Should beginning farmer policy be the same regardless of generational status?

By Rebecca Weir, graduate research assistant, and Joleen C. Hadrich

ation beginning farmers despite that they may be a third or fourth generation farmer.

Additionally, rst- and second-generation beginning dairy farmers differ by participation in:

In 2017, the average age of a U.S. farmer was 57.5 years which increased from 56.3 in 2012, according to the 2017 Census of Agriculture. In Minnesota, the average age was 56.5 in 2017 and 55 in 2012.

Only 26% of U.S. farms in 2017 had a beginning farmer as one of the operators. When we look at the estimates for dairy farms, the numbers are substantially lower. Nationally, less than 2% of farms with a beginning farmer are dairy farmers (10,556 of 597,377), and in Minnesota, the average is nearly 4% (611 of 16,132).

The positive point of these statistics is the fact that Minnesota has emphasized investing in beginning farmers through several programs managed by the Minnesota Department of Agriculture including the Beginning Farmer Tax Credit, Beginning Farmer Loan Program and a grant from the Rural Finance Authority to assist new farmers in purchasing farmland.

As you reect on how you started farming, we assume you did it in one of two ways. You started your farming operation independently or transitioned as the principal operator on an existing farm, whether that is a family member or not. But does it matter how beginning farmers enter the industry? Initially, one would say no, it should not matter, but as researchers, we wanted to see if there was a difference in nancial performance between these two groups.

Using FINBIN data from 1996 to 2021, we dened beginning farmers who started their operation as rst-generation beginning farmers, and beginning farmers taking over the principal operator role on an already existing farm were dened as second-gener-

Both types of beginning farmers are eligible for and have access to the same grants and loans offered at the state and federal levels. However, studies have indicated that rst-generation and second-generation beginning farmers have substantially different nancial performance. We wanted to see if this was true for Minnesota dairy farmers.

The rst nancial measure we studied was the farms’ ability to cover debt due in the next 12 months with liquid asset, which is the current ratio. First-generation beginning farmers had $2.80 available to cover each $1 of debt due in the next 12 months on their farm while second generation beginning farmers had $4.51. This suggests both groups have cash readily available to cover debt due in the next year. While the current ratio captures debt due in the short-run, solvency looks at the ability to cover all their debt both in the short- and long-run. We use the debt-to-asset ratio as our solvency measure, which shows that 62.1% of the rst-generation beginning farmers’ assets are owned by creditors. Second-generation beginning farmers are not leveraged as much with 46.7% of their assets owned by creditors.

Protability is the nancial measure often cited to indicate overall performance. The operating prot margin shows that for every dollar of revenue generated on the farm, 11.42 cents and 9.58 cents are retained as prot for rst-generation and secondgeneration beginning farmers, respectively. When we look at the rate of return on assets, rst-generation beginning farmers are generating a 7.81% return while second-generation beginning farmers have a 4.77% return on all investments on the farm. First-generation beginning farmers outperform second-generation beginning farmers in protability; however, the opposite is true for solvency and liquidity.

– Off-farm work: 71% of rst-generation farmers versus 56% of second-generation farmers.

– Number of operators: 1.2 operators versus 1.7 operators.

– Total assets: $746,110 versus $1,945,395.

– Milk yield: 19,063 pounds per cow versus 21,285 pounds per cow.

The biggest difference between these two groups is farm size. First-generation beginning farmers, on average, have 94 cows with 196 acres. Meanwhile, second-generation beginning farmers are larger, with 175 cows and 442 acres, on average.

Recognizing that many of these characteristics interact with each other, we studied the two groups individually, measuring the impact of herd size and acreage on a farm’s operating prot margin.

Both rst- and second-generation beginning farmers have a positive association with acres operated and protability, which means that regardless of generational status, if a beginning farmer increases their acreage, they can expect an increase in their operating prot margin. However, when analyzing herd size, we observe varying impacts. Increasing herd size negatively impacts the protability of rst-generation beginning farmers but positively impacts protability for second-generation beginning farmers.

As we continue to work on efforts to promote and encourage the next generation of farmers to enter the dairy industry, it is important to keep these statistics in mind during that transition. In particular, there is no one-size-ts-all strategy for farm success. However, identifying key characteristics, like having a strong land base or nding an established farm to transition, while utilizing grant programs with a focus on long-term asset purchases can ease entry into the profession.