We’ve been somewhat skeptical of some of the recent efforts by the Conference Board of Canada to wade into the food and farm policy realm, but we were pleasantly surprised by the newly released report Seeds of Success: Enhancing Canada’s Farming Enterprises.
From our perspective, authors James Stuckey and Erin Butler, do a stellar job of capturing the nuances and idiosyncrasies that make farmers — gotta’ love them — and their approach to business management so hard to analyze. And they identify some of the key characteristics that separate the wheat from the chaff, or rather, the business from the farm, today and into the future.
By that we mean the fundamentals of successful business and the organizational and management structure of many of today’s farms in Canada aren’t necessarily driven by the same motivations. Most of Canada’s farmers are farming because they love the farm; the business side of things is there because, well, that’s how they get to farm.
Perhaps the most notable aspect of this report is that it reflects the shifting focus away from “economies of scale” to “optimal scale,” a recognition that farm scale is not a surefire way to improve profitability.
The authors found that, contrary to conventional wisdom, the largest farms in Canada aren’t the most profitable. As well, the analysis also showed that small farms continue to have a high degree of profit potential.
“Over the past decade, smaller revenue farms have occupied a greater percentage of the top profitability quartile than have larger ones. At the same time, smaller farm revenue classes also have the greatest share of farms in the lowest profitability quartile.”
However, the report noted even having the highest returns per unit of production were not, in many cases, enough to support the family. Hence the reliance on off-farm income.
“The profitability ‘sweet spot’ for Canadian farms is the $250,000 to $499,999 revenue range, in terms of percentage of farms in the top two profitability quartiles,” the report says.
It’s nice to know the medium-sized farm in Canada is not only alive, but thriving — held firmly by family enterprises that have a love for the land.
The Conference Board predicts that while farm sizes will continue to increase in Canada, the sector will not undergo the kind of consolidation that has taken place in other resource industries.
“Significant economies of scale are still not a dominant force in the industry’s organization, owing to the history of the sector’s development, the seasonal nature of farming work, and the difficulties and costs of consolidating non-adjacent land tracts (given the nature of family farm ownership). This is unlikely to change in the foreseeable future.”
The report goes further in challenging some of the myths guiding conventional thinking in farm policy, chiefly that it is inherently a risky occupation requiring continued risk-sharing with government.
Relatively speaking, agriculture is lower risk than other natural resource-based industries, this report says.
It also says the sector’s reliance on government supports to bolster incomes is one of its bigger risks. It leaves them vulnerable to political and budgetary risk and the $1 billion in AAFC funds spent on “business risk management” — 55 per cent of its total budget — is money that is not spent on research, innovation, and marketing that helps position the sector for the future.
So it’s not the size, it’s the management that matters the most, and this report found farmers to be somewhat, er, deficient in that regard, namely because farmers by and large like to do, rather than manage others doing for them. They don’t delegate well and improving human resource management was cited as a key challenge going forward. Agriculture already suffers from a shortage of qualified labour and farmers are on the front lines of making agriculture an attractive place to work.
Farmers can also be destructively selective in how they pursue efficiency. While a majority of farmers cite a need to invest in lowering costs, only 18 per cent think it is critical to invest in better processes. In other words, they might invest in bigger equipment to better apply inputs, but they won’t invest in processes that lessen the inputs they need.
Loving farming and operating a good business aren’t mutually exclusive — and the Seeds of Success report contains some solid recommendations for how farmers can have their farming lifestyle and a good business too. (See elsewhere on this page)
What’s more, it reinforces why it’s important. The best way to inspire the next generation is to offer up a business proposition that is profitable enough to support a lifestyle — on the farm.