From coffee shop to conference hall and from boardroom to classroom, it’s the question we keep asking — what’s the future of the mid-size farm? Even the 98 per cent of Canadians who haven’t been on a farm in a generation or two talk about it from time to time.
It seems there’s a solid argument for large farms. Bigger, this line of thinking says, is inevitably cheaper and more competitive, which must mean it’s better too. Isn’t bigger sure to win? And there’s an argument for small as well. Are today’s smaller, specialized farms onto something with their commitment to building a loyal customer base?
So, what’s the argument for those farms in the middle?
The question never goes away. But so far, neither has the mid-size farm, though they may be fewer in number with each passing decade.
Our story starts with a counterintuitive surprise. Today’s mid-size farms hardly look or function at all like the mid-size farms of a generation ago. They aren’t stuck in tradition, despite what the myth says. In their way, this category of farms has changed more than any other.
In central Manitoba, Brad Rasmussen says their 5,600-acre farm near Starbuck is right sized — at least for now. It’s all they need and all they want — “they” being a family that includes himself and his spouse Diane, their two sons Evan, 30, and wife Michelle, who have two children, and Brett, 36, and his spouse Liza, who also have two children. Plus there’s Brad’s younger brother Roland, who is married to Jacqueline and is also a farm partner.
What makes a mid-size operation work for them is that their risks are manageable, they’re profitable enough, and the workload isn’t insane.
They’re not looking for more to do. There’s plenty of that already, says Rasmussen, whose sons are the fifth generation to work the farm owned by the family since 1903.
But there’s no question the farm is much larger than it once was.
When he began farming in the early 1970s, it was an 1,100-acre operation, with more land purchased over the ensuing for years in increments. Their strategy has been less about expansion, though, and more of a carefully calculated ratio based on what they get out of the land they have, says Rasmussen. He believes they have, to this point, made a satisfactory match, with a farm large enough to allow them to have a good lifestyle and earn a comfortable livelihood.
“I’d say we’re large enough to be efficient, and not so large we can’t manage it,” he says.
More acres, which they’re not looking for now, would add to a workload and probably necessitate hiring more help than those they bring in during peak season, he says.
The word “now” is critical, however.
Typically, these farms encompass two or three times more acres than the parents worked, and produce crops and use technology unimaginable to the previous generation.
And farm consolidation continues, as every passing Census of Agriculture tells us. But while “the middle” continues to shrink, it’s happening more slowly than we had expected, says J.P. Gervais, vice-president and chief economist for Farm Credit Canada.
It’s got more of us wondering if these farms in the middle have attributes and advantages we weren’t paying enough attention to.
Gervais counts himself among those who have been looking at what’s happening with the growth of smaller-scale niche farms in specialized supply chains, and at the opposite end, at farms growing bigger to lower costs.
“We could see some smaller farms be successful, with more control, more oversight of the production process, because that’s perhaps a bit easier to do on a smaller farm, and at the opposite end of the spectrum, there’s always been economies of scale. You grow bigger, you lower your costs.”
That leaves the middle, being neither big enough to compete on a cost basis with some of the larger farms, nor structured to be part of these special supply chains either. “So everyone was saying perhaps this was the end of the mid-size farm,” he says.
But times being what they are, it’s still premature to talk about the mid-size farm disappearing, he says.
There’s no denying there’s a challenge ahead. “Just with the way land values are, and the way the cost of capital is, it may be hard for those mid-size farms to take that next step and go big.”
So, says Gervais, it’s important to recognize what the managers of successful mid-size are doing to their advantage.
“From a risk management standpoint, you’re at a size that is large enough to be considering different instruments that you wouldn’t consider if you’re a smaller size. And it opens up possibilities from a diversification standpoint as well… not economies of scale of getting bigger and lowering your costs, but economies of scope… as you diversify into different crops you minimize your exposure to swings in the marketplace. There’s a benefit to that.”
The profitability question
While he says it’s true, overall, that larger farms have a smaller cost structure, Gervais says there isn’t a direct correlation between size and efficiency, or profitability.
“I don’t think there’s a general rule there. I think it’s also absolutely true that we have mid-size farms that are as profitable as larger farms.”
To Stan MacEwen, who farmed 28 years before renting out his own farm in west central Saskatchewan in 2004 to focus on his accounting and consulting work, it’s clear these farms are tight ships, steered by farmers whose management skills are as good as their farm capabilities.
Among his clients, the mid-size operations that are sticking around have proven themselves particularly adept at (1) keeping tabs on markets, (2) ensuring their operations can withstand sudden changes in commodity prices or economic conditions, and (3) managing their time and human resources.
Certainly, the mid-size farm is and will always be under many different kinds of pressures and influences, and there are definitely fewer than there once were in his own corner of the province.
Yet the plus for those that remain is that this size has a certain flexibility. With a think-on-their-feet manager at the helm keeping a close watch for opportunities, it’s possible to make timely responses to seize them.
In other words, mid-size farms that are managed to capitalize on their agility can be highly competitive, especially if they have a management focus on watching their key risks, and a list of available options and solutions at hand to tackle those risks.
MacEwen sees better chances of having stronger equity among the mid-size farmers, too. “It doesn’t swing as fast. In a larger operation, if they have a bad year it can really hurt them in a hurry.”
What it boils down to is that mid-size farmers optimize what they can handle themselves, he adds. “And there are some very, very good managers out there.”
In fact, a bigger operation can actually be harmful to them. “I think they realize their maximum amount of benefit is in that size of operation. If they get much bigger the profit margin per acre is going to go down.”
“They’ve kind of got complete control of their operation and their management. They can see where they need to cut back, on expenses or inputs, or make adjustments on what they need to sell. When you get bigger you can’t respond as quickly to changes.”
Staying the course
“You make choices,” is how Rasmussen explains it. If there’s land for sale, mid-size farms can expand their scale, providing it makes sense to the farm’s bottom line, or they can intensify production on an existing land base. Or they can look at how to add value or a new enterprise into the mix.
Right now the Rasmussens are staying the course on their farm. “5,600 acres is a big enough mass that we can afford to have most of the equipment we need, and it’s a fairly efficient size to me,” he says. “We’re not so large we can’t manage. We get our work done. We keep on top of things, and so far, it does seem to be working.”
It’s also the right match to the capacity of everyone’s labour output. “We’re working hard enough already,” says Rasmussen. “We want to match efficiencies, but also lifestyle choices.”
Expansion would likely require hiring, which might work out fine, but it would also add complexities.
Within their means
Minto, Man. farmers Bill and Lauren Campbell’s 2,800-acre mixed grain and livestock farm, which includes 90 head of purebred Limousin, is a much larger farm than the one farmed by Bill’s father and grandfather, who homesteaded here in 1881. The couple have two daughters, one now with a farm of her own, the other employed off farm.
Their southwestern Manitoba farm began to grow in size after Bill returned from university in the mid-1970s and began farming with his father.
“In my early years Dad had rented land from my uncle, so I purchased a quarter section at that particular time and then one of Dad’s best friends passed away and I rented a half section, and subsequently bought it,” he says.
A key focus of this farm has been on the improvement of the Limousin cattle breed, and the Campbells have marketed Limousin genetics throughout Canada, the U.S. and Mexico.
Land acquisitions happened when the opportunity came along, says Campbell.
“I haven’t necessarily bought very much until the opportunity came to me. Most of the land has been through family or family friends. I have not been one of those aggressive ones actually seeking out land,” he says.
“Ownership of what we farm has been somewhat of the goal that we’ve had.”
Their farm’s size would be fairly typical of those in their immediate area just south of Brandon, but farms have been trending larger to the south and west, where younger farmers have been trying to expand.
“We have also seen a transition out of livestock in our particular area, and those that are getting out of livestock are seeking more land for sure,” he says.
Campbell says a guiding principle for all their own choices and decisions for the farm has always been to live within their means and avoid debt as much as possible. “We have grown slowly, I guess that would be the way to put it,” he says, adding that the sensibilities of past generations of Campbells who held on to the farm right through the 1930s still influence them today.
“We’ve lived within our means,” he says. “We survived because we didn’t have a lot of debt. I think consequently that’s why I’m still here today, and why I’m not a big-time operator. I’ve always felt if we could be better with what we had it might be more efficient.”
The lifestyle built around this size farm has also enabled Campbell and farmers across the country to assume a variety of leadership roles. What value do you put on that?
For Campbell, it’s meant everything from coaching local sports teams to serving on the boards of the Manitoba and Canadian Limousin Associations. His current post is president of the provincial farm organization Keystone Agricultural Producers.
It also gives him a distinct perspective, which means he’ll ask you how much time you’ve got if you ask him about long-term prospects for family farms.
Campbell is worried about what’s happening to Canadian agriculture as a whole, given the current volatile environment. He is, of course, worried about what’s happening to the already squeezed middle, too.
Farmers are caught up in a trade war, and there’s also everything from weather woes to consumer backlash over agricultural practices.
“We’ve been through some pretty good times, but I would suggest the world is different now. Some of the problems are in the business risk management aspect of it; how do we have protections for those young farmers when we see a year like this year. How do we ensure that they stay in business? Is it survival of the fittest, what is that going to look like in five, 10, 15 years, and is that what we want for rural Canada?”
A Farm Credit Canada survey of 1,363 farmers this past summer finds marketing topping the list of what’s most worrisome to farmers right now, followed by their production and financial risks. Ensuring there is sufficient working capital is farmers’ most prominent financial concern across all sectors, followed by worries about interest rates and meeting debt obligations. Almost 65 per cent of respondents saw insufficient working capital as a risk to their operations, and 45 per cent say they rely on off-farm income to help mitigate financial risk. Meanwhile, human resources issues involving employees, family and partners remain ongoing concerns.
Without question, farm consolidation will continue, says Gervais. But we do appear to be moving into a time of cautious buying, where producers are focusing more on improving productivity and building resilience in their operations, he noted in a recent FCC press release.
“Uncertainty in markets and the fact that farmland values have climbed rapidly in the past may be giving some producers reason to pause,” he says. “Others may have already expanded their operations and are now exploring other strategic investments.”
This past November Statistics Canada also reported net farm income plummeting to 46 per cent (in constant 2012 dollars) in 2018 after seven years of above-average incomes.
All things combined, it’s a gauntlet to run with uncertain outcomes for all farmers, no matter what size their operation.
“Change is coming,” says MacEwen, adding it will be those farmers who have a plan with reasonable estimates for profitability, and who can adjust their costs, that are likely to make it through.
“Maybe you’ve got too much equipment around, and it’s costing you too much and you can’t afford it, or maybe you don’t have enough equipment and it’s costing you because you’re not getting things done. There are both sides of it. And there’s no one answer for everybody. It’s individual. You’ve got to know your own numbers.”
Small changes change everything
There have always been significant rates of exit and entry in Canadian agriculture, of course. But even small changes in those rates of exit or entry can have dramatic impacts on the number of farms and, consequently, on the average size of farms.
As a new century enters its third decade, the aging population is one more major influence on what happens on the farm. Not only are there fewer farmers, but as whole, they are also growing older; census numbers now show that more than half of all farmers in Canada are 55 years or older; 30 years ago it was 32 per cent.
And it’s inevitable there will be those whose farm assets are their only pension plan and who will need to sell in order to retire. There are difficult choices on the table — do you sell assets and hand the debt over to the next generation, or sell the farm outright and take the whole family out with you? Or there are no successors at all. All scenarios point to more pressure coming to the mid-size farms.
Every story will end differently, but it’s a foregone conclusion that after the dust settles there’ll be even fewer farms, says MacEwen.
“With some operations they will give a great return for the generation that’s there,” he says. But others may not be big enough, or there isn’t enough equity generation to retire, or enable the next generation to start.
He tells his retiring clients trying to figure out what to do to make sure they look after themselves first. An exit strategy must enable the retiring generation to have enough income to last the remainder of their lifetime.
“If the younger generation doesn’t get the farm, they have the option to get another vocation and do something else to make their living.”
Therein lies a potential loss that doesn’t show up on anyone’s balance sheet. If that younger generation doesn’t stick around, the countryside becomes even emptier.
Then you’ve got the school buses carrying two kids instead of nearly 50, as MacEwen and his wife observed in the time frame they farmed, and their own first and last children rode one.
“It’s the mid-size farm that does look after the rural communities,” he says. “They have the kids for the schools, the families that support the grocery store, the hardware store, the dealership. Once you lose a portion of those farmers, you start lose the community.”
Campbell says he feels lucky to be in a rural community where there are bonspiels at the local rink, local baseball teams and many more activities.
“It’s been very, very good that way,” he says. “But as we see more communities with huge farms, we’ve seen those rural communities really diminish in their services. The mid-size to smaller farms with more families in the area have been valuable to small communities, and every community has a story to tell like that. But some of them are really challenged now.”
Canadian agriculture is a very different place than when a younger Rasmussen and Campbell were putting in their first crops.
“At one time our farm would have been considered a very large farm,” says Rasmussen, now 64.
In the span of their farm careers, the farm sector went from homogeneity, to one with increasing numbers of larger farms, and fewer in the middle.
Average farm size has been growing, driven by an increase in the absolute number of large farms. Meanwhile, there is a growing share of smaller farms.
“In another 10 years the mid-size farm is going to be a very different beast.
“I’m 50 years in this now,” he continues. “We’ve gone through cycles of looking for more land. Currently we’re not looking for more, but long-term who knows? My long-term plan is for myself and my family to be comfortable, make enough to make a decent living and have a good lifestyle. Maybe that’s a vague plan, but we do what we have to do.”