A2B-Lancaster Farming, Saturday, December 14, 2002
Penn State Cooperative Extension
Capitol Region Dairy Team
SAFEGUARDS FOR
SPECIALIZATION
Roland P. Freund
Regional Farm
Management Agent
In an earlier article I discussed
the advantages of specialization
for small farming operations.
This enables individuals to con
centrate capital on one major en
terprise, do what they do well,
and increase the volume of their
profit center. One example might
be where one farmer raises re
placement heifers for three dairy
operators, one farmer raises
crops for the heifer operation and
the three dairy families, while the
dairy families combine resources
in one operation with efficient
buildings and parlor.
Specialization is great In theo
ry! But it could be a disaster in
practice. People could fail to
maintain commitments, commu
nications between parties could
break down, and disputes could
arise over ownership or any num
ber of details. Parties involved
could lose their shirts if any one
of these businesses fails. Before
entering into such arrangements,
all parties need to be aware of the
potential pitfalls.
Potential Solutions/
Safeguards
It is possible to make arrange
ments which protect all of the
people involved. To do this it
might be necessary to create ap
propriate business structures, cre
ate comprehensive operating
agreements, create legal rental/
lease agreements, and define exit
and dissolution procedures. Let’s
briefly explore each of these safe
guards.
• Business structures. Remem
ber, handshakes are not good
enough! The future of the family
and the farm is at stake. Informal
arrangements will not suffice
even within a family of parents
and children. A partnership is the
simplest business structure to or
ganize and operate. It can work
well in a family situation, but it
may not protect everyone against
financial risk.
A limited partnership might
provide a little more protection,
but it might not work where all
parties are actively engaged in
the business.
A newer structure is the
Limited Liability Company
(LLC). Phis has much of the flex
ibility of the corporation (or Sub
chapter S), but it is less costly to
organize and operate.
Select what best fits the rela
tionship between the parties and
the complexity of the business.
Fortunately the law requires bet
ter financial record-keeping and
accounting of companies and cor
porations. This also serves to pro
tect the interest of all the parties
involved.
• Operating agreement. Han
dshakes are not good enough! Re
gardless of the chosen business
structure, every one of them must
have an operating agreement. It
is important to define each par-
ty’s contributions, each party’s
responsibilities, and each party’s
rewards. It should also define
what dispute resolution proce
dure will be used. All these things
are vital because they create a re
lationship of trust between the
parties.
• Rental/lease agreements.
Handshakes are not good
enough! It is necessary to define
lease conditions for the use of an
other person’s capital assets. This
includes land, buildings, live
stock, and equipment. In joint
business arrangements it might
be beneficial to build a structure
owned by a business on a differ
ent person’s land. Special legal
and lease arrangements need to
be drawn up which will satisfy
the bankers and protect the busi
ness asset from ending up in
Grandma’s estate. This will help
to create a relationship of trust
between the parties.
• Exit/dissolution procedures.
More problems and disputes arise
over dissolution of business ar
rangements than over their for
mation. Handshakes are not good
enough! It is important at the
time of formation to agree on
how a business will be terminated
or how individuals can withdraw.
If a person or his heir is forced
through death or injurj to with
draw, that might be considered
involuntary withdrawal. One ar
rangement for financial set
tlement might be defined for that
situation. But if one party just
decides he wants to get out and
take his equity with him, then
this could be considered a volun
tary withdrawal. The agreement
might define the payout to the
latter as 70 percent (or some such
percentage) of the payout in the
case of involuntary exit.
Dissolution provisions need to
be defined so that they protect
the business from serious finan
cial crisis but still protect the her
itage of those individuals who
have invested equity in it. This
will help to create a relationship
of trust between the parties.
• Seek professional advice.
Those considering specialization
or any business arrangements
need a team of professionals to
guide the process. The account
ant or CPA who will maintain
the records is a key person. Oth
ers to be consulted include farm
2002 Swine Progeny Test Under Way
At Livestock Evaluation Center
UNIVERSITY PARK (Centre
Co.) Agriculture Secretary
Sam Hayes recently announced
that the state Department of Ag
riculture is conducting the 2002
Swine Progeny Test at its Live
stock Evaluation Center in Uni
versity Park, Centre County.
“The swine progeny test is a
very effective tool provided by
the Department of Agriculture at
a minimal cost to the producer,”
Secretary Hayes said.
“The test provides comprehen
sive data and the ability to identi
fy desirable traits which are at
tractive in today’s marketplace."
The Department of Agricul
ture's livestock evaluation center
swine progeny test evaluates pens
of barrows and gilts for 60 days
in a controlled environment.
Then the pens are judged at the
Pennsylvania Farm Show, and a
carcass evaluation will take place
at Hatfield Quality Meats.
A total of 20 pens are on test
this year. The 77 Pennsylvania
owned barrows and gilts on test
this year represent a diverse
Managing The Hispanic Workforce
Conference Scheduled
UNIVERSITY PARK (Centre
Co.) Agricultural managers
employing Hispanic or multicul
tural workforces will want to be
present for one of the 2003 His
panic Workforce Management
conferences sponsored by Cornell
and Penn State universities.
Building on the success of the
2001 conference, the 2003 confer
ence features a dynamic program
and nationally prominent speak
ers who will offer useful insight
into practices and attitudes that
will help ensure success with a
multicultural workforce. Fea
tured topics include;
NCBA Asks Congress To
Intervene On Australian FTA
WASHINGTON, D.C. Na
tional Cattlemen’s Beef Associa
tion (NCBA) President Wythe
Willey recently sent a letter to
members of Congress urging
their support and input as the
Administration prepares to nego
tiate a free trade agreement
(FTA) with Australia.
Willey, a cattle producer trom
lowa, says, “The U.S. is already
the least restricted and largest
beef import market in the world,
and NCBA sees no net benefit for
the U.S. beef industry from an
FTA with Australia.”
The letter to Congress is the
latest in a long line of correspon
dences from NCBA and other ag-
business advisers and bankers.
Attorneys should be engaged to
draft the necessary agreements
and other legal documents. Re
member, there should be a differ
ent attorney to represent each
party to any agreement.
All these safeguards are neces
sary to create a relationship of
trust between all parties. The fu
ture will be bright for farm fami
lies engaged in specialized and
cooperating business arrange
ments where trust, cooperation,
and communication are main
tained.
For more information on this
topic, I can we reached by calling
the Cumberland County Exten
sion Office at (717) 240-6500.
cross-section of Pennsylvania’s
swine industry.
Producers will be eligible for
premiums at the 2003 Pennsylva
nia Farm Show based on the
placings in the live and on rail
evaluation of the entries.
To accelerate and elevate the
Pennsylvania Department of Ag
riculture’s support of the live
stock industry, the department
has embarked upon the construc
tion of a new, world-class Live
stock Evaluation Center.
“This construction project, in
excess of $6.4 million, is moving
toward completion,” Secretary
Hayes said. “Agriculture is our
No. 1 industry in Pennsylvania,
contributing over $4O billion an
nually to our economy. To keep
Pennsylvania’s livestock species
out-front in the quest of genetic
excellence, we need to provide
21st century facilities.”
To better serve the swine
breeders of Pennsylvania and the
nation, this new center will pro
vide the necessary facilities to test
for superior genetic traits.
“Now it is time for a test facili-
• Exploring cultural charac
teristics: What should I know
and why is it important?
• Blending cultures in the
workplace.
• Four factors for success with
your Hispanic employees.
• Mentoring and coaching
new managers: how can I help
my best Hispanic employees
move into supervisory positions?
• Expanding employee skill
sets: moving your workers into
different parts of the operation.
• Language barriers: how can
I best overcome them?
• Gaining multicultural ac
ceptance in the community: what
riculture groups to the Adminis
tration and Congress urging
caution in trade negotiations with
Australia, and suggesting that
more efforts be focused on the
current World Trade Organiza
tion (WTO) negotiations.
“We continue to believe that
the multi-lateral WTO negotia
tions provide the best strategy for
reducing unfair trade barriers
and opening markets for U.S. ag
ricultural products,” says Willey.
“Only through multi-lateral
negotiations can the challenges
and opportunities for the indus
try be observed simultaneously.”
NCBA says trade negotiations
must address the current chal
lenges being faced by U.S. agri
culture such as reducing tariffs,
expanding Tariff Rate Quotas,
export and production-distorting
subsidies, and Technical Barriers
to Trade issues to prevent further
disadvantage to U.S. beef pro
ducers.
“I strongly encourage you to
express caution to the Adminis
tration about launching FT A ne
gotiations with Australia or New
Zealand, and to reject any final
agreement with either of these
countries that results in tariff re
ductions or expansion of Tariff
Rate Quotas on a faster timeline
or to a greater magnitude than is
agreed to through the multilater
al WTO negotiations,” says Will
ey.
ty that better reflects what our
livestock producers need,” Secre
tary Hayes said. “This new com
plex is 10 times larger than the
current facility operated by the
Department of Agriculture. Our
new Livestock Evaluation Center
is over 178,000 square feet and
will include learning venues for
students of agriculture and a
meeting place for agriculture
conferences.”
With the expansion of the
Livestock Evaluation Center, an
estimated 140 boars can be
placed on test, providing more
proven genetics to the swine in
dustry.
Pennsylvania is home to 3,000
swine farms. Gross income for
Pennsylvania pork production in
2000 was $156 million, an in
crease of $4B million from 1999.
For more information on the
Livestock Evaluation Center, the
Swine Progeny Test, or Pennsyl
vania’s swine industry, contact
the Department of Agriculture at
(717) 787-4737 or Glenn Eberly
at the Livestock Evaluation Cen
ter (814) 238-2527.
can I do to help my local commu
nity accept this new and neces
sary workforce?
• Hiring a legal workforce.
In addition to meeting and
talking with speakers, conference
participants will have the oppor
tunity to meet and compare man
agement strategies with other
successful business managers.
This year, the conference will
take place in two locations. The
Pennsylvania site will be Jan.
28-29 at the Grantville Holiday
Inn. The New York site will be
Jan. 30-31 at the Canandaguia
Inn, Canandaguia, N.Y.
For registration information,
call Robin Huizinga at (607)
255-4478, or e-mail Robin at
dmconf@comell.edu. You can see
the agenda and register online at
www.ansci.cornell.edu/prodairy.
Office Closed
Christmas,
New Year’s
On Christmas Day, Wednes
day, Dec. 25, Lancaster
Farming office is closed. The
office will reopen Thursday,
Dec. 26.
For the Dec. 28 issue, there
are some deadline changes:
Public Sate and Mailbox ads, 5
p.m., Friday, Dec. 20.
Classified, Section D ads 3
p.ra., Monday, Dec. 23.
Classified, Section C, Farm
Equipment ads, 3 p.m.,
Monday, Dec. 23.
Sect. A ads, 9 a.n»., Thursday,
Dec. 26.
General news
Thurs-day, Dec. 26.
On New Year's Day, Wednes
day, Jan 1, Lancaster Faming
office is doted. The office will
reopen Thursday, Jan. 2.
For the Jan. 4 issue, there are
some early deadline changes:
Public Sale and Mailbox ads,
5 p.m. } Friday, Dec. 27,
Classified, Section D ads 3
p.nt., Monday, Dec, 30.
Classified, Section C, Farm
Equipment ads, 3 p.m.,
Monday, Dec. 30.
Sect. A ads, 9 ajnn. Thursday,
Jan. 2.
General news
Thursday, Jan. 2.
noon,
noon,