm businessŐ long-term viability.

As a farm owner considers options for maintaining the future viability of the farm business, many issues must be considered. Family interests are certainly an important consideration to any family-held business. A balance between family interests and the interests of the business must be achieved to maintain the sustainability of both. Furthermore, just as each family has its own unique quirks and qualities, individual farm businesses have unique strengths and weaknesses that must be evaluated to determine the best options for maintaining a profitable operation. Virginia Cooperative Extension can assist farm managers to work through these issues and find the best options for that farm business. Finally, farm owners in the 21st Century must be forward thinking and looking for changes in their industry as they happen in order to survive. For those owners on the fringe of urbanizing areas, the time to begin discussing their options is today.

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