Second farm, distant location. Can it be done?

The following fictional case study was created by BDO.

Brian and Louise knew from an early age that their children, Isaac and Emma, aspired to be the seventh generation of their family to farm. They also knew the existing operation was not large enough to support three families if both children chose to farm full time. They started thinking about this when the kids were young because they felt that a transition to the next generation would start earlier than it did with their parents. With land prices at record highs, they needed a creative plan that allowed their children to farm if they chose to.

Expanding north: A strategic decision to secure the future

When an opportunity arose to purchase land two hours north at half the price of local land, they discussed it as a family and decided to proceed. With guidance from their banker, accountant and lawyer, they set up a second corporation to hold the new land and make dividing the farm business between their children easier. In hindsight, this also proved helpful in allowing them to better benchmark the success of each operation, which was a huge benefit in decision-making.

They set up a second corporation to ... make dividing the farm business between their children easier.

Initially, the new land was rented out when the children were teenagers. It wasn’t feasible to move equipment to both locations for a small acreage. The logistics of getting labour in two places at once were too much. Over time, they acquired more land at the second location. When Isaac and Emma began driving, it became feasible for the family’s time and energy to be split between the operations.

The children were able to expand the new farm more rapidly than their home operation and eventually grew it to a comparable size. At that point, it made sense financially and logistically to start farming it themselves.

Capitalizing on differences

The differences in growing seasons between the locations allowed planting to be spread over a more extended period. By choosing seed varieties with appropriate maturities, they could effectively spread harvest timing across locations. Most years, they were able to finish seasonal tasks for each crop at the home operation before moving to the new one.

While land was less expensive in the new location, equipment was not. Moving all their equipment between the operations would be time-consuming, stressful and costly. However, having two full equipment fleets was also expensive and tied up a lot of capital. In the end, they settled on having a complete set of planting and tillage equipment at both locations. Their grain trucks moved between locations, and a custom operator sprayed at the north location.

Balancing logistics

In the early years, Brian spent a lot of time at the new operation, setting it up to his satisfaction, clearing and tilling and working on the buildings and equipment. He built strong relationships with many neighbours and suppliers in the area. It took trial and error and advice from local farmers to learn the different agronomy realities. Initially, there was some resistance and curiosity from the locals, but the family worked hard to overcome that.

Growing into roles

Having two locations allowed Isaac and Emma to grow into their respective roles and responsibilities. After college, Emma returned to the farm full time, while Isaac already worked off the farm part time.

It evolved to the point where Brian and Emma spent a lot of time at the new farm learning the logistics and agronomy details together. Eventually, Emma took ownership of a lot of the decisions there. This arrangement also allowed Isaac to flourish. With Dad less present, he took a more active role in the management at the home farm.

Louise managed the financial and administrative tasks for both locations and corporations. She was careful to ensure that the two operations were kept as separate as possible. Crops were marketed to different locations and expenses were paid by the appropriate entity. Both locations had their own accounts for government programs and crop insurance. While the bank required some guarantees from the original operation to fund the initial acquisitions, they were able to keep all borrowing tied to each location. Having two corporations was critical to maintaining this segregation.

Challenges pay off, opportunities realized

Expanding through a second location wasn’t easy. Brian and Emma spent a lot of time and money driving between the operations. Family and social functions were often missed because it wasn’t always possible to come home for just a few hours. Planning and time management were crucial.

However, expanding further north has provided a financial opportunity that wouldn’t have been possible otherwise. There were logistical, operational, financial and social challenges, but today, the new operation is generating as much cash flow per acre as the home operation.

The original objective was to create an opportunity for both children to farm. More than 10 years since they started the plan, Brian and Louise are confident they've succeeded. They now have an option for one family to live at the second location or continue operating it as they are now. A third option is to sell it and capitalize on the growth to reinvest at home.

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From an AgriSuccess article.