Tom Eisenhauer, CEO and president of Toronto-based national farm financing firm Bonnefield Financial, gets right to his point. “To maximize their profits,” he says, “farmers need to maximize the utilization of their equipment, their inputs and their labour.
“This usually means expansion.”
J.P. Gervais, chief agricultural economist at Farm Credit Canada, also believes that larger farm size can imply lower cost on a per unit basis and thus potentially higher profitability. “There are also economies of scope as you expand the range of commodities you produce,” he adds. “A larger farm can more easily diversify its mix of crops.”
Gervais also points out that by reaching a certain size, farms may also gain benefits related to farm business risk management. He explains: “You may be able to combine more than one or two risk management programs and extract an optimal protection for your operation, for example combining Agri-stability, revenue insurance and crop insurance.”
Besides seeking to capture these benefits, some farmers are also looking at expansion as a way to ensure the farm business provides a livelihood for two or more adult children.
How farms are expanding, and why
A large part of why Canadian farmers have been able to expand in recent years is higher profits. As Statistics Canada staff point out in a November 2019 article titled “A Statistical Glance at the Recent History of Farm Income,” 2011 was the year farm incomes began to rise significantly in Canada, with many commodity prices on the rise, in part due to increased demand from emerging market countries such as China.
For more details about farm expansion, let’s look at the newest Census of Agriculture, done in 2016. In that census, Statistics Canada found that the total land base being farmed across the country had risen to 93.4 million acres, up almost seven per cent from 2011. “Although urbanization may reduce cropland available in some areas, a net increase in cropland is attributable to a shift in land use,” Stats Canada explains. “Farmers have converted land formerly used as pasture, summerfallow or other less productive land into productive areas.” Canola had the biggest acreage at that point, accounting for more than one-fifth of all cropland.
At the same time, the 2016 census indicated continued consolidation in Canada’s ag industry. There were 193,492 Canadian farms in 2016, down almost six per cent from the previous census in 2011. However, Stats Can also points out that this is the lowest rate of decline in farm numbers in the past 20 years. That is, in previous censuses since 1996, farm numbers had dropped even faster.
Not surprisingly, the number of farm operators also declined from 2011 to 2016, by 7.5 per cent, from almost 294,000 to almost 272,000.
Another Stats Can article (“A portrait of a 21st century agricultural operation”) outlines a little about who these farmers are. For example, in 2016, the largest fraction of Canadian farmers were between the ages of 55 and 59, but those under the age of 35 had increased in number by three per cent from 2011 to 2016. That’s the first time since 1991 that there’s been an increase in this age category.
The number of women farmers increased slightly overall from 2011 to 2016. Stats Can also reported that in 2016, a significant number (44 per cent) of all Canadian farm operators did some off-farm work, with just over 30 per cent working an average of at least 30 hours a week off the farm.
At the same time, the average area of the Canadian farm increased by about 40 acres from 2011 to 2016, from 779 acres to 820 acres (farms are also getting bigger around the world; see sidebar).
For his part, Gervais believes these recent trends will continue — some farms will continue to become larger and consolidation will continue, but at a slower pace than what we have seen in the past.
Factors affecting expansion
One factor that may slow down consolidation, in Gervais’ view, is the high price of farmland. “There is no doubt that farmland today is more expensive than the historical average when measured against farm income,” he explains. “So, it is more difficult to purchase land at current prices given the level of income that can be generated from the land.”
Ryan Parker, partner at Valco Consultants in southern Ontario, agrees that high land values arguably do restrict expansion, but at the same time, he doesn’t think the current value of farmland will actually have a significant effect on farms getting larger. “There will still be people willing to sell and the demand from buyers will set the price paid for those farms,” he says. “The biggest restriction to expansion is much more likely to come from decreasing cash flow.”
In any case, buying farmland is far from the only option in expanding a farm business.
In “A portrait of a 21st century agricultural operation,” Stats Can points out that total Canadian rented farmland area was 40.1 million acres in 2016, including land rented from other farm operators or from non-operating landlords.
And renting farmland is popular among younger farmers. “Of agricultural operations where all operators were under the age of 35, 50.6 per cent rented land from others, compared with 35.1 per cent of all agricultural operations,” StatsCan states. “On agricultural operations that used only rented land, the average operator age was 46.0 years, nine years younger than the national average.”
Another way farmers can farm more land is through crop sharing (4.5 million acres across Canada in 2016, according to Stats Can), or through leasing land from the government for pasturing livestock and more (just over 21 million acres in 2016). In addition, Stats Can reports that in provinces such as B.C. and Alberta, Crown land can be leased based on the number of animals a farmer/rancher pastures instead of number of acres actually used.
There is yet another way farms can expand. Since 2009, Bonnefield has offered farmers another financing option: the sale and leaseback of farmland. At this point, it has served 140 farm families, from field crop farms, organic/conventional vegetable and fruit operations, as well as a number of potato growers in New Brunswick, Alberta, Ontario and Manitoba. Farmers attracted to the Bonnefield model, says Eisenhauer, consider farming a business.
For a closer look, here’s an example from the company’s case studies, posted on its website. A family in southwestern Ontario was farming about 800 acres a few years ago, and had some debt and a dwelling issue to deal with. They sold off 100 acres to solve both problems, but that reduced their profitability. They also wanted to expand back to where they had been and beyond, to allow their four sons to make a living from the farm business. They talked to Bonnefield, and after going through the process, Bonnefield purchased 500 acres from the family which the family leased back in a long-term lease arrangement. At this point, Eisenhauer reports that this family is now farming over 2,500 acres. Indeed, he says it’s becoming common in southern Ontario for 1,000 to even 3,000 acres to be farmed by one farm business.
“The modern business of farming requires new and different financing models,” Eisenhauer says.
“The biggest barrier will be the availability of good land, and land prices are driven by farm profitability.”
In other parts of the world
In the U.S., the number of farms decreased from 2.131 million in 2011 to 2.029 million in 2018, and average farm size increased over that time from 429 to 443 acres.
In Australia, average farm size in 2015-16 was 4.331 ha, up 0.3 per cent since the year before. The country’s agriculture ministry notes that across all industries and sectors, larger farms tend to be more profitable, using more capital and other inputs to produce more output. The largest 10 per cent of farms produced just under half of total output from 2014-15 to 2017-18.
The European Union (EU) reported in late 2018 that the number of farms there has been in steep decline recently, but the amount of land used for production has remained steady. There were 10.5 million EU farms in 2016, two-thirds of which were less than five ha in size. EU farms used 173 million hectares of land for agricultural production in 2016, just under 40 per cent of the total EU land area.
This article was originally published as, ‘Bigger and bigger?’ in the March 31, 2020 issue of Country Guide.