Economists say it is an irrefutable fact that size matters when it comes to commodity-based agriculture.
Studies show that high profit farms are consistently larger than low profit farms because they take advantage of economies of scale, spreading their fixed costs over a larger land base or herd size.
“If you’re a commodity producer you’re probably going to have to get bigger,” said Danny Klinefelter, a Texas A&M University extension economist and one of the gurus of the farming-for-profit movement.
Of course there are exceptions to the rule, said Larry Martin, chief executive officer of the George Morris Centre in Guelph, Ont. He cites the example of an Alberta dairy farmer who recently completed the centre’s Canadian Total Excellence in Agricultural Management course.
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The producer has a small dairy herd that he keeps outside year-round, so he has no investment in buildings. His only tools are a tractor, a pick-up truck, a shovel and a pitchfork because he farms out much of the grunt work to custom contractors, which keeps his equipment costs to a bare minimum.
“He is wildly profitable,” Martin said. “You wouldn’t believe how profitable he is because he refuses to invest in things he doesn’t need to invest in.”
There are also examples of small farmers outperforming the rest of the pack by getting into niche markets such as organics, but as a general rule the farm management specialists interviewed for this report concur that growth is one of the keys to profitability.
There are consequences to this “bigger is better” approach to agriculture, said Hugh Maynard, author of a study on sustainable agriculture from last September entitled Big Farms, Small Farms.
Two percent of farms now produce 35 percent of the food in Canada, a concentration of production that has polarized what was once a homogeneous group of family farms into big operations and little ones.
Maynard said it is a changing dynamic that policymakers refuse to recognize.
“To continue on a policy base treating farms as one single entity is like treating General Motors the same as a car dealership.”
He is promoting a two-tiered approach to agriculture policy, one that protects small farms from facing the same environmental regulations as large operations and that makes sure they receive the lion’s share of subsidies.
Keeping small farms in the game through government subsidies is “exactly wrong,” said Terry Kastens, extension agricultural economist at Kansas State University and author of numerous studies on farm profitability.
“(That policy) has been grossly ineffective in keeping farms small ever since 1933 in the U.S.”
He said economies of scale is a force to be reckoned with, noting that there are only a few industries in the world that have stepped back from the trend toward consolidation. Agriculture needs to come to grips with that economic reality, he added.
“We should probably be paying farmers to leave. We should probably be paying them to get retrained in other careers,” Kastens said.
John Coté, a former winner of Canada’s Outstanding Young Farmer award, has grown weary of economists proselytizing about economies of scale.
“I have a hard time sometimes with some of these experts because they always put up one business model that will work for everybody,” said the farmer from Leask, Sask.
He said the “bigger is better” approach to farming has diminishing returns and can force farmers to spread themselves too thin.
Perhaps more importantly, it doesn’t take into account that return on investment isn’t the ultimate goal for every farmer. Instead, it might be to leave a better environment for their children.
“The experts, they’re not worried about what you want to do with your life,” he said.
