The decision to collaborate with neighboring farmers isn’t an easy one, but the rewards can be great, says Chris Barron, a producer in Rowley, Iowa, and a financial consultant with Ag View Solutions. Producers can share equipment, labor and management expertise, freeing up farm executives to step away from the operation for time with family and other responsibilities.
“It’s a way for individuals to work together to gain efficiency, quality of life and just improve profitability overall,” Barron tells Top Producer Podcast host Pam Fretwell in an episode that aired this week. “It’s a redefinition of what growth is.”
Barron’s business includes eight farm operations that have partnered to help one another. In his experience, groups of two to four farms are more common. For example, Barron says, he is working with three crop farms that have partnered with a large dairy. Grain farms can provide feed, labor and other resources, while dairies can provide manure for fertilizer and use crops to feed livestock. “We’re seeing a lot of interest in” collaboration, Barron says.
Yet it’s important to do your tax homework before entering such a business partnership, cautions Paul Neiffer, CPA and principal at CliftonLarsonAllen and The Farm CPA blogger for AgWeb.com. He says there are three types of collaborative arrangements:
- Dating: Farms work together but don’t combine any assets. This has little to no tax ramifications.
- Going Steady: Farms begin to merge equipment and management structure for inputs. They also consider transitioning assets from one generation to the next. You should work with your tax adviser here to mitigate taxes from sales and other transactions.
- Marriage: Taxes are a major concern at this stage because buy-sell arrangements are needed to provide security for all parties. It can be easy for some business arrangements and extremely difficult for others.
Listen to the complete interview with Barron and Neiffer on the Top Producer Podcast.