National Collaborative Farming Conference
Today, I spoke at the National Collaborative Farming Conference held in Nashville, Tennessee. My talk was on entity planning for collaborative farming, however, my post today is how some of these farming operations have been structured.
Our first speaker was a farmer from Australia who originally farmed about 5,000 acres and found that he did not have the necessary capital go get into no-till farming. His neighbor was in the same boat and they got together and formed a new company to do the farming. They figured that the optimum level for each “cell” was 10,000 acres (based on labor and machinery, etc.). Over time, they have expanded to about 27,000 acres (with two planters and combines running 24 hours a day).
The return to each owner is based on:
- Salary for labor,
- Rents from land ownership,
- Distribution of profits
The second speakers were two farmers from Ohio who have formally put their farming operations into a formal partnership (for FSA purposes). There farmers also have an entity to own the equipment that leases the equipment to the operation. They also have a “capital” entity that provides capital to the farming operation. Another nice feature of the capital entity is providing “trustee” services for each of the trusts the partners have set up. As long as the heirs keep the capital entity as the trustee, the heirs can remain as owners in the farming entity. If the capital entity is removed as a trustee, then an automatic buy-sell kicks in.
The last speaker was a farmer in Iowa that had a similar structure when it comes to equipment and trucking services. These assets are owned in a separate LLC and provided to each of the “individual” farmers. There is no formal partnership for the farming entity. This allows the farmers to get into and out of the arrangement on a much easier basis (unlike the “Hotel California”).
The key is that there is no one way to do collaborative farming. The key is to have adequate communication and trust.
Paul Neiffer, CPA