By Kate Jackman-Atkinson, myWestman
Over the years, we have seen the size of the Canadian farm increase. Through necessity or opportunity, the unmistakable trend has been towards fewer, larger farms. But will it stay that way forever?
Over the weekend, I read an interesting article in the Feb. 17 edition of “Country Guide.” The article, called “Tipping Point,” made the argument that economies of scale can have a down side as well, something many large-scale U.S. farmers are finding out. In 2005, the largest farm in the U.S., which had been working 100,000 acres, was broken up and sold– the victim of inefficiencies of scale.
The upside of larger operations are well known: they can take advantage of better prices through bulk buying of inputs and equipment. Additionally, their large land base helps them diversify and also ensures overall profitability in years where the profit per acre is low.
But as farms have become bigger and bigger, a number of unexpected problems have arisen. One of the largest ones is human resources, as people must be hired to manage the day-to-day operations of these large farms. To find a good manager to manage thousands of acres is difficult, and a large farm may need 10 of such managers. Finding these people, and motivating them when they aren’t farm owners can be a challenge. Additionally, while being large may lead to good deals from suppliers, that doesn’t necessarily hold when a farm outgrows it local suppliers. A mid-sized farm can have an excellent relationship with a local dealership, however, the farm can grow to a point when they must either invest in their own shop or change to a larger, regional dealer. Neither of these offer the ease and advantage of being a local dealer’s largest customer. Bigger isn’t always better and the idea of efficiencies of scale leading to inefficiency has been fairly well documented.
The average American farm is 434 acres, but very few farms are actually that size. They are overwhelmingly much larger or much smaller. Despite many large farms, most American farming operations are very small. The majority of U.S. farms, 55 per cent, are less than 100 acres and tend to generate under $1,000 in annual farm sales. However, some of these small farms have found profitable niches. Four per cent of farms under 100 acres had revenue over $100,000 and about one per cent had annual revenue of more than $1 million.
At the other end, less than four per cent of American farms have more than 2,000 acres. Those large farms, however, control about 56 per cent of the country’s farmland and the top 1.6 per cent of farms accounted for 50 per cent of all sales in 2012.
The same is true for livestock producers: 42 per cent of cattle sales came from the 0.1 per cent of farms that had more than 5,000 head per herd. Farmers with less than 100 cattle represent 80 per cent of cattle producers, but only accounted for 10 per cent of the industry’s sales.
Farming in Canada still appears to be in a growth phase, with a focus on larger operations. According to the 2011 Census of Agriculture, the average size of a Canadian farm has increased since 2006, from 728 acres to 778 acres. However, in Manitoba, where the land is suited to larger-scale operation, the average farm size is 1,135 acres, a 13.4 per cent increase since 2006.
Additionally, the only growth in number of farms was those with gross cash receipts over $500,000. The mid-sized farms, those with gross receipts between $100,000 and $249,999, saw the largest decline. While the hobby farm, those with gross receipts below $1,000, saw a small decline in number of farms.
There is a size of maximum efficiency. I don’t think Canadian farmers are there yet, but they might be close and it’s something large operators should keep in mind. The days of the medium-sized farm seem to be waning, but there is hope, and opportunity, at either end of the spectrum.