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The joy of farm diversification

On more farms across Canada, keeping an eye open for diversification opportunities is part of what it means to farm

Chances are, any reader of Country Guide knows at least some farmers who have diversified in some way. The odds are good, too, that you’ve heard them get talked about. Maybe you’ve done some of the talking yourself?

Everyone has an opinion. Are these farmers risk-takers, or are they just ordinary farmers like you who have done their research and got up the courage to take the plunge?

What does it take to succeed at diversification? How much energy or financial investment should you expect to have to put into a new venture? And how will you really know if it’s a good idea, or bad?

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These are all important questions to ask in investigating diversification.

Maybe the diversification ventures you’re aware of are quite small-scale or maybe they’re much larger. Maybe they’re quite farm-focused, like starting to grow seed, or maybe they’re more consumer- or industry-based. Farmers are succeeding at them all.

As you’d expect, J.P. Gervais, chief ag economist at Farm Credit Canada, has seen his share of examples. “Farmers can integrate some operations vertically, getting involved in some form of processing, wholesaling, retailing directly to consumers, livestock operations, growing their feed, etc.,” Gervais notes.

Other times, it’s a bigger jump. The diversification doesn’t have to be farm-related at all. Maybe you’re tempted to build some rental units in a nearby town, or build some vacation rentals along a riverfront or a hilltop.

Or maybe you’re going to build on your farm expertise, getting professional credentials as a crop advisor, accountant, mechanic or other.

In other words, the opportunities are so diverse, how can you not get the bug? Isn’t the world just waiting for you to make your mark?

Why take the plunge?

Now that we’ve looked at the general types of diversification, let’s look at why in 2020 farmers are taking the plunge. Gervais believes that there is more diversification among farmers now than there was 20 years ago. The reasons can be many and there can be more than one reason involved — from pursuing a passion to making sure there is an income for multiple adult children, to managing risk or simply a need to make more money.

“It’s harder and harder for farmers to make ends meet, and right now, as reported in the news recently, incomes are down 50 per cent,” notes Mark Fournier, an agri-business instructor at Olds College in Olds, Alta. “So, a side business is needed for income and to smooth out the peaks and valleys of farm income.”

And, maybe, if you’re looking to smooth out the cycles in agriculture, the idea has got to be to aim your diversification outside of agriculture if you want true financial stability.

Or does it?

Moving forward

If a farmer is serious about diversification, a close look at all the aspects, current and future, is a must. This includes the farm operation as it stands now and will likely stand in years to come, how much investment capital is available and will likely be needed, the capabilities of the people involved, and a detailed business plan that identifies competition, raw materials sourcing, distribution, opportunities, risks and other aspects. Farmers also need to look at what type of business structure is best. This can affect the tax burden and much more.

While the tax angle depends on the type of side business and on the province where it’s located, Francois Bourgeois, partner and national crop and livestock leader at BDO (he is based at the BDO office in Embrun, Ont.), advises farmers to remember the 90-10 rule. That is, on disposition or transfer of shares of a family farm corporation, 90 per cent or more of the fair market value of assets owned by the corporation must be used actively in the business of farming, or the corporation’s status as a farm may be denied by Revenue Canada.

“It might be better to create another business structure such as a separate corporation for the venture,” Bourgeois notes. “This can also help you manage your legal liability, so you should talk to a farm tax expert as soon as you are serious about your diversification, and also a lawyer.”

Ken Worsley, vice-president of the agri-commercial division at Cowan Insurance Group (offices across southern Ontario) and his colleagues have many current farmer clients with multiple enterprises on the farm, including equipment repair, machining and fabrication, and snow removal. Taxes aside, he stresses that the insurance implications should also be investigated.

“If a farmer is a licenced heavy equipment mechanic and he or she doesn’t have the proper insurance in place, they won’t be covered for their repairs and also will have liability exposure,” Worsley explains. “A lot of farmers will use their tractors and plows in the winter for snow removal and you also need to be covered for that. Standard snow removal contracts are very prejudicial against the contractor.” More and more, he adds, farmers are trading commodity futures and have more on-farm storage with their own trucking, so appropriate insurance for this is also a must.

Worsley also notes that when farmers buy more farmland to expand their business, they are effectively diversifying into owning rental properties if the purchase comes with a farmhouse that needs occupancy. Again, the right insurance is required.

The next step

One simple path into diversification is to stick with crops. Alex Carey, chair of the Saskatchewan Young Ag-Entrepreneurs, has already diversified twice since starting his 350-acre grain farm in 2012, once with quinoa.

“I think that if you’re doing the same old, same old as everyone else, canola and wheat, that’s not to way to get ahead,” Carey observes. “In 2013, I decided to do quinoa because it’s higher value. The first year was a steep learning curve, but every year it’s got better and better. I now grow about 100 acres.”

Some farmers across the country also turn to growing seed — on average between 200 and 250 every year according to the Canadian Seed Growers’ Association (CSGA). “For many, this is a career choice that helps them differentiate themselves from their peers,” says Caroline Lafontaine, CSGA managing director of communications and client services. “For others, it provides access to the latest genetics as seed growers multiply the first generations of seed of the latest genetics.”

Lafontaine adds that in general, growing pedigreed or certified seed provides a greater return than producing commercial or commodity crops. Financial and competitive benefits can also be realized from growing seed through gaining a strong understanding of the agronomic characteristics and management needs of a new variety. Lafontaine says the typical seed grower is inherently detail-oriented, has strong record-keeping capabilities and likes to adhere to standards.

Stamp Seeds in Enchant, Alta., has diversified with a seed-cleaning plant for its own needs and also some custom cleaning. “A colour sorter is being added this year which will greatly widen our cleaning options,” says Nathan Stamp, the farm’s operations and agronomy manager. “We have also started more tote bag sales across Canada. These have help spread risk out in the business but have also helped with keeping full-time, long-term employees as it offers work year-round.”

Over 200 farms start seed production every year, but few with the commitment of Alberta’s Stamp farms.
photo: Stamp Seeds

The fact that Stamp and his two brothers are responsible for certain areas of the business is key to the success of their diversification. This arrangement, says Stamp, has allowed growth in sales, crop production and seed processing capabilities. He adds that hiring highly-educated staff, ranging from accountants to certified crop advisors, has also helped them advance.

Dave Russell and his family, who farm 600 acres east of Red Deer, Alta., have already diversified in one way and have another venture planned. In 2015, they got a small flock of laying hens and have grown that number to 300, the maximum allowed in Alberta without the purchase of quota. Russell has built up a market for their hand-washed-and-packed eggs through the internet, and they sell all 14 dozen produced daily at $4 each.

Russell, who is president of the Alberta Young Farmers and Ranchers, says he was inspired to try layers by speaking to others at Canadian Young Farmers’ Forum events. He adds that “my wife and children inspire me to tackle new projects and problems. I couldn’t do what I do without their love and support. Sometime down the road we may make our own feed. We also tried broilers this summer but there isn’t the demand.”

Russell and his family do however, have solid plans to diversify into cattle farming. “It’s important that not all one’s eggs be put in one basket,” he says. “We are going to put the cattle on about 100 acres that can’t be cropped and plan to start slowly. We have to clear brush and put in fencing. The first cattle will likely be brought in in 2020 and we’ll grow the herd naturally. We are speaking to my sister and her husband about overwintering the cattle with them, as they already overwinter their own.”

Manure too?

Some diversification ventures involve the use of raw materials produced on the farm. This is the case for StonePickers Brewery on the farm of Joe and Mary Donkers, not far from the town of Forest near Sarnia, Ont. Joe has a passion for brewing and had made his own beer in the past.

About 13 years ago Donkers did some research and in 2006, he planted three acres of malting barley with the hopes of brewing on a larger scale. At the time, however, Joe and Mary were farming pigs and didn’t have a lot of free time, and in the end, the barley was fed to the pigs. Then about six years ago, with profits in pork so low, they shut down the pig operation and looked at the idea of brewing beer again, in a big way.

Fast-forward to about a year ago when, with the help of their good friends Laura and Jim Soetemans (full-time farmer-neighbours with broiler chickens and cash crops), they opened the brewery. Donkers says that was preceded by about two years of preparation, mainly for equipment procurement and setup, along with getting paperwork in place.

He also explains that no zoning change was required as the brewery uses farm products in the venture. Yes, the Donkerses grew more barley (along with mostly soybeans, they are planted on the farm’s 250 acres) and malt it for their beers, all of which are named with farming themes. However, they currently have to also buy some malted barley to keep up with beer production, until their new and larger malting system is finished.

Figuring out how big to go was tricky, says Donkers, but in the end “we went larger than most for a startup brewery and a year in, we’re up to capacity of the equipment. So we’re glad we went bigger. Things have gone better than expected and we’re very happy about it.” The brewery has a manager and 15 part-time bar staff, serving beer and snacks (customers can also order pizza and whatnot delivered from nearby Forest). Donkers says his biggest satisfaction from this venture has been meeting so many neighbours, as well as tourists heading along the highway to Northern Ontario that runs out front of the farm. “It’s always a nice clean, warm work environment,” he adds, “and it’s fun. It’s been a lot of fun.”

Another farm diversification using crops grown on the farm is GORP World Clean Energy Bars & Mixes near Niverville, Man., started by Colleen Dyck. A few years ago, she’d gotten into triathlons, and in her search for nutritious energy bars to fuel her training and races, she wasn’t impressed with what was on the market. Existing products were full of preservatives and additives. Dyck tried making her own and shared them with other athletes, who were very keen for more.

Meanwhile, her husband Grant in his early 20s had taken over his family farm, and together, they have grown the operation to 14,000 acres, owned and rented. In 2009, they won the national Outstanding Young Farmers award.

When the old family farmhouse burned down, it was an opportunity to rebuild with Colleen’s business in mind. The new house has the GORP World production facility in the basement. But simply location on the farm is far from the only synergy. The farm business and GORP World share an accountant and HR manager, and ingredients for the products that are grown on the farm include sunflower seeds, oats, hemp and flax, depending on the year. Other ingredients such as honey and pea fibre are sourced locally and others like coconut, farther afield.

For Manitoba’s Colleen Dyck, producing GORP energy bars provides bridges that help both her diversification plan and the home farm.
photo: Supplied

“What we grow goes to the processor and is mixed with the harvest of other local farmers,” explains Dyck. “So what we buy back from the processor, which is at a discount because we are one of their growers, contains some of what we grow on farm.” The two businesses also share a forklift, which Dyck says “doesn’t sound like a big deal, but for a small business like mine, to have to buy that would have been a significant expense.”

Another farm product — this time manure and not crops, however — is the star ingredient in CowPots — biodegradable planting pots made from composted, dried dairy cattle manure by the Freund family in Connecticut. Years ago, the family started looking for opportunities to use the fibre coming off the screw-press manure separator from their digester, and ways to reduce the amount of solids they’d have to handle. Nutrient management issues in the state were beginning to be a real concern.

Matthew Freund got creative and started to experiment with making planting pots, and after many years of trail and error, the family officially launched CowPots in early 2006. Now, about 12 to 15 per cent of the farm’s manure leaves the farm through these products. Over the last few years, CowPots have been presented on TV shows like “Dirty Jobs” and “The Today Show.” They are sold through major U.S. retailers True Value and Tractor Supply Company. In addition, “CowPots Packaging” was launched in September 2019 at PackExpo in Las Vegas: biodegradable items like “packaging corners” that protect items during shipping.

Off the farm

Because Alex Carey’s farm at its present size doesn’t provide enough income, even with high-value quinoa on about one-third of the acreage, Carey also started a construction business in 2016. “It helps me have a good living now, to save to expand the farm eventually and it also means all my eggs aren’t in one basket,” he says. Carey erects steel buildings (sheds and workshops), mostly on farms, and after he did one job, he decided it was a good opportunity for extra income. “Being a farmer helps because farmers like to deal with other farmers,” he says. “Being on so many different farms of all sizes also means that I can talk shop with so many people, hear how they do things and what works and what doesn’t. I’ve developed great relationships with other farmers across the Prairies and it’s great to be able to call people, not just neighbours, with questions. So both farming and the construction business add value to the other.”

For young farmer Alex Carey, diversification is key to getting his career started.
photo: Supplied

The sons of Luanne Lynn and her husband Philip have diversified, gaining several benefits at once. The couple has a cash crop operation in Ontario as well as a beef feedlot, cow-calf operation and grain farm in Saskatchewan; they were national Outstanding Young Farmers in 2005 and Luanne is currently the board past president. Their sons have gotten their highway trucks plated commercially so they not only maximize their equipment in the grain farming off-season but also keep their employees full time year-round.

Their best advice

While every potential farm diversification situation is in some way unique, our experts have some general advice.

Mark Fournier advises making a diversification choice that you are passionate about and also have the resources for. “Use synergies if you can,” he adds. “There are always limits on resources, and spare time is always hard to find on a farm. You don’t want a new enterprise to take away from your existing operation.”

Matthew Freund at CowPots echoes these thoughts. “Make sure the diversification doesn’t rob from your core business,” he says. “Be sure it’s something that excites you because in the beginning it will take a large amount of your leisure time. It must be something you enjoy or feel it has value over and above financial gain.”

Carey advises starting small and not getting in too deep, too fast. But, he quickly adds, “I think you have to give a new thing a chance. Put the time in and give yourself a chance to learn and improve.”

Donkers’s best advice? Do lots of research. However, he adds some final thoughts that echo what the other experts have already said — and he adds a warning. “You need to be sure the grass is really greener on the other side, and make sure it’s something you’re going to stay passionate about,” he says.

“But also, I advise you not to wait. If you wait too long, you talk yourself out of things and they never happen.”

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