Despite a perception that large-scale "corporate farming" is taking over Canadian agriculture, the country's farming sector remains dominated by relatively small-scale, family-owned and operated enterprises. And this is unlikely to change significantly any time soon.
Canada's largest farming businesses – those earning over $1-million in annual revenues – comprise less than 5 per cent of all farms in the country, and would be considered small or medium-sized enterprises in virtually all other economic sectors.
This does not stop farms from being profitable businesses. A new report by the Conference Board of Canada ("Seeds for Success: Enhancing Canada's Farming Enterprises") shows that since 2000 almost 30 per cent of Canadian farms have had profit margins over 20 per cent each year. Moreover, a quarter of the smallest farms in Canada have been in the top profit-margin category. On the downside, about 30 per cent of farms lose substantial amounts of money each year, with profit margins of minus-10 per cent or worse.
Why do some farms greatly outperform others? The key is good management. Farmers have abundant new opportunities, but capitalizing on them requires skillful management of farm capital, marketing, business relationships and human resources. Increasingly, the old way of doing things no longer guarantees success in the modern farming economy.
For example, managing farm capital becomes more important as the cost of farmland outpaces growth in agricultural incomes. During the second half of 2011 alone, farmland prices across Canada increased by 6.9 per cent. To meet their operational needs, successful farm managers are renting more land, as opposed to purchasing it outright, to avoid excessive debt. They also make investments in other aspects of the business, including state-of-the-art technology, to improve productivity.
Producing good yields, however, is not enough – marketing is also an increasingly important part of being profitable. To earn price premiums, entrepreneurial farm managers are going beyond traditional selling avenues (such as auction markets and marketing boards), and selling directly to consumers, processors, restaurants and retailers, and foreign buyers. Many tap into niche market opportunities, such as organic and local food. Other operators are making greater use of financial instruments (such as futures and options) to maximize price potential and hedge against risk.
Managing and fostering business relationships are increasingly vital to farming success. The image of the solitary farmer is at odds with the realities of today's competitive environment. Farmers can accomplish many things working together through business partnerships, agricultural co-operatives and joint ventures, such as cost-sharing, reduced risk and greater buying power. Among successful farmers, sophisticated knowledge networks (including producer organizations and marketing clubs) supplement the local coffee shop as places for sharing information about new industry developments.
Managing capital, marketing and relationships takes time and focus. But many farmers are reluctant to hire more employees to do the on-farm labour they love in order to spend more time handling business issues. Most operators – more than 70 per cent – also report problems finding general farm workers to fill positions, due to skills and labour shortages in the industry. Improving employee management training, as well as farm human resources standards and practices, would help attract a new generation of smart, ambitious and enterprising Canadians to farming. It is critical that farms rival other industries that compete with them for skilled workers.
Farmers who employ good management and business skills have bright futures in a world where demand for food is growing. Many farms will gradually become larger as a result of greater business sophistication and entrepreneurial ambition. But size is not everything. What matters more is how well farms of all sizes are able to improve farm management in a way that enables them to meet rising consumer expectations for high-quality, safe, and environmentally friendly foods – and be prosperous as a result.
James Stuckey is a research associate at the Conference Board of Canada.