As large farms get larger, what does it mean for the future of ag?
By Jackie Clark
Agri-Food Economic Systems recently released a policy note breaking down long-term trends in the structure of Canada’s farm sizes and the implications for the future of the sector.
We know that overall, farm sizes have been increasing for several decades, however “what do we understand about the process that is generating larger farms, on average?” Al Mussell, research lead at Agri-Food Economic Systems, asked.
The policy note posits two possible ways.
The first is step-by-step growth.
“Over time, small farms becoming medium farms, medium farms becoming large farms, and large farms becoming even larger farms,” Mussell explained. However, “the data are not very consistent with that pattern.”
More likely, “the growth is in the already-large farms, and the decline is especially in the middle-sized category,” he said.
This may have changed over time.
“There is evidence of step-by-step transition in the earliest periods,” the policy note explains. “For example, comparing 1991 versus 1986, the loss of farms in the $100K-250K category is almost exactly offset by growth in the $250-500K class; this is repeated again comparing 1996 versus 1991. One can see the same sort of pattern in 2006 versus 2001, but with the decline in $250-500K class largely taken up in the growth of the $500K to $1 M class.”
However, “the most recent census periods do not exhibit step-by-step movement in farm structure. Increasingly, the loss in total farms is accounted for by the mid-sized farms in the $100-250K and the $250-500K size classes,” according to the note. “The largest two size classes have not declined in number since the 1981 census and the very largest class is accelerating in number.”
Many reasons could explain this trend, including “economies of size and investment in machinery, which can form a barrier to entry,” Mussell explained.
The implications of this trend are significant. A lot of diversity exists in the agriculture industry, however some significant decisions and planning in the industry are made based on an imagined ‘average’ farm, he said.
This second understanding of how farm sizes are changing reveals a bimodal distribution, where there are some small farms and many large and very large farms, but not many actual farms that are in that mid-sized or average category, he explained.
“For the most part all the growth is at the very large end, and there’s not very much in between,” Mussell said. “There’s a lot of implications for this in terms of how agribusinesses operate, how the municipal tax base operates in rural areas.”
To reflect this, industry stakeholders and policymakers need an updated understanding on the reality of who owns land in rural areas “if the demographics are changing such that the middle-sized farm is in fairly steep decline,” he said.
For one example, this dynamic factors into the demand for new and used equipment. Financing new equipment depends on trade-in values of used equipment.
“If the used value is based on demand from the small and medium sized farms, primarily, as (that demand) begins to disappear, then surely at some point the used market for equipment must start to decline,” Mussell said. “When that happens, ironically, that will have a negative effect on the ability of the large and very large farms to invest themselves.”
That, in turn, impacts large farms’ ability to invest and farm more land.
“When you think about major investment that farms make, equipment is a pretty pivotal one because the productivity of equipment is in turn leveraged in the competition for land,” Mussell said. “If you can’t afford the equipment and can’t compete for land, then where are you to go?”
As a result, “you’ve got this strange circular relationship in which the large farms implicitly depend on the medium and small farms to support the value of their trade-ins for new equipment, and yet the result of investment in new equipment is that large farms are increasingly better at competing for land when compared to medium and small farms,” he explains. But if large farms grow so much that medium and small farms can’t compete for land and exit the industry “there’ll be no one left to buy their trades.”
This trend is likely also reflected in labour, he added. “It probably also leads to competition for people. The best, most qualified farm employees.”
Because of the co-dependency of farm sizes, “in terms of getting investment in the best possible, most efficient technology, what we really need is a distribution of farms and diversity,” Mussell said.
But how do we address the issue?
“We have no instruments in agricultural or tax policy that are intended to deal with this,” Mussell explained. “The government’s record in terms of engineering an industry structure is abysmal, in fact I’m sure most governments would prefer not to get into that,”
He hopes the policy note will get agricultural stakeholders talking about this trend and potential solutions.
“I doubt very much that anyone would like agricultural policy that seeks to engineer industries, but the dilemma we have is that if we’re right about this and this distribution matters, then it’s pretty hard to ignore,” he says.
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