Is the Mega-Farm Model Fatally Flawed?

Opinion

Bigger is better. Go big or go home.

The push for excess in all things, it seems, knows no bounds. But how big is too big? Or is that the wrong question to ask?

From combines, seeding units and land bases, to suburban houses, fast food meals and the cars we drive, there’s been a push to bigger in recent years. This expanding of just about everything (including debt) stems from a number of drivers — incredible wealth and easy credit on the consumer side, but also access to low interest rates and a push for ‘economies of scale’ on the farm.

Many have tackled the question of what the most profitable farm size is, from ag economists to business advisors and analysts, and the conclusion is often the same — it depends.

Last month, Broadacre Agriculture, a mega-farm based in southwestern Saskatchewan, filed for creditor protection with $46 million in outstanding credit. It’s estimated the company put somewhere between 55,000 and 65,000 acres of crop in the ground in 2014. By harvest, they didn’t have enough cash flow to fuel their combines. What the heck happened?

There are those that would like to simply say they were “too big,” that mega-farms just aren’t viable. But is the land base tally really the sticking point? Can a mega-farm be viable? In the interview below, Real Agriculture’s Shaun Haney and Lyndsey Smith, run through some of what was in the CEO’s affidavit and what clues it offers to the demise of Broadacre. They also discuss the examples of other, very large farms that are hard at it, making a living from their ‘mega-farm.” So what’s the difference? Listen to that discussion, below.

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7 thoughts on “Is the Mega-Farm Model Fatally Flawed?

  1. Good piece and I couldn’t agree more. I have seen the start up and demise of one of these corporate farms right next to me. There is an art to farming. It is something that needs to be learned and it takes years and years of trials and tribulations to be able to figure it out. Just because you have the money to start a large farm, doesn’t mean you can make money doing it. Learning things like, efficiencies, what your crop needs for nutrients, which chemicals to spray can not be taught in a classroom and drawn up on a whiteboard in downtown Calgary. Through our growth over the past 20 years, there have been some very painful mistakes made. But they were made in small increments. you pick yourself up, shake yourself off and learn from that. These are all things that can not be taught by anyone. Its a learning curve and at times it can be steep. I have watched these so called corporate farms and have found that their fatal flaw is that they have the pyramid upside down. Yes they have hired the smartest finance people, lawyers, accountants, CEO’s, HR people, and pod managers, all with extensive ag backgrounds, but that is not where the money is made. It becomes top heavy and as you move down to the production end, it gets very lean. That is when it collapses. You need to start with a solid base. Put the best production people on the ground, along with the owners and CEO’s and HR people. It is a lot tougher to collapse that way.

    1. I agree, you can’t farm from a board room!
      Any good, well run farm has people who are hands on and there daily making sure things are done right and as needed.

  2. I disagree with your premise that farms can’t be run from the boardroom because I have visited many farming operation in both Canada and abroad that are. It would be a gross overstatement to say that all the fruits and vegetables we eat are grown on farms run from boardrooms (and I know there are very many that aren’t) but you could safely say the vast majority of the produce consumed by Canadians are especially in the winter months. I would practically guarantee that you’ve never eaten a banana in Canada that wasn’t grown on a farm run from a boardroom.

    Canadian examples though include: greenhouse operations, horticulture operations, dairy, hog and chicken operations. If you own a large dairy farm in Canada and are milking a cow it’s because something has gone wrong with your day. Very few of our vineyard owners would ever be found out pruning their own vines, picking their own grapes, or bottling their own wines.

    Globally there are many examples of very large agricultural operations run from boardrooms: Dole Fruit Company, Tysons and Smithfield Farms are all just big vertically integrated farms at their core. Few farmers who own cotton farms or farms in the U.S. ever would be found on a tractor. Locally just think about the role Maple Leaf foods or Olymel have in western Canada’s pork industry. Without these two big corporate interests providing a backbone of support the hog industry would be on deaths door in the west.

    The big farms in Brazil are highly likely to be a division of a family-owned company that has it’s fingers in many pies. Ivolga Group in Russia and Kazakhstan and Russia, owned by Vassily Rosinov, farms 2 million hectares (31,250 quarters) and grows more sugar beets than Canada produces. It has very large grain, beef and dairy divisions complete with processing plants, owns 20 grain elevators, 10 flour mills, half ownership in a chemical manufacturing plant, a machine parts factory and a chain of gas stations. its farm office is a sprawling three story building in Kostany in NW Kazakhstan. It’s structured as 119 LLC’s but ultimately everything is run by Rosinov through a hand-picked heirarchy of managers.

    While I know nothing about the Broadacre Farms situation except what I’ve seen in the news and what friends have shared with me, but I would agree that Broadacre appears to have had major management issues. However because one farm has had these types of issues I think it is a huge leap to indict all large farms. I agree with Sean’s assertion that management skills matter more than size when it comes to determining an operations success.

    So to sum up management skills matter more than size does. It matters more than ever as farms try to transition from small operations, where you can offset a bad year by turning to off-farm work, to large business conglomerates. You have to have to have the right people in management roles and have the reporting and control structures in place to monitor and manage what’s happening out in the field.

  3. I just Googled Vassily Rosinov and it is not what I would call a good example of a successful farm. Look for yourself as it makes for interesting reading. Curious how a manager under a socialist government can turn into the world’s largest “farmer”.
    I also would ask anyone if they would want to work for any of these conglomerate farms. I believe that Chiquita (bananas) was under investigation a few years ago for its labour practices. Ever been to Arizona during lettuce harvest? Ever checked out greenhouse labourer wages?
    Every successful large farm operation that I know of may not have the owner in the tractor seat, but all of them could run the tractor or combine on a moments notice, meaning they know how to get dirty if need be. So, yes management is the most important thing, but unless your goal is to own large tracts of land for the future and you have the means to subsidise it with oil companies and such, these large boardroom run “farms” have a poor track record.

  4. Great discussion! If there was a set success formula for farming in a big way then many would be doing it! Good business isn’t always about bigger & working above the radar. Good business is about producing a quality product, treating employees, partners, vendors & customers well, minimizing environmental issues, being profitable, being sustainable & enjoying the business. The more we encourage mega business the more we turn products into commodiites, tighten margins & erode the middle class. The great thing about democracies is that we have the option of trying either way & the option to succeed or fail. If only governments would truly allow mega businesses to fail.

  5. Broadacre was a model destined for failure from inception, and so was One Earth, and so was MaxCrop. In all cases they started with a pot of money, got real cocky really quick because of their scale, hired managers who hadn’t managed a large farm previously, and then got busy developing impressive media stories and impressive excuses for their existing and prospective investors.

    There are a number of ag enterprises in Western Canada as big, in fact even larger, that are very successful. You dont read about them, they prefer to stay under the radar and go about their business. They tend to be multi generational farmers who have learned the grassroots, learned how to systematize their processes, and they do actually spend a lot of time in their boardroom. They have built size gradually as they mastered different skills.

    If you look at almost all the largest farms in the USA that have proven to be sustainable over at least a decade, they tend to be multi generational family farms. They are run from a board room, but their competence runs deep, and they grew gradually.

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