The USDA has reported that up to 96% of farms today are family owned. Farms may be growing, incorporating and adopting leading-edge technologies to become more professionalized, but family ownership is not disappearing. While our customers might not fit the public’s romanticized view of agriculture (small and artisanal farms 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.
Why is it that family farms often defy the common notion we have of family businesses? I see three primary reasons:
1. The industry demands and rewards scale. Most people know that agriculture is a risky endeavor, and that it takes a large capital investment to be able to generate a somewhat steady income year after year. A 1,000-acre farm (which by many standards could be considered a small farm), can barely produce a family income, but yet sits on roughly $10 million worth of land. Add to that 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.
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 intimate 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 to join 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.