Can corporate farms provide new pathways to improve the profitability and productivity of family farms?

Mr. Brendan C. Lynch

Doctoral Student – Agribusiness

University of Adelaide & CSIRO

Monday 26th September, 2011

Co-authors

Dr. Rick Llewellyn, CSIRO

Dr. Wendy Umberger, University of Adelaide

Productivity Growth Increases Value of Ag Production

Without productivity improvement the value of ag production would have significantly declined

(Sheng et al., 2010)

Flattening Productivity

• Flattening TFP (Dark Blue)

• Flattening TC (Orange)

• Declining TE (Sky Blue)

• Increasing productivity gap between leading farms and average farms

(Nossal et al. 2010)

Factors driving productivity trends

•management + capital constraints are often limiting technical efficiency (ABARE, 2010; Hughes et al., 2010)

•Factors driving farm productivity increase:• land use intensity, • land area • corporate ownership

• Corporate farms 12–28% more productive than the average non-corporate farm (ABARE, 2006)

Corporate farms and innovation

• leading corporate farm models adopt new innovations by having greater access to: • Human Capital – Financial Capital – Natural Capital

Do such models offer average-sized family managed farms new pathways to:

• overcome constraints• enhance innovation adoption• boost productivity • and retain inherent strengths of family farms

- Management Team Experience

- Farm Size- Attitude to Risk

- Access to Credit

- Management Team Education

- Access to Information

- Farm Tenure Status

Human Capital

- Investment Portfolio Balance-

- Enterprise Profit Expectations

- Land Quality

- Farm Profitability- Financial Risk- Market Risk- Sources of Credit

Financial Capital Natural Capital

- Cropping Intensity

- Enterprise Mix- Climate Risk- Production Risk

- Use of Crop Consultant

- Use of Farm Business Consultant

- Number of employees

- Use of Contractors

Adoption Decisions

Relative Investment Return Vs. Alternative Investment Options

Farm Attributes

- Farmer Age

- Farmer Education

- Farmer Stage of Life

- Farmer Motivation

Core Attributes

Unique Family Farm Attributes

- % Off-Farm Income

Unique Corporate Farm Attributes

Farm Attributes Influencing Adoption

- Agro-ecological zone diversity

Technical ChangeTechnical Efficiency

6 Unique Corporate Farm Models Identified

Corporate Farm

Models

Land Transformation

Crop Co-production

Contract Farming

Management Services

Multiple Hub and Spoke

Localised Hub

•Multiple Hub and Spoke • Geographical diversified over

1000km• 5 scale efficient management

hubs• Efficiency achieved at multiple

scales • 31,000 ha cropping land• 6,000 ha grazing land + feedlot• Specialised management and

technical staff

Hybrid Farm Models....the best of both worlds?

How do we bring some of the beneficial corporate farm attributes and characteristics

into family farms?

Are there hybrid models that combine the advantages of both family/corporate farms to

increase innovation adoption and productivity?

Collaborative Farming Australia

• Individual family farms constrained by management and capital

•Formed new joint venture business arrangement: family farm - localised hub

• Independent chairmen and board

•New farm structure has provided:• Scale and improved efficiencies• Ability to specialise (labour specialisation) + increased flexibility• Improved farming practices (PA + no-til)• Skill based roles• Contracting of crop consultant• Increased bargaining power with suppliers • Marketing advantages

(Riverland Weekly, 2009)

Summary•Productivity growth is slowing

•Management + capital constraints impact innovation adoption

•Corporate business models are providing potential new pathways for typical family farms

•Examples of hybrid models emerging

•Key question for future research:• What attributes of a hybrid model will be attractive to average sized family managed farms?

Thank you

CSIRO Sustainable Agriculture FlagshipBrendan C. LynchPhD Research Fellow

Phone: 08 8303 8479Email: Brendan.Lynch@csiro.auWeb: www.csiro.au/org/SustainableAgricultureFlagship.html