Hello. My name is Erica Versteeg, and I'm thankful for the opportunity to speak with you today about some of the challenges that my husband, Tony, and I have faced while trying to get into the dairy industry.
We met at agricultural college while we were attaining degrees in agricultural science. Since then, we have lived and worked on farms and been involved in industry. We have a young family. I work as an environmental farm planning coordinator and Tony works as a production supervisor at a producer-owned dairy. He recently left farm employment when we couldn't reach a sale agreement for the purchase of the farm. We have the goal of one day owning and operating a dairy farm in the Maritimes.
Over the past eight years, we have tried to purchase ten farms, and ten times we found ourselves at the grace of the farmer to make a deal happen. We have never struck a deal because the reality of trying to purchase a dairy farm is that the break-up value of the farm is greater than the business's ability to have cashflow.
I want to be clear; I'm not blaming the seller. They were all willing to leave some assets behind for the sake of having the farm continue. The obligation to ensure a farm's transfer to the next generation does not lie solely with the seller. The sale of a farm has to provide for the seller's retirement and cover any existing debts the business has. This I understand. But farms have to transfer to the next generation or they cease to exist. In the past, we've gone the traditional route when trying to purchase a farm: price negotiation, lender financing, seller financing, the transfer of assets over time, and just plain old sweat equity. But it didn't work. It wasn't enough. We feel strongly that we have the required skill set to succeed in the dairy industry if we could just get our foot in the door.
This past winter, when we were once again presented with a potential opportunity to purchase a farm, Tony and I felt we had to make it happen. There had to be a way. We knew it would likely be complicated, but we thought if we could approach it differently, it might be possible. We sought advice from accountants, lawyers, Department of Agriculture staff, and provincial staff with economic development. We got in contact with our MLA's office, and for the first time we saw something new: outside investment. Is it really realistic to expect someone in their early 30s to have the required equity to purchase a $3 million asset?
We scoured for provincial and federal programs that would be of assistance, and initially we found some that we thought would fit. Sometimes we got a quick answer, like from ACOA, the Atlantic Canada Opportunities Agency: we don't do primary agriculture. Sometimes we travelled down the path thinking we'd finally found something that would work. We had a small number of potential investors tucked under our arms, with whom we felt comfortable doing business, and thought we would launch a CEDIF, a community economic development investment fund. They cost $25,000 to $30,000 to form--lots of hoops, hence the price tag. But hey, we weren't looking at purchasing a small business. We felt the costs of developing the CEDIF would be worth it since it provided some security for our investors, a tax credit, and the opportunity to create a self-directed RRSP. The value was on the other end, but upon further investigation, the outcome was the same. The program wasn't going to work for us. We had to have a minimum of 25 investors, not the six we had planned, and no one investor was allowed to own more than 20% of the company.
So what needs to change? We feel that programs need to be more flexible or that exemptions to current program rules be granted on an individual basis. Perhaps a committee to review exceptions could be considered so that ventures that meet the objectives of a program can be considered, even though they don't meet all the criteria. We thought hard about what would make a real difference for many people looking to purchase a farm, and we asked friends who are also on the periphery of the dairy industry and looking to get in.
The idea of a tax break for farmers who sell their farms as a going concern versus breaking them up was the prominent idea. Upon further thought, we realized that while this would create an incentive for those looking to exit the industry to sell their farms as going concerns, a definite gain for the purchaser as well, it was looking after the seller first, rather than directly aiding the purchaser. So why not reverse it? Why not rebate the tax paid to the government by the seller to the new farmowners over a given timeframe? Instead of having the tax dollars disappear--the government doesn't have them--the purchaser would reinvest them right back into the industry. This would really help to decrease the gap between asset value and cashflow ability.
Provincially, there is an interest forgiveness program administered by the Nova Scotia Farm Loan Board whereby a new entrant can qualify for up to $20,000 interest forgiveness in the first two years of the loan. It's a definite help, but pretty small in the scheme of things. The catch is that only one new entrant per business can apply at one time. So this discourages the pooling of capital among new entrants to start joint ventures. Why not expand on this existing program so that two years of interest forgiveness is provided to each new entrant investing in the business?
A program that rewards patient capital would also be helpful. By “patient capital”, I mean funds that are invested in a business for a minimum of five to ten years without the expectation of a dividend in the early years of operation. What we discovered is that it's important to have something to offer potential investors without giving up your position as a majority shareholder.
So where do Tony and I go from here? This week we'll continue to try to close a deal to purchase a dairy farm. And once again, the deal hinges on the grace of the sellers.
Thank you.