Big farms generate the lion's share of farm product sales in Canada

Thursday, January 23, 2014

by SUSAN MANN

For the first time in Canadian history, less than 10,000 large farms are responsible for more than half of the farm product sales across the country, says Western University professor David Sparling.

The farms doing the majority of sales across Canada are the large operations with more than $1 million in annual sales, says Sparling, chair of Agri-Food Innovation and Regulation at the university’s Richard Ivey School of Business.

That’s just one of the findings outlined in a paper by Sparling and Nicoleta Uzea updating their previous analyses of farm business structure and performance.

“The largest 2,500 (farms) are selling more than a quarter (28 per cent) of all farm products,” he says. “There’s a shift that’s happening and it has been happening for years. But all of a sudden the big farms are getting really significant because they make up more than half of the production.”

The big farms have “way higher incomes because they’re doing lots more sales” than medium-sized operations, defined as ones with $250,000 to $1 million in annual sales, and small farms, which have less than $250,000 in annual sales and really small operations that have less than $100,000 of sales a year. The large farms also have a higher return on assets and equity and invest far more than the other categories of farms, “which means they’re going to keep getting bigger,” he says. “They make more money, have way more resources and a higher return on equities.”

“There are big economies of scale in farming that just encourage farmers to continue to get bigger,” Sparling adds. Technology, such as bigger tractors, GPS systems and precision farming, help farmers to manage bigger acreages or larger livestock operations.

Technology has helped farmers to get bigger in the past but now it’s accelerating the move to larger operations.

Sparling says owners of smaller and medium-sized farms need to consider how they will compete because they won’t be as cost competitive as the really big farms. They need to consider what they will produce that has a higher value and maybe a smaller market.

For example, farms of 100 acres might go into specialty vegetables and market them locally rather than as commodity grains.

While some people lament the loss of family farms, Sparling says these big farms are almost all owned and operated by families. The difference now, though, is instead of a single person or a couple running the farm, entire families, such as parents and possibly siblings, the grown children, as well as other relatives, are running large operations.

“One person will be the crop person, another person might be the animal person, somebody else might be the marketer; so you get this whole mix of skills,” he says.

Another development on the farm financial front is Statistics Canada released a number of charts and tables this month dealing with farm financial numbers covering several years. For example, the average net worth per farm has increased to $1.7 million in 2011 from $1.2 million in 2007. Total farm cash receipts were $54.2 billion in 2012, up from $46.1 billion in 2008.

Canadian Federation of Agriculture president Ron Bonnett says there is nothing surprising in the numbers. The numbers are showing increasing income for some of the crop farms. The numbers are also showing that some of the program payments for livestock operations are down “and reflects the fact that the reference margins (used to calculate payments) have slipped because of long-term losses, particularly in pork and beef.”

Bonnett says for supply-managed commodities, the numbers are showing income as being steady and strong but again that’s not a surprise.

Off-farm income was starting to decline a bit as a percentage of total income and Bonnett says that might indicate some of the smaller farms are disappearing.

One of the impacts of the long-term income declines in the livestock sector is farm groups and governments need to look at risk management programs. The reference margin slips mean “the program payments weren’t there to help them (livestock farmers) through the hump,” Bonnett says. BF