The next generation… report here!
A new generation of farmers and horticulturists is needed in order to ensure the continuity of food production and innovation in the sector. The problem is that too few young people choose farming as a profession. And those who want to take over the family business are constrained by financial obstacles. Is there a way out of this deadlock?
Rejuvenation of the agricultural sector is stagnating
The young generation is responsible for the food of the future. That's the law of nature. This year's grain is the basis for next season's successful harvest. And today's calves and pigs are needed for tomorrow's production of milk and meat.
This is how young generations of farmers and horticulturists secure the future food supply. "The global population is growing and becoming more and more prosperous. By 2050, the demand for food will be 60% greater than it is today. That's why we need a new generation of farmers and horticulturists. They continue production and will create a smarter, more efficient and more sustainable food supply through new insights and technologies," said Bart IJntema. At Rabobank he is involved in the development of agriculture and horticulture outside the Netherlands.
Agricultural succession under pressure
Rejuvenation in the agricultural and horticultural sector has everything to do with succession and takeover of family businesses. Family farms produce more than 95% of the world's food. However, the number of children willing to take over family farms is in decline. Some facts and figures:
- In Europe, 3.6% of farmers are under the age of 35.
- In Australia, the average age of farmers is 56 years, as opposed to 44 years in 1984.
- In the Netherlands, 45% of agricultural companies have no succession plan.
- In the United States, for every farmer under 25 years old there are seven older than 75 years.
Agriculture lacks appeal
It is IJntema's experience – based on contacts with farmers and Rabobank colleagues from all over the world – that the young generation has lost interest in farming. Ruud Paauwe, Horticulture Sector Manager at Rabobank in the Netherlands, observes a similar trend in the Netherlands. He explains the decline in interest in agricultural entrepreneurship as follows: "Children of the current generation of farmers and horticulturists see their parents work really hard for relatively little returns and see how they have to sacrifice an awful lot for the farm. What's more, for many young people without a background in farming, the agricultural and horticultural business seems old-fashioned. In practice however, agricultural entrepreneurship is all about computer technology, financial management, sustainability, food supply, turbulent markets and critical environments." According to Paauwe, this is precisely what motivates young farmers who do decide to take over the family business, which happens around 800 times a year in the Netherlands. "The agricultural sector needs positive individuals who can act as modern ambassadors for the sector. They can inspire young people and make them realise that running a farm is complex, which is precisely what makes it so challenging and rewarding."
Emotions and interests of parents and children
Young people who do want to take over a business are faced with huge challenges. Take for instance the emotions and financial interests of parents (the farm is their retirement plan), or brothers and sisters (how do you divide the family estate equally?). "Running a farm is challenging as it is, let alone having to deal with matters such as ownership, or the division of ownership, and financing. It's important to discuss these matters with family members at an early stage," says IJntema based on his experience in agricultural succession across the globe, from New Zealand and California to the Dutch polders.
A major financial bottleneck is that companies are getting bigger and bigger, and farmers are increasingly using advanced equipment and automation systems, causing purchase prices to rise. The rate of return for agricultural or horticultural firms is however only two percent, at the most. These low returns make it difficult to make high interest payments and principal payments. It also makes it a challenge to attract risk-bearing capital from investors. This means young farmers have to come up with a significant amount of capital themselves.
So how do we break the deadlock? IJntema: "A solution to the problem is to improve the profitability and returns of agricultural companies, making it more appealing for young people to succeed in the agricultural sector and further develop the companies they take over. Returns on farm investments are much lower than on other investments in the food chain." The returns can be improved by cutting costs and by developing market positions that generate new opportunities and cash flows.
Financial incentives can provide a much-needed spur to make takeovers possible. Rabobank experts are strongly in favour of a fund that provides young entrepreneurs with buffer capital to supplement the capital that they are putting in. A takeover fund or government guarantee for example. Such a fund or bond would considerably limit interest and repayment obligations for young farmers in their first 10 years as entrepreneurs. In addition, it would help to offer financial incentives for innovation. Paauwe: "Why not make risk-bearing capital available to new generations of farmers and horticulturists for the development and implementation of innovations? This will not only benefit the successors, but also the food supply in the years to come."
Entrepreneurial qualities are key
Young farmers today are faced with many challenges. So it's not surprising that the most important success factors for the future of agriculture and horticulture are young entrepreneurs who take over farms with firm conviction and possess the skills to further develop the business, embracing new ideas and techniques along the way. IJntema: "Young people who take over farms must of course have knowledge of the business. But entrepreneurial qualities are equally, if not more, important. They have to be able to think 30 years ahead strategically and financially, drive innovation and continue to develop the company in the chain as well as in relation with the environment. These skills are essential."
This is how Rabobank supports young entrepreneurs
- The Netherlands: Rabobank has provided coaching and succession planning for more than 10 years through the Rabo Opvolgers Perspectief' (Successors Horizon) programme. More than thousand young entrepreneurs have attended this training programme.
- Australia and New Zealand: Rabobank Succession specialists support families in all takeover aspects and provide advice on family relationships.
- Brazil: Takeovers of large companies are quite common in Brazil. Rabobank Brazil established the AgriLeaders programme in 2007 to prepare future owners of large-scale companies for the challenges ahead, for example related to HR, the economy or sustainability. More than 70 agricultural high potentials have participated in the programme so far.