One by one during the past three years, Allen Lash has quietly assembled a network of farmers to invest in FamilyFarms LLC. The pitch to buy into the company—and its concepts—is grounded in disciplined business practices, fueled by aggressive ambition and focused on competing in an agriculture industry that is consolidating at warp speed.
Teamed with Harold Birch and Leroy Jones, a former Kennedy & Coe LLC partner, Lash has selectively invited producers he believes have the attitude and desire for future success. A cloak of secrecy helped create the intrigue surrounding the effort. Ironically, that has also turned FamilyFarms into one of agriculture's most talked-about secrets.
It's a club of sorts that walks and talks like an invitation-only franchise system. Those who buy in on a per-acre basis receive Class A shares in the company and agree to adhere to the FamilyFarms set of standard operating procedures for members. As in many franchises—think fast food or hotels—it is all or nothing.
Why? "To help keep families on the farm," says Lash, the well-known consultant and founder of AgriSolutions in Brighton, Ill. "It's going to take a substantial investment of money, time and resources to remain an economically viable business. Not everyone is going to be willing to make the commitment to education and implementation I believe it's going to take to survive. We don't have the choice but to change our farm operations at unprecedented rates."
The promoter of business thinking points to USDA's 2007 Census of Agriculture. Lash says 5% of U.S. farmers account for 75% of all farm sales. Furthermore, 0.3%, or 5,541 farms, represent 27.9% of total sales.
That pace, says Texas A&M AgriLife economist Danny Klinefelter, is about to rev up. "As farmers drop out, existing operations will absorb those acres. The capital costs and management requirements are just too prohibitive for new farmers to come into the industry on a commercial scale. That means the bulk of production will be concentrated in fewer and fewer operations."
Management disciples. Lash maintains the goal is not to create titans of agriculture. "It is education-focused, but what's really different is we're focused on implementation," he says. "You can train people, but if you don't provide a way to implement the training, they often don't get the desired results."
Lash tags Rick Rosentreter as one of the "best students" he's worked with. A general partner in Illinois FamilyFarms (IFF), in Carlinville, Ill., Rosentreter has adopted the FamilyFarms principles lock, stock and barrel. "I believe this will ensure the legacy for family farmers. It will change agriculture," he says.
Not only is he the first investor, but Rosentreter is also listed as one of four managers (along with Lash, Birch and Jones) on the FamilyFarms LLC filing with the Illinois Secretary of State. The concept, he says, helped him think like a manager and provided a springboard for growth.
He's especially proud of then-21-year-old Matt Weyen joining the business when IFF formed. "Here is a young guy with 660 acres whose grandfather was retiring. Without this concept, he couldn't compete," Rosentreter explains.
IFF was started with 15,600 acres in 2006. Its 2008 acreage was 24,300 in Illinois and Arkansas, and Rosentreter expected to plant 32,000 acres this year.
Plans for 2009 changed in early March when Rich Killam and his two sons announced they were leaving the partnership and taking 10,000 cash-rent acres with them. While Killam says his decision to break free was not because of Lash's Family-Farms, it clearly created strife between him and Rosentreter.
Killam believes the FamilyFarms approach can work and says it taught him valuable business concepts. However, he wasn't comfortable with the aggressive growth he feels is being pushed. "It's all about acres and money…going after the most acres and paying the most amount of money.
"FamilyFarms comes in and says ‘you have to do everything we want,'" he declares. "A lot of money goes to FamilyFarms for all kinds of things I don't agree with."
In return for the fees, FamilyFarms agrees that it will not add another member within a reasonable radius of your farm. "It's just like a Holiday Inn can't be too close to another Holiday Inn," Killam says.
Franchise fees. By all accounts, payments are structured like an exclusive country club. Lash refuses to discuss fee structures, but farmers who have heard the sales pitch say the 2010 entry fee is $28/acre, based on current acreage levels. This is a one-time buy-in fee, paid over four years, and covers only membership dues.
As farm size increases, members buy shares for the new acres. Farmers close to the process say those funds go to a war chest that will likely be used to purchase a farm management firm (or firms) down the road.
Lash says the cash reserves are for typical business expenses, like operations and strategic acquisitions. "It's probably safe to say we'll never buy land." As for buying a farm management firm: "I suppose that could be part of a strategic acquisition."
If members want to leave Family-Farms, an exit is possible. The initial membership is paid back over five to 10 years, interest-free.
After buying in, there are yearly fees that Lash will not specify. And there are service charges for each of the programs members must use—much like restaurant minimums at the local golf club. Today the programs are required, though Lash hopes to eventually allow flexibility.
The fees are too much, Killam argues. An $8,500 bill that IFF received from FamilyFarms for 2009 budgeting is one example, he says.
Members are currently required to:
- use the management software system Lash developed and sells;
- allow environmental audits through Validus Services, LLC;
- implement a public relations plan with Validus Services;
- follow human resource protocols;
- adhere to prescribed on-farm food safety and security guidelines;
- attend in-house training sessions.
Company goals. Lash won't say how many farms are FamilyFarms members or what the membership goal is. "We're going after people who want to stay on their farms. These people understand that business is changing," he says.
Most invited are already large-scale operations, though he notes one member started with as few as 2,000 acres. By his own admission, this is likely too small to get full benefit.
Farmers who have heard the pitch, but declined, cite reasons ranging from cost, concerns about control of their operations and the belief they don't need FamilyFarms to meet their goals. Others say it's too focused on growth.
Lash flatly denies that. "It's far more about attitude and approach to business. We believe producers must learn to work interdependently, and some people just don't want to do that—and that is OK."
It doesn't take long, however, to realize that size does matter to him. "It's not just about growth," he says. "But that is part of any business, and it is a key component of this program."
Network. One of the early adopters of the program is MBS Family Farms, in Plainfield, Iowa. Karmen Mehmen, her husband, Stanley, their son Kyle and his wife, Kerri, were in the original class of FamilyFarms members in 2006.
Mehmen says it has transformed their business, right down to the MBS name: More, Better, Sooner. "We strive to do more, we try to do it better, and we want to make it happen sooner than others," she says.
Mehmen likes the structure: "We had success using farm financial standards, and this concept implements standardizing processes. Everybody goes through the same education, but it's not that we're cookie-cutter."
One of the first exercises they did was writing three words to describe their business. For MBS, those words were family, professionalism and integrity. She points out that profit was not one of those original words.
Mehmen admits MBS has grown since starting the program, but she will not clarify how much. It's sizable, though. It ranked 36 in Iowa for government payments, according to the Environmental Working Group's 2007 Farm Subsidy Database.
That was the first year Kyle and Kerri joined the operation, however. In 2006, before MBS was formed, Karmen and Stanley's combined payments would have put them at 137 in Iowa.
Growth and consolidation in agriculture are not new—they have been a fact of life since the advent of machinery. Farming's tight margins mean that more sales are needed just to meet the rising cost of living. But who grows and how they do it remain issues.
Controversy will surely surround this unique concept. In the meantime, the program will quietly develop, although without the secrecy.
A Quick Breakdown of the FamilyFarms LLC Concept
Like a franchise system, it standardizes business practices for its members.
- Buy-in for 2010 is $28/acre based on current acreage; pooled fees pay for operations, technology and strategic acquisitions for the betterment of the company.
- Service fees beyond the buy-in are charged annually for required programs.
- Focus is on implementation, taking it beyond consulting services that stop at advice.
- In its third year, only farmers who have been invited are members. After May 1, farmers can visit www.FamilyFarmsGroup.com to fill out an assessment and will be contacted if they meet the requirements for membership.
What Sets Apart an Exceptional Manager
As operations grow, controversy often arises in their community. "Many farmers don't appreciate that as they grow, they become much more visible in the community," says Texas AgriLife economist Danny Klinefelter. "The bigger you are, the brighter the light shines, for good and for bad," he says. "Bigger businesses, regardless of the industry, are held to a higher standard. You really saw that in the hog industry as it consolidated. The large operations realized it was incumbent upon them to be really good citizens."
The operators who want to grow to a megafarm are successful farmers who are driven managers, Klinefelter believes. "They thrive on challenge and competition. Not everybody has that capability or desire. On smaller farms, you can have periods when you let down occasionally. If you're operating a megafarm and you coast, it will get away from you."
The kind of professional management team needed to run a large, successful operation includes key positions for marketing, purchasing, production, human resources, public relations and finance, according to Klinefelter—and, he adds, a
succession plan for all those positions.
"A successful farm operator usually is exceptional in one of those areas and above average in three or four," he says. "When you reach megafarm size, you need to be exceptional in several areas and above average in all of them. You can't ignore any area and hope to be successful."
If you want to be a megafarmer, it becomes critical to be able to delegate responsibility, Klinefelter adds. "Communication and accountability are critical. You have multiple layers of management and labor and you have to have capable people, not just hired hands who have to be instructed and corrected every day," he says. "If you're a megafarmer, you don't have that kind of time."
Klinefelter chooses no sides in the debate over megafarms. "There are two sides to every story and I don't believe you can choose one person's value system over another," he says. "Even though we're becoming a more urban society, agrarian roots run deep and there's strong sentiment for traditional farm businesses. You don't see that in the automotive or petroleum industries. But there are also advantages to a consolidated food supply that's easier to track and offer less variability.
"How you view the impact of megafarms on rural communities depends on which side of the fence you're on," Klinefelter says. "For every argument, there's a pro and a con. It depends on where you're sitting." —John Russnogle
Your opinion? What do you think of this new concept? Send your comments to Greg Vincent at firstname.lastname@example.org.
To contact Greg Vincent, e-mail email@example.com.
Top Producer, Spring 2009
- SPRING 2009