The bigger they are, the harder they fall. That certainly seems to be the case with Broadacre Agriculture, a division of Pike Management Group.
Together with Wigmore Farms, it has applied for protection against a long list of unpaid creditors.
The Nov. 3 sworn affidavit of Broadacre chief financial officer Andrew Marshall provides interesting in-sights on the supposed advantages and obvious disadvantages of the large corporate farming model.
According to the affidavit, Broadacre was incorporated in 2010 “to pursue opportunities in farmland ownership and large-scale precision farming operations.” Of its more than 65,000 acres, only 9,000 acres are owned, while 56,000 acres are leased.
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Leasing land is certainly the way to get big fast, and the Broadacre plan involved “exploiting the benefits of scaled operations to significantly reduce operating costs.”
In theory, inputs should have been cheaper because of bulk buying, and there should have been more opportunity to efficiently manage equipment and labour resources.
The farm has more than 25,000 acres in the Abernathy area, nearly 17,000 acres around Regina, 12,000 acres at Gravelbourg, nearly 10,000 acres near Torquay and 2,500 irrigated acres near Lake Diefenbaker. There are about 50 land leases.
Interestingly, “the harvest requires approximately 60 farm employees during the seasonal peak. In addition, there are four farm managers hired as contract consultants paid on a monthly basis.”
More than 60 seasonal employees for 65,000 acres doesn’t seem like a great deal of benefit from scaled operations.
In another part of the affidavit, Marshall said: “At this juncture, Broadacre has the operational infrastructure to efficiently manage up to 200,00 acres of farm operations and is therefore seriously underutilized.”
That sounds like a company that is upper management heavy.
Marshall admits the company has never been profitable and is now “hopelessly insolvent.” There’s a great deal of detail on the financing and amounts of money borrowed.
“In the fall of 2014, the company required an urgent infusion of capital as it did not have the financial resources to complete the impending harvest.” Recent loans and promissory notes have carried an interest rate of 20 percent, which is steep.
So what went so horribly wrong? The last five crop years have been the most profitable in the lifetime of many growers. We’ve seen some of the best grain prices ever and interest rates have been at record lows.
The reasons for failure given in the affidavit boil down to weather events and chronic undercapitalization.
Yes, there have certainly been weather challenges, but with thousands of acres in five different areas of the province, you’d think the company would have been somewhat insulated.
As for being undercapitalized, why lease more land than you can afford to farm? Obviously, bigger isn’t always better or more efficient, and being too aggressive and optimistic can come back to bite you.
“The financial prospects of the company are bleak. It was already in a precarious position at the beginning of 2014 and it has continued in a downward spiral.”
Broadacre is hoping to sell high priced land near Regina. Otherwise, its best hope for an ongoing business appears to be a strategic investor. Good luck with that when you’ve been losing about $10 million a year.
Hopefully, the long list of creditors will get some of their $46 million back, but they shouldn’t hold their breath.
