Cultivating growth: the economic imperative of scaling farms in uncertain times

If the old adage that bigger is better isn’t always true, it may well be when talking about ways to grow the agricultural sector and compete around the world. While smaller farms will always have a role to play in the Canadian economic landscape, the long-term global competitiveness of the Canadian agriculture sector looks increasingly linked to growth and scale.

Indeed, that transformation becomes urgent in times of economic uncertainty, magnified by the ongoing threat of tariffs. It’s a good thing, then, that the transformation is well underway. The data shows that the number of farms in Canada is dropping, while the size of each one operating is getting bigger.

According to Canada’s 2021 Census of Agriculture, there were nearly 190,000 farms, down from 247,000 in 2001. Going as far back as 1941, there were 733,000 farms in Canada. Farms have been getting bigger, more sophisticated, and their capitalization exemplifies these trends. In 2001, the average capital per farm was nearly $800,000. In 2021, it was $3.6 million, giving a 7.9% annual growth over that period, far exceeding the average annual inflation rate of 1.8% over the two decades.

As for agriculture as a percentage of Canada’s GDP, the rate has largely remained stagnant over the last 27 years, with some variation since 1997, when it was about 1.3%. Now it’s at about 1.4%.

Benefits of scale

Growth in the agricultural space can be driven by many factors, including economies of scale. Larger farms can operate at a lower average cost than smaller ones, giving larger farms an edge in increasingly competitive global agricultural markets. While small farms can be healthy and successful, long-term competitiveness really comes from growing or consolidating, solidifying the strength of the business, even in a challenging geo-political environment. That growth can happen in myriad ways, including by acquiring or leasing more land, purchasing other businesses within their supply chain, or diversifying their operations.

When Aaron Elskamp’s grandparents immigrated to Canada in 1959 with their one-year-old son – his Dad – in tow, their families had been renting farmland in Germany for generations. They settled in Manitoba, buying a quarter section of land and taking over an abandoned farm in the Woodlands area northwest of Winnipeg. Their first eight milking cows quickly followed and the Elskamp farm, which today covers 17,000 acres with a beef feed-lot and bird seed business, was established.

Over the years, the family recognized the benefits of scaling up. They initially grew their milking herd and moved into beef as well; they acquired more land to grow crops; and when their sunflower seed businesses opened the door to birdseed, they built a seed-cleaning plant and bought the local packaging and distribution company, thereby solidifying control over the entire supply chain.

“There’s pain every day and there’s pain whether you’re growing or not,” Elskamp says. “So even sitting stale and being stagnant, there’s going to be pain. You just won’t realize it ‘till you realize in 10 years when you’re completely out of the market and you can’t afford anything because the whole world’s just gone by you.”

This commitment to growth has also led to key pivots. For example, in 2018, the family sold the dairy herd as Elskamp and his brother took note of the consolidation happening in the dairy industry, the shrinking margins and the required capital investments, and used that money to purchase and lease more land, which now totals roughly 17,000 acres.

The moves, Elskamp says, have led to a number of advantages, not the least of which is optimal cash management. In controlling the birdseed supply chain, for example, the farm isn’t paying someone else to clean, package and distribute the product. That’s all done by Elskamp’s employees, who now total, across all aspects of the operation, more than 60 people. That cash management has allowed the Elskamps to leverage their position to both consolidate and diversify their business, without feeling too much pain.

“We are also growing our farm,” Elskamp says of consolidating his farm’s hold on its birdseed business, “but one of the things I enjoyed about it was that it wasn’t so hard on cash flow because I was already growing and storing the grain. And then I was buying people’s off-type, too small sunflower seeds for a few cents on the dollar because they just had to get rid of it. So I could really ramp up and have some decent margins and lots of synergies with our own equipment, our own products.”

Elskamp notes that “almost 100% of our grains and seeds is value added, whether it’s through selling it through a steer or through a bag of bird food.” His farm still grows some commodities that get marketed directly to a grain elevator. “But we’re trying to touch it a couple of times ourselves before somebody else gets their hands on it.”

Keeping up with best practices, technology

Larger farms can often identify and implement the most cutting-edge best practices, either via their workforce or by hiring outside expertise. This makes it easier to manage market risks, adopt more efficient biotechnologies, adapt to climate change, natural disasters and emerging pests, and to comply with an increasingly more complex regulatory environment.

Larger operations can hire specialized staff for key functions, from managers for various off-farm operations to accountants and mechanics to service equipment. The Elskamps have hired managers for parts of their operation, which not only allows them to draw on those individuals’ specific expertise, but also takes the workload off Elskamp and his brother.

The family has also had the wherewithal and resources to make use of agriculture foreign exchange programs for the last few decades for help during seeding and harvesting seasons, as well as the Temporary Foreign Worker program.

With larger farms being in a better position to borrow more to grow their business, upgrade and maintain machinery, and find innovative rebuilding solutions following fires or flooding, larger farms can set themselves up for long-term success. For example, in recent years, farmers in Canada have started utilizing drones to spray and survey their land, while other farmers are using their smartphones to monitor their land and equipment.

Indeed, Elskamp notes that his farm has been able to keep up with the latest technology, recognizing that falling behind threatens the viability of his operation. As an example, he cites auto steer tractors, which 15 years ago were optional but are now the industry standard. And because machinery can become obsolete relatively quickly, Elskamp balances the need to stay current with the understanding that so long as a particular piece of machinery can cover enough acres, the cost is justified.

“The biggest thing is the size of the equipment and the capacity,” Elskamp says. “As soon as there’s something bigger, let’s buy it. Because now, instead of having to buy two seeding units, you can do more with just one bigger unit.” As Elskamp puts it, farms that can think strategically about their growth and take advantage of opportunities when they arise are set up for long-term success.

“History favours the bold. Make the decision – are we doing it or are we  not, and if we are doing it, let’s do it.”