Bigger is not Bad – Consolidation in a Positive Light

Co-written by Jeff Warkentin, Chief Operating Officer at Hebert Group, and Evan Shout, Chief Financial Officer at Hebert Group

Some days I think maybe the big bad wolf was just misunderstood; maybe he just really wanted some cookies.

In primary producer agriculture, we are so busy looking for the bad that we are too distracted to see the irony. We want to be left alone by the government, but we need the subsidies to survive. Land is too expensive, but we constantly drive up the price in our area. And the best one: We hate consolidated farms, but we need access to more land for the next generation to survive (hence consolidation).

Consolidation is a natural occurrence of business. The manufacturers are consolidating, the dealerships are consolidating, the retails are consolidating, and the elevators are consolidating. So instead of locking our doors to keep out the big bad wolves, let’s invite them in to see why bigger is not bad to deal with.

Relationships

At scale, farming becomes a business venture rather than a lifestyle. The most important aspect of our business is no longer production; it is managing our relationships. We track our metrics around our networks and collaborations to ensure we are utilizing them as efficiently as we do our machinery and people. We have a public relations firm, we sit and attend government events and meetings, and we constantly add influential individuals to our circle. Your success is linked to the five closest people you spend time with.

Culture

Human capital is the most important capital. The industry likes to say the only real people who make a community are the owners of farms. Our team in any of our business ventures is what makes a community, and they reinvest in our rural towns as much as any other farm ownership. Our differentiation is that consolidation has allowed us to create a culture of many, not a family of a few. As a group we all row in the same direction, we all follow a core set of values, and we all want to be successful in our definition. The term farm labourer or farm hand is a swear in our business, they are the core of our business success and our future.

Profitability

Bigger is not better, better is better. But, when bigger gets better, then look out. For years we could remain anonymous under the myth that large farms lose margin and are challenging to deal with. The truth is that when you have internal processes and humans before you scale, margins get larger, not smaller. We can average normal expenses over more acres, we can get more efficiency out of our people and hence more acres per person, and we can spend more time with business partners and negotiations because we are not sitting in a drill or a combine all season. We don’t work in the business; we work on the business.

Market Share

We are a significant percentage of our supplier business in geographical terms. As the farm has continued to scale, our suppliers have also continued with growth expectations. The one area that scale has allowed is that we have value expectations and are not creating a bus for all to ride. We understand that in business, all groups must be focused on percentage share, but with size we have considerable dollars in play. These dollars allow us the ability to ask for value both ways and proactive solutions to our issues to earn our business year after year.

Diversification

We run more semis and trailers than most trucking companies. Our dirt work and floater crews don’t stop once the combines exit the fields, and to be fair we do more internal service jobs than many mechanic shops. On top of this, we aren’t even touching the accounting firm, insurance brokerage, consulting operations, and coaching we do as a family office. The scale has allowed us to diversify our risk and utilize our people greater than most other industries. We enable more individuals to an opportunity to work in this great industry we call farming.

Technology

Go spend some time at our agriculture colleges in Canada, primary production is not a career it is a job. Technology will change this, and it already is. The scale allows operations to utilize technology beyond that of any other operations. In fact, I would argue that agriculture has the single most significant opportunity when it comes to the usage of technology if we let it in. Non-farming individuals looking for a technology job, farming kids who don’t like playing in the dirt, or those who just want a better way of doing things. I believe that technology jobs in primary producer agriculture will outweigh agronomy before I am out of this industry.

In the end, hate it or love it, consolidation is not going away. In fact, over the next decade, it will compound faster than ever before. The ability to finance, the ability to staff and acquire new technologies, and just the ability to handle growth will be in the favour of those who see the opportunity. You can continue reading the story of the big bad wolf to the next generation, or you can move forward and be part of the pack. The choice is yours, choose wisely.