How To Create A Smooth Farm Transition From One Generation To The Next
The Zittels have plans. Lots of them, in fact. This fourth-generation family farm in Western New York works together — two sets of brothers with their two fathers — and is always thinking about how to farm more efficiently, harvest greater yields, and ultimately increase profits. They do this while keeping the “big picture” in mind.
The farm, Amos Zittel & Sons located in Eden, dates back to 1897, and the big picture they are referring to is the sustainability and growth of the farm. Every day working as a team, they do what it takes to be sustainable, from employing efficient irrigation practices, to hiring a scout to help with crop protection efforts, to the successful yearly production of nearly 1 million pepper transplants in the operation’s greenhouses. And just as important, this operation has devised its own succession plan to ensure the farm will continue to produce for the co-op it is involved with, Eden Valley Growers, for years to come.
The Next Generation
American Vegetable Grower had an opportunity visit the farm and speak with Bill Zittel, who is a partner in the operation with his brother David and cousins Mark and Kevin Zittel. Bill’s father, George, and his cousins’ father, Paul, are retired, “but they sure aren’t retired,” says Bill with a laugh.
The current owners received their educations at Cornell University with the exception of Kevin who graduated from Michigan State University.
The Zittels’ fifth generation is currently waiting in the wings. David’s son Evan, who will be a senior at Cornell University this year, has expressed interest in returning to the farm after graduation.
After seeing others go through rough transitions, the Zittels wanted to ensure a smooth transition from one generation to the next.
“Then it became a question of how to get the next generation in,” Bill says. “I had been involved at a young age doing marketing with my grandfather, and I had a good feel for the day-to-day business. What we needed was a way to transition and start saving some dollars for buyouts. I was interested in doing this because it was very frustrating for me when I was at Cornell, listening to some very intelligent guys who were going back to family farms talk about where their businesses were headed. Their situation involved a grandpa and grandma who were still alive and owned everything. Dad and uncle, however, didn’t own anything and were told that they will get everything in the will.
“At that point, there was no written plan and if you don’t have a plan for ownership, it’s difficult to have a vested interest and put all your efforts in the business,” he adds.
The Necessity Of A Plan
According to Bill, a succession plan is a necessity, so all involved — and those not involved — are on the same page. “If there isn’t a succession plan, those siblings who aren’t involved on the farm often get a piece of ownership in the will, which becomes a difficult situation for both parties. The ones working the farm are left with the burden of coming up with the cash to buy out the siblings not involved in the business, or have to share the profit/loss. As most farmers know, farming is a way of life not just a business, and fair is not always equitable in farm transfers due to sweat equity.”
Bill put together a “buy in” and “buyout” plan with Amos Zittel & Sons being the only entity that can distribute stock and purchase it back. They worked with a financial planner, an accountant, and a lawyer to put together this plan, and then started investing in different avenues so when his dad and uncle hit age 65, there were funds available for the next generation to buy them out.
After a partner, such as his father or his uncle, turns 65, he must sell all his shares back to the business, and the corporation holds the note payable over 15 years, Bill says. The price is mutually determined at least five years prior to the purchase.
“If the retiring person wants to remain active on the farm, he must turn in an action plan or list of responsibilities at the corporate meeting each year,” he explains. “That way the principal players can determine who will take over their fathers’ previous responsibilities or find out what kind of time commitment the person wants to make to the farm, and at what capacity.
“This allows us to continue using their wisdom and experience but not left wondering what needs to be covered by others,” Bill adds. “The retirees are paid a consultant fee so along with their retirement savings and stock repurchase over the 15 years, there will be no questions as to what income they draw from the farm.”
Buying Into The Business
On the other end of the spectrum, someone interested in buying into the business may begin to buy their shares of stock after two years of full service, if the partners feel they are fully committed.
“Every six months during the probationary two-year period, we sit down with a 10-point review on communication, respect, work ethic, etc., and each of us including our dads, critique the individual wanting to come back,” Bill says. “We have some open conversations and we try to make it a very positive and learning experience because we need to encourage youth to come back, but at the same time they need to know where they stand.”
The goal is to give them as much direction as possible, and then after two years, that person may be granted the option to buy stock. This gives them a sense of ownership and vested interest, Bill says. Instead of a stock split after so many years of growth, each generation has only been allowed to purchase half of the previous generation’s number of shares.
The stock price is set the year the person comes back full time so he benefits if there is growth during his probationary years. Ten percent of the W-2 is the investment into the business each year until the person’s number of shares is paid off, explains Bill.
“If for some reason the stock was overvalued or the farm had difficult years, after 20 years the stock debt would be forgiven,” he explains. “So far, all stockholders have been able to buy their full amount of shares inside of the 20-year period. We have a formula that we work on with our accountant to come up with the value of stock both for buy ins and buy outs, so a person knows what his stock share per price is, but every minute he is there and the business grows, he is getting a part of that for when he retires. There are also other clauses in place to prevent early buyouts or hardship on the business if someone wants out prematurely.”
Where so many family farms struggle to transition the business from one generation to the next, the Zittel’s have taken a lot of the stress and ambiguity out of the process by planning.
“At least there is a plan for those leaving the business and the people coming in,” Bill says. “With such a plan in place, your energy, day to day worries, struggles and efforts can go to farming, not administration.”
Bill, who will be 55 this year, is in the same generation as his cousin Kevin, who is 17 years younger. Within the next decade, Bill will begin his transition out of the business while his brother and two cousins will still be main shareholders. By the time Bill is thinking about retirement, his nephew Evan will hopefully be one of the principal players back on the farm.
“The biggest challenge is that there are four in this generation and only one in the next generation so far,” he says. “We need to become more efficient so fewer managers can handle things, or we will need to bring in outsiders to take on management roles and give them the reins. I have to point out that we could never do what we do without our employees.”
Amos Zittel & Sons At A Glance
Location: Eden, NY
Owners: The fourth generation: Bill, Mark, Kevin, and David Zittel
Acreage and Crops: More than 300 acres of leaf lettuce, strawberries, peppers, cabbage, sweet corn, tomatoes, eggplant, squash, and pumpkins. Plus, 4 acres of indoor production of rooted liners and finished potted plants as well as vegetable transplants.
Customers: About 95% of the farm’s vegetable product is sold through its marketing co-op, Eden Valley Growers. The remaining 5% is sold at the family’s farm market, Zittel’s Country Market. Rooted liners are sold through the broker system, and finished pot crops are sold locally from Warren, PA, to Utica, NY.
Three Grower Tips From An Industry Veteran
Bill Zittel of Amos Zittel & Sons, Inc. in Eden, NY, has witnessed numerous industry changes since returning to the farm after earning a degree in plant sciences from Cornell University in 1982. Pulling from past experiences, he offers a few pointers.
Do your marketing research and know where your product is going before you grow it. “In today’s world everyone assumes that you can grow and will have quality product, but it doesn’t do any good to grow [crops] if you don’t know who is going to buy them and what that marketing outlet is,” he says. “Keep your mind open to change, but don’t change so quick that you change with wind. Watch out for trends, and keep the tried and true, while testing out the new.”
Have a realistic view of costs. Bill advises growers to always look at the net dollars — not the gross dollars. “For example, you can have a garden center that is grossing a million dollars a year, but if you keep honest and accurate books and are losing $10,000 and still haven’t accounted for your own time, you won’t be in business long.”
Have a one-, three-, and five-year plan. If a game plan isn’t in place with clearly defined goals, mistakes will be made and, oftentimes, growers lose sight of what they were doing to begin with. “The wonderful part of our business and the challenges of Mother Nature, which is our single biggest aid and nemesis every day of the week, is that you get another chance every year,” he says. “If you have a game plan and you know the cost of your inputs, you are able to make those adjustments for the next year hopefully improving efficiency and production and thus the bottom line ensuring the business can stay viable.”