Canada’s largest farms, those with annual revenues of $500,000 or more, are becoming a major economic force in the country. Large farms are growing in numbers, the people who run them invest more in their businesses, and more large farms are profitable than smaller ones.
While smaller farms dominate in numbers, large farms dominate both revenue and profits. Farms with annual revenue over $500,000 represented only 11 per cent of all Canadian farms in 2005, but accounted for 55 per cent of revenue.
Below $250,000 in annual revenue, the majority of farm family income came from off-farm sources. Within the $250,000 to $499,999 revenue category, on-farm income and government payments were the major earning sources for the farm families. Above $500,000 in annual revenue, net farm income became the largest contributor to family income.
There was a clear trend towards greater capital investment for farms with at least $1 million in revenue, particularly those in the higher ranges.
Large farms had sizeable levels of debt and high debt-to-equity ratios. But they also had more efficient sales-to-asset ratios and a higher return on equity.
Operating margins have fallen for all farms, but they fell less in percentage terms among the large farms. The average margin in 2005 for farms with revenues between $250,000 and $499,999 was 6.5 per cent, down from 16.7 per cent in 1999. In contrast, the average margin for farms with revenues between $1 million and less than $2.5 million was 12.1 per cent, compared with 14 per cent in 1999.
The trend toward larger farms seems to be strongly reinforced by the financial results achieved by those farms. Debt appears to be an essential component of growth but for most farms, the payoff resulting from investment is significant.
Note: Data for this article are from the 2006 Farm Financial Survey, which collected financial data on Canadian farms up to the end of 2005. Information was reported by a representative sample of farms operators at the time of the survey. Where comparisons of financial values are made between years, values for all years have been expressed in equivalent 2005 dollars.