A U.S. Department of Agriculture economist wonders why farmers remain stuck on specialization because current research shows diversification equals profits.
“It seemed like in the ’80s that specialization was really the key to profitable farms, but it seems like the more recent studies have shown that (specialization) is not enough,” David Archer said during the Manitoba-North Dakota Zero Tillage Association’s annual workshop held in Brandon in February.
Since 2000, Archer and other agricultural economists with the USDA have travelled across America seeking an answer to a simple question: what do successful farm operations have in common?
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The economists organized panels of farmers who worked in various agricultural sectors, such as poultry, cattle and grain, and asked them questions about their operations.
The economists found that diversity and the flexibility to adapt to changing conditions are more important than farm size.
“Sometimes you do need to get big enough to take advantage of the returns to scale, but there are other ways to deal with the challenges,” Archer said.
In other words, doing more of what producers are good at isn’t the best path to consistent profits.
To illustrate the downside of increasing acres, Archer opened his presentation in Brandon with a quote from David Pannell, an agricultural economist in Australia.
“The farmers most likely to be under acute financial strain at any time are those who bought land or machinery at the wrong time or at the wrong price,” Pannell wrote in the Agricultural Economics journal.
Instead of getting bigger, farmers can diversify and reduce that risk by using their existing land and machinery differently, Archer said.
“Increasing crop diversity by selecting crops with different planting and harvest dates can expand the window for timely completion of field operations,” Archer wrote in a summary of his presentation.
He said another common characteristic of profitable farms is broad expertise, such as farms run by siblings or two generations.
“Usually there’s somebody that’s really good with the crops and somebody who’s really good with the livestock.”
He said farmers in the northern plains already grow a variety of crops to minimize risk. However, within that group there is a reluctance to move beyond their primary identity, which is a grower of grain.
“People who have traditionally been crop farmers might be resistant to think about diversifying into livestock,” he said. “And there’s good reasons for that, because it takes a whole new set of skills.”
Lorne Loeppky, who produces grain and hogs near Niverville, Man., expanded his expertise in the 1980s and diversified.
“Starting in 1988, we started the hog operation to save the grain farming. And now, I guess the grain farming is supporting our hog operation.”
He said the two operations also benefit from synergies, such as spreading pig manure to reduce fertilizer costs and nourishing pigs with home grown feed.
Getting into livestock, however, is not the only option to diversify, Archer said.
“We’ve seen some farmers who have expanded either into the inputs or value-added outputs,” he said, using as an example producers in the southern United States who formed a company to provide feed for catfish farms.
Regardless of the type of innovation or diversification, Les Kletke, a Manitoba agriculture journalist, said there is one common trait he has witnessed in successful farmers around the world.
“The drive of a young man with the knowledge of an old man,” he said.
“You gain the knowledge from the experience, but you still need the drive to implement the change.”
