2012 Winter - Will corporate agriculture swallow the family farm?

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Farm Policy Journal - Vol 9 No 2 2012 Winter - Full Journal - Will corporate agriculture swallow the family farm

Australian Farm Institute (2012), Will corporate agriculture swallow the family farm?, Farm Policy Journal: Vol 9 Number 2 - Winter 2012
ISSN 1449–2210 (Print)
ISSN 1449–8812 (Web)

$60.50


FPJ0902 - Freshwater, D, Corporate Farms Should they be a concern

 Freshwater, D, (2012),  Corporate Farms Should they be a concern? in Farm Policy Journal, Vol. 9, N.2, Winter 2012, pp. 1-11

Corporate farms have drawn considerable criticism in recent years. They are held by some to embody the negative characteristics of industrial agriculture:unhealthy food, environmental damage and mistreatment of animals. The general sense of the core criticism of corporate farms is that in their search for profits and scale economies that benefit them directly, these farmers have adopted practices that result in significant costs for society collectively. But, in reality almost all corporate farms are operated by farm families who have no more incentive to behave in this manner than do operators of small farms.Large farms are more likely to take on a corporate form of business, and these farms now account for the majority of farm output. Economic and technical forces continue to push farmers to expand in order to increase efficiency. However, the public face of agriculture in most countries remains smaller traditional family farms. In many ways the concern with corporate farming reflects a growing disconnection between farmers and an urban society. Consumers are becoming increasingly concerned not just about the quality of their food but also about how it is produced. This has particular importance for large farms that are part of an integrated supply chain. If consumers mistrust corporate farms they may exert pressure on retailers and regulators that impacts farmers’ behaviour. For this reason alone it is in the interest of farmers to reassure the public that practices on farms of all sizes meet society’s expectations.

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FPJ0902 - Byerlee et al., Corporate models of broadacre crop farming: international experience from Argentina and Ukraine

Byerlee, D, Lissita, A, Savanti, P, (2012),  Corporate models of broadacre crop farming: international experience from Argentina and Ukraine, in Farm Policy Journal, Vol. 9, N.2, Winter 2012, pp. 13-25

Family firms in which family members own and manage most assets and provide much of the labour have prevailed in agriculture for several reasons, including the risks and seasonality of production, the spatial dispersion and diversity of labour tasks, and the need for intimate local knowledge of site and seasonal conditions. Although corporate business models that depend on hired managers and labour have made inroads in some types of agriculture (intensive livestock and horticulture), almost all broadacre crop agriculture in Organisation for Economic Co-operation and Development (OECD)countries is run by family firms.This paper analyses two major exceptions – Argentina and Ukraine – where relatively large companies, often managing operations with over 100,000 ha, account fora significant share of broadacre crop production. Both countries have also gained world market share in grains and oilseed exports since the 1990s. A unique feature of the Argentine model is the predominance of ‘sowing pools’ where professional managers raise working capital, and largely rent the land and machinery services for crop production. In Ukraine, farming companies are a legacy of the Soviet collective system, where after privatisation, some companies (most vertically integrated)acquired large tracts of land through mergers and acquisitions. In both cases, the best companies use state-of-the-art technologies and professional managers. However, the trend is too recent to draw definite conclusions on their superior profitability relative to smaller enterprises. Also poorly functioning financial markets (and sometimes other logistic weaknesses) have disadvantaged smaller operators.In Australia we expect the trend toward larger farms to continue but family firms are likely to dominate for many years to come. However, the rapid pace of technological change combined with management innovations will likely see the growing direct involvement of larger companies in crop production or through contracting or co-production business models.

 

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FPJ0902 - Wilkinson et al., The choices farm families make

Wilkinson, R, Barr, N, Hollier, C (2012), The choices farm families make in Farm Policy Journal, Vol. 9, N.2, Winter 2012, pp. 27-37

 

For many farmers, the farming game is about providing an acceptable standard of living now and in the future, working the farm full-time, and building a sufficiently large farm to give the next generation a viable career choice. For Victorian farms in 2006, the financial scale required to achieve these objectives was a gross farm income between A$400,000 and A$600,000. Only 15% of Victorian farms are of this scale. Families with farms below this benchmark often have to compromise. They might take off-farm employment, make do with a lower standard of living, or forgo investment in farm growth. This study uses segmentation analysis to explore how these trade-offs are made.From a survey of 1300 Victorian farmers in 2010, several segmentations were developed. The first segmentation was based upon productivity aspirations. Only16% of Victoria’s farmers were planning to expand the physical scale of their operation. Almost half (46%) professed interest in increasing productivity but expressed either disinterest in expansion or constraints to achieve productivity increases. A second segmentation divided farmers according to their income and their dependence upon the farm for that income. More than one-third (39%)were in the low income farm dependent segment. Many farmers in this segments howed an interest in improved farm productivity. The final segmentation examined the trade-off between household consumption, full-time farming and investment. This confirmed that a large proportion of the low-income farm-dependent segment prefer to remain farming despite their low income.A policy objective of increasing agricultural sector productivity alone would be best served by focusing on the small number of large-scale farmers interested in farm expansion and encouraging farm exit amongst the large number of smaller farm businesses. However, productivity can be seen as a tool for pursuing a higher level objective such as economic security or societal well being. Policies focusing on the small productivity gains that can be expected to be achieved by ‘low-income’ and ‘farm-dependent’ farms, may be an efficient strategy to increase both rural sector financial security and societal wellbeing. 

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FPJ0902 - Karantininis et al., Reverse franchising, reversing the road to mega farms

Furtan, WH, Karantinis, K (2012), Reverse franchising, reversing the road to mega farms, in Farm Policy Journal, Vol. 9, No.2, Winter 2012, pp. 39-49

Reverse franchising is the business format where a number of small firms(or farms) through collective action create an entity (a firm, a cooperative, a marketing order, a joint venture, a strategic alliance, etc) which undertakes certain activities on behalf of the members’ franchisees. We use two illustrative examples of reverse franchising in the farm sector, the Danish agricultural system and the Canadian Wheat Board. Through these reverse franchise structures farmers have been able to enjoy economies of size and market power, and thus maintain the family farm. The creation of superstructures by farmers has helped them maintain a smaller scale at the primary level.These two examples illustrate that in order for the family farm to survive and become a mega farm, it will have to integrate backward and forward into mega structures, such as large cooperatives, federated structures or marketing orders. The family farm needs to achieve economies of size wherever this is necessary through external organisations. These organisations, besides production costs are loaded with transaction and agency costs. The ability of the stakeholders to minimise these costs is ‘path dependent’ and depends very much on the ‘macro-culture’ and the overall institutional framework within which the farms and their organisations operate. 

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FPJ0902 - Lynch et al., What can family farms gain from corporate farms business models

 Lynch, B, Llewellyn, R, Umberger (2012), What can family farms gain from corporate farms business models?, in in Farm Policy Journal, Vol. 9, N.2, Winter 2012, pp. 51-62.

The broadacre grains sector of Australian agriculture has traditionally been dominated by family farms. However, in recent years there has been an influx of corporate investment in the sector driven by a range of investors. This has resulted in the development of diverse farm business models with different objectives and risk profiles. Further, the diversity of business models adopted by corporate entities introduces new technical and managerial innovations with the potential to increase profitability and productivity. Limited studies on farm productivity have shown that corporate farms are often more productive than typical non-corporate farms. This paper takes the view that typical family farms may gain from exploring what corporate farms are doing differently to increase productivity. We define and characterise the existing range of corporate farm business models operating in the Australian broadacre sector, in relation with their capacity to innovate. Two broad groups of corporate farm models and their associated sub-model are identified – hub based models and contracting models.Interviews conducted with personnel from six corporate farm businesses revealed the main advantages these businesses consider they hold relative to typical family farms. This includes the scale of farm operations, better access to financial capital, stronger governance and due diligence processes, and increased human capital through labour specialisation. To capture these benefits while retaining the inherent advantages of family farms, alternative hybrid farm models with the potential to increase innovation adoption and improve productivity are discussed. Future research will focus on identifying which hybrid models are most attractive and in what circumstances they provide the most potential to increase the productivity and profitability of family-based farms. 

$12.10


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