The Australian farm sector has the largest average farm business size (by value of sales) in the world. However, the average farm sizes of global competitors such as New Zealand, Argentina, Canada and the USA are growing at a much faster rate than Australian farms, suggesting that the funding arrangements for Australian farm businesses may be the factor limiting farm size growth.
United Nations Food and Agriculture Organisations world agricultural census data and gross agricultural production values can be used to compare the average size of farm businesses in Australia and internationally, and how this has changed over time (see charts further below). This analysis shows that the average size of Australian farm businesses increased significantly from 1990 to 2000, but then remained relatively static from 2000 to 2010.
Since 2000, the Australian farm sector has experienced multiple droughts and floods, and this may well be a factor that has limited the farmer’s willingness to expand the size of their farms. Many also suggest that the continued reliance of the Australian farm sector on debt funding has also been a limiting factor, especially when compared with the much more varied funding arrangements available for farm businesses in other nations.
For example, the average size of New Zealand farms has grown remarkably since 1990, according to New Zealand agricultural census data. Over this period, New Zealand farmers have invested heavily in scaling up their dairy operations. New investors have also been attracted to the New Zealand farm sector because of the preferential trade access New Zealand has secured into Asian markets.
Argentina is another global competitor where the average size of a farm business has been increasing. Argentina has some of the most innovative farm business structures in the world, such as corporate farming sowing pools that centralise crop financial and marketing management activities. These sowing pools are generally ‘asset-light’ with only small amounts of capital tied-up in machinery and land. Machinery is largely outsourced and much of the land operates under lease arrangements. The asset light nature of these farm business models generally supports higher returns on the capital invested, which attracts more investors from outside of the agriculture sector.
Canada is another global competitor where the average farm business size has been increasing. Since 1990, major developments in the Canadian agricultural sector include the deregulation of the wheat marketing board and capital investment in-flows from new investors. These new entrants include investors from countries such as China who are looking to invest in large tracks of agricultural real estate. The investors generally relocate to regional areas in Canada and target farmland suited for activities that provide international trade opportunities, such as growing grains or oilseeds that can be exported to import-dependent markets in regions such as Asia.
Australian farm business funding characteristics and future funding models will be the focus of a two-day conference to be held by the Australian Farm Institute in Canberra on June 3rd and 4th. The Institute has also commenced a research project on farm funding models in Australia and this research is expected to be completed in late 2014.