He has famously vowed to keep going until his 80th birthday. But Michael Eavis, 73, the eccentric dairy farmer and host of the world's best-known music festival, has announced plans to hang up his boots to make way for a "new generation" headed by his daughter, Emily, and her fiance.

Sitting at Worthy Farm's kitchen table, the Glastonbury festival's headquarters for the past four decades, Eavis said the handover to his daughter had already begun, and he expected "two more full years" at the helm.

He said his last festival is likely to be in 2011, five years earlier than expected.

This week will see 140,000 festivalgoers troop to Eavis's Somerset farm for what has become an annual pilgrimage. Tickets sold out months ago.

Eavis's retirement, when it comes, will mark the end of a remarkable career which has transformed a £1-a-ticket hippy gathering, with "free milk to all campers", into a British summer institution showcasing the best live music acts in the world.

His contribution to music was recognised last month in Time Magazine's list of the world's 100 most influential people, an accolade Eavis collected at a New York gala alongside Oprah Winfrey and Michelle Obama.

He said the experience made him "nervous". "I like being a slightly chaotic dairy farmer who is a bit of a chancer and follows his heart. And then suddenly I'm on a par with Kate Winslet, Gordon Brown and Stella McCartney. I thought, 'Oh my god, have I got to behave myself now? Have I got to be more respectable?'"

Glastonbury began in 1970 with a pink piece of paper handed out to locals advertising the arrival of the Kinks. "They had a number one with Lola at the time, so they couldn't really be playing a 'mini' festival," Eavis recalled. "The agent said 'they've all got laryngitis – medical certificates are in the post'."

Their replacement turned out to be Marc Bolan and his band, T-Rex, establishing the event's musical reputation. The following year David Bowie and Hawkwind took to the very first pyramid-shaped stage.

In the 1980s, Eavis established the event as a bastion of the left: CND, Oxfam and Greenpeace all had a role, and he set aside a field for new age travellers. But many regard the following decade as the event's heyday, when gatecrashers swelled capacity to as many as 250,00 to witness career-transforming performances from the likes of Pulp, Robbie Williams, Oasis and Radiohead. Eavis missed the anarchy that ended with the erection of an impenetrable fence in 2002. "Young people who come here now are all well-behaved," he said. "They're A level students – motivated and ambitious."

Despite years that saw flash floods, mass evacuations and riots with police, Eavis said last year's event, which almost failed to sell out, was his most difficult.

A month before the gates opened, he faced a £5m shortfall. "We could have gone bankrupt," he said. "I got a cold sweat in the night, which I've never had before. I thought: I'm killing myself over this."

The failure to shift tickets was initially put down to Glastonbury's experiment with Jay-Z, a decision construed as a betrayal of the festival's rock traditions.

Eavis said he only agreed to his daughter's pleas to bring Jay-Z to the farm because his preferred act – Radiohead – fell through. "It was either that or cancel the show," he said. "I knew she had sensible ideas so I had to go with that. It was the last throw of the dice for me. We either throw the dice or abandon the festival."

It fell to Eavis to call that rapper's agent. "I had to ask how you pronounce it. 'Is it Jaze? Is it Jacy?'"

Eavis said he stood firm when Jay-Z's agent offered him Kanye West instead. In then end Jay-Z triumphed, delivering a landmark performance credited with turning around the festival's fortunes.

The success of the US rapper was also a coup for Emily, 29, who has gone from running the Park area of the festival to taking control of much of this year's line-up. Eavis and his wife, Liz, have meanwhile moved into a new house.

Her inheritance of the festival came a step closer when she moved into the farmhouse with her fiance, Nick Dewey, 36, earlier this year. Her father moved into another house with his wife, Liz.

"I'm living on top of the hill now, away from the farm," Eavis said. "So [Emily's] taking over the house, which is nice. A new generation of Eavises can live here."

He added: "I still feel I have an important role to play. Even if I go I'll worry about the drains, the rubbish, the recycling. There will be a gradual process of her and Nick taking it over."

Eavis agreed that this year's "top three" headline acts – Bruce Springsteen, Neil Young and Blur – were "thoroughly, thoroughly predictable", but said they would please the event's traditionalist base.

The mood on the seven farms that Eavis merges for the annual music pilgrimage has been remarkably calm in recent days, although Eavis he still felt slightly bemused at the thousands of workers who gather to prepare the fields. "I was out there at 7am this morning and there were all these people putting up marquees, generator tents, track fencing," he said, sipping tea. "For a second I thought: what are all these people doing?"

Here comes the sun

Thursday and Friday should be sunny and warm, though there is a small risk of a heavy shower on Friday afternoon or evening. Festivalgoers should pack waterproofs and wellies as well as shorts and suncream, however, as heavy rain is threatening to return on Saturday and Sunday. Met Office forecaster Dean Snowden said: "At the weekend, there is a little bit more risk of catching showers and thunderstorms. It is a bit hit and miss but it must be stated there's a risk there. The weather will become increasingly unsettled, though it is going to be warm. You could get heavy showers."

The Guardian is a sponsor of Glastonbury