The Role of Megafarms

April 7, 2010 11:20 AM

A public conversation on the sensitive subject of consolidation in agriculture drew large crowds at this year's Top Producer Seminar. Three representatives from the farming industry discussed how large operations fit into the future of agriculture.

"I hate the fact that consolidation in agriculture is occurring, but I can't change it. The economics are in place that lead to larger farms,” explained Allen Lash, CEO of AgriSolutions Inc. and a co-founder of FamilyFarms LLC, a business based on education, staffing and economics that standardizes business practices for its members.

Lash predicted an unprecedented amount of crop production consolidating in the next five years, similar to what happened in the pork industry in the early 1990s. One of the key drivers behind consolidation is advancements in technology, Lash said (see table).

"The bigger operators coming into your neighborhood today are prepared to get off the combines and tractors. They will employ people who can manage technology, and more farming is going to occur in the office,” Lash said.

Steve Freed, vice president of research for ADM Investor Services, agreed that consolidation is inevitable in grain production, but said there are challenges for large operations. "When I talk to very large farmers, their No. 1 challenge is maintaining efficiencies,” Freed said. "It's not simple to be big. It takes enormous management skills and requires processes to be in place.”
Responsible Farmers. Few farmers want to see the agriculture industry go to megafarms. But if you aren't farming for profit, you might as well be a gardener, said Pat Duncanson, a 4,000-acre grain and hog producer from Mapleton, Minn.

However, as farms grow larger, they have a bigger responsibility to support the community, he added.

"Many of the larger farmers in our neighborhoods are not active on boards, nor are they willing to step forward with funding to support local infrastructure,” Duncanson said. "This is often because they don't want to be in the spotlight. But I would challenge large farms to stand up and promote agriculture and our way of life.”

Lash agreed that megafarms have a big social responsibility, as well as environmental responsibility. If agriculture is going to meet the challenge of a 40% population growth, it is the large farms that will need to be sustainable long-term to feed the world.

Traits of Success. Throughout the years, Lash's company AgriSolutions has managed the financials of some of the largest farms in the country. Lash identified certain traits that make these operations successful, including an understanding of revenue return based on assets and carefully developed standard operating procedures that can be replicated.

"Successful operators today develop processes they can hand off to key employees and the next generation,” Lash said.

Learning managerial accounting and developing a relationship with a lender is critical, he added. "Producers today have to be able to lock in fertilizer, chemical and seed, and they need a lender who is willing to underwrite those lines of credit,” Lash said.

Freed added that the large producers he has surveyed all have risk management plans in place and have developed strategic marketing skills. Land acquisition will be key in the future to increase efficiencies, concluded Lash and Freed.

Duncanson said that while efficiency is important, he believes farming must be more than a business if it is to survive the ups and downs. "At the end of the day, I still believe that bigger is not always better. Only better is better. If you focus on the better, the bigger will take care of itself,” he said.


Top Producer, Spring 2010

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