Big farms invest more, think longer-term
Thursday, March 14, 2013
by BETTER FARMING STAFF
Canadian farms with sales of more than $1 million a year tend to benefit more from government programs, invest more in the future of their operations and have a greater business horizon than medium and small farms.
The largest of the large farms, those with sales of $2.5 million or more, tend to make machinery, land and farm asset investments plus they put more into stocks, bonds and other financial instruments.
These are some of the findings in an Ivey School of Business Agri-food Innovation Centre study released today called “Investment and Growth on Canadian Farms 2001-2009” authored by post doctoral associate Nicoleta Uzea and David Sparling, chair, agri-food innovation, Richard Ivey School of Business at Western University.
The study looked at farms with sales up to $100,000 and then $100,000 to $250,000, then $250,000-$500,000, then $1 million and $2.5 million or greater. Anything up to $250,000 was considered small, the next class up to $500,000 was rated as medium and $1 million were considered large.
“In general,” Sparling said, “investments are up across the entire sector in spite of the fact that the rest of the world is just reeling. Canadian farmers are investing more than they ever have.” For those taking on more debt, Sparling said, they are looking ahead at rosy forecasts and setting themselves up for the next few years. “This is really a confidence play.”
Calling agriculture a “good news story for Canada in general,” Sparling said the findings show a level of confidence among farmers. As for the variability in the business horizon between small and large farms, he ascribed that to single, older operators of smaller farms and multi-generational management of larger farms where tasks are divided according to ability. If a senior partner in a larger operation retires, the business continues in the hands of younger family members.
‘”Where you’ve got more retired and semi-retired farmers,” Sparling said, “they’re not investing as much, actively, in their business, which makes perfect sense.”
When it comes to government supported business risk programs, Sparling said no program is designed to favour larger farms. “What the programs do,” he said, “is favour somewhat more specialized farms.” Good examples in recent years are programs that might pay out to hog farmers during years when those operations did not do well. Hog operations, he said, tend to be larger. Farmers with larger operations might also be more likely to benefit from programs following a drought. “A lot of the small farms,” he said, “don’t bother so much with government programs.”
Diversified farms may not do as well with government programs, unless they are divided along sector lines.
“If you were running a grain and oilseeds operation and you have a hog operation,” Sparling said, “your hog operation would have done lousy, your grain and oilseed operation would have done well and you wouldn’t have access to government programs.
“However, if you split those into two different companies owned by different members of your family, then the hog operation would have received help and the grain operation wouldn’t have.”
One area where farmers haven’t been investing is environmental protection. Sparling said that might need more government help, especially for programs that don’t give an obvious return.
Farmers tend to invest more in things that are good for competitiveness, he said.
“Farmers will say, ‘Okay, if I’m going to do energy efficiency or water reduction, I need to see payback, otherwise, there’s no real incentive for me.’” Sparling concluded that “a small government program could be the little bit extra a farmer needs to say, ‘You know what, I can justify that.’”
Looking forward, Sparling said the numbers aren’t in yet but “intuitively” he said “these numbers (2001-2009) are going to look small compared to the last couple of years, especially last year.” BF