What’s influencing Canadian farm numbers in 2016?
On May 10, the 2016 Census of Agriculture will be released with the most recent farm numbers. These figures will show if the rate of change in the number of Canadian farms has slowed or picked up.
Between 1996 and 2011, the number of farms declined at the national level by about 10% in each 5-year Census period. But this overall rate of decline hides some important details.
Between 2006 and 2011, the number of farms declined in all size categories at the national level, except for the largest farms (> 3,520 acres) which grew 10.1%. Small (less than 10 acres) only declined 1.3%. And in certain provinces, their smallest and largest farms increased in number. In this post, I discuss some of the different factors that have clearly influenced the rate of change in Canadian farm numbers: farms consolidating to take advantage of economies of scale; and the emergence of smaller farms responding to consumer demand for specialty products and fresh produce.
Competition and economies of scale increase consolidation
The historical decline in the number of farms illustrates the presence of economies of scale in agriculture and competitive pressures in the farm sector. Between 2006 and 2011, Canada’s mid-sized farms (560 - 2,240 acres) experienced the largest decline in farm numbers.
Economies of scale are defined as the ability to lower the average cost of production by expanding production. For example, a farm can spread fixed costs over more units of production, resulting in important economies. A farm can also be more efficient as it grows bigger – so economies of scale aren’t simply related to fixed costs. This is important in sectors with tight margins.
Two factors producing farm consolidation:
- Increasing competitive pressures for more acres. Value within an operation can be generated through production efficiencies and the resulting lower costs which are partly a function of size. This is certainly true for grain and oilseed operations producing a standardized commodity.
- Technological advancements in equipment. Larger, more efficient equipment covers more acres. Typically, the adoption of new technology decreases the per acre costs of production – especially (but not strictly) when the number of acres also increase.
Value-added ag helps boost number of small Canadian farms
Increasingly sophisticated urban food preferences have created an opportunity for some farms to focus on supplying value-added products across the supply chain.
Food preferences evolve for many reasons, including demographic changes, (an aging Canadian population, immigration, etc.), the desire to know where food comes from, an emphasis on health and wellness and a need for convenience. More and varied food preferences make it possible for smaller operations to be profitable serving niche markets.
In specialized supply chains, the objective is to meet buyers’ unique needs with an eye to controlling production costs. But in these cases, the scale of production that drives the business decisions of much larger farms isn’t the main driver behind the ability to deliver food that these consumers want.
There was a trend for the number of small farms (less than 10 acres) to increase between 2006 and 2011. This is a trend recorded in several provinces, including British Columbia and Quebec. In B.C., the roughly 12,000 farms of less than 10 acres in 2006 grew to almost 13,000 farms in 2011.
And Nova Scotia’s total number of farms increased from 3,795 to 3,905 farms – with a 27.3% increase in the number of farms under 10 acres. There were also more Nova Scotia farms between 10 and 129 acres in 2011 than there were in 2006.
What do we expect from the 2016 Census?
Economies of scale help explain the consolidation trend for Canadian farms, a trend that has produced fewer mid-sized farms and more of the largest farms. We expect the 2016 Census of Agriculture to show this trend has continued, perhaps at the same pace as the last twenty years. Farms between 1,100 and 2,500 acres are likely to see the largest decline, as competitive pressures and changes in technology force these farms to expand or merge with other existing operations.
The development of different food preferences and proximity of larger populations with more diverse food interests have also shaped the Canadian farm landscape. Together, they’ve produced more farms that are small and niche. But economies of scale will apply here as well, even if to a lesser extent. The 2016 Census might show a larger decline in the number of the smallest farms (those with less than 10 acres) and potentially an increase in the number of farms between 10 and 69 acres. The very small farms will be able to expand their acreage in response to continued growth in market evolution.