The ‘Big Farm’ Myth
Mar 30, 2016
By Agustina Sacerdote, Director of Marketing
We’ve all seen the same statistics on family farms: the USDA has reported that up to 98% of farms today are family owned, and a lot of these are also family operated. Even the most progressive, high-growth and technologically advanced farms are likely to be family businesses. But the farther away you get from farmland, the more common is the notion that successful farms have become part of huge, faceless corporations. My experience working with our customer farms at Granular has shown that this notion is a myth.
Why is it that family farms don’t really seem to fit the public’s common “family business” definition? I see three primary reasons:
1. The industry demands and rewards scale. Most people know that it takes a large capital investment to be able to generate a somewhat steady income year after year owning and operating a farm. A 1,000-acre farm, which by some standards could be considered a small farm, can barely produce a family income. Yet, it sits on roughly $10 million worth of land. Add in other fixed costs like equipment and labor, and it becomes clear that scaling is required to be profitable throughout generations.
As a farm grows, so does its ability to buy in bulk to lock in lower input prices. Size also brings better access to credit. More credit means more means to expand, and so on. Larger farms also have more management capacity, time and resources to invest in technology, measurement and training, which makes it more competitive.
2. Family farms remain devoted to agriculture across generations, and this commitment pays off in real terms. If you’re a farmer it pays off, literally, to remain in the same place for a long time. Take, for example, a family settled in Iowa in the late 1800’s to start a typically-sized 40-acre farm. An average 5% annual growth rate would mean that this same farm would be roughly 32,000 acres today, five generations later. An expert understanding of soil conditions, weather and other agronomic factors results in productivity gains year over year. Longstanding relationships with suppliers result in more favorable terms relative to market and community newcomers.
3. Technology helps farms overcome the challenges inherent in managing and transitioning family businesses. In every industry, each generation struggles to not only to retain the next in the family business, but to set them up for future success. In agriculture, this issue is particularly salient. Technology can help generations pass down knowledge on the land, agronomic practices and management decisions. It can help attract young talent to learn and take over the businesses. The right software can generate data that uncovers critical efficiency gains to improve processes that have been in place for years, and helps younger generations make smarter decisions in increasingly competitive ag markets.
While big farms might not fit the long romanticized view of red barns sitting quietly on an idyllic countryside, they are complex organizations run by fathers, mothers and their relatives trying to leave the business in better shape than they received it. Farms may be consolidating and adopting new technologies to become more professionalized, but family ownership is not disappearing. They’re doing what’s required to succeed in today’s environment.