One Earth Farms

[farmers_son]

What is the deal with One Earth Farms?

I note comments by BTOfarmallll disparaging Rkaiser for selling OEF a bull. I checked out Sprout Resources (majority investor in OEF) financial report and see that OEF has over $3.5 million invested in cattle, so I think they were buying bulls from more than Rkaiser.

And I gather people do not like OEF. They are not anywhere near me so are not an upfront major concern for me but I have been aware of them.

Now it is not for certain that OEF will be a financial success story. But it may be. And it may be that within my lifetime and if I were brave and foolish I might forecast that within 10 years all of Canadian and probably North American agriculture will be using the OEF model. OEF was just in the game early.

There are huge investment dollars out there looking for a home and agriculture is, without a question, going to attract billions of those financing dollars.

The days of the mom and pop farm are going to be thing of the past just like the mom and pop machinery dealer are gone. Those went the way of the local elevator. Now don't get me wrong, that is not the way I wish things were going. But tell me if I am barking up the wrong tree...it is the way agriculture is headed.

President Bush changed, really revolutionized, agriculture by subsidizing ethanol. Changes are coming folks. If you want to see the future you have a crystal ball right before you and it is Sprout Resources financial statements.

It is not about food anymore. It is about energy. It is about attracting investment, ROI, branding, competitive advantage, mergers, thinking globally.

The family farm will just be a quaint memory that people will go to see in museums and reminisce about while reading history books on their IPad.

[grassfarmer]

It's an interesting model One Earth has for sure but I think it's pretty unique with it's tie to the first nations people and access to their land base. Similar size models using non-first nation land would be harder to assemble. I'll totally disagree with you on this massive scale stuff being the future and family farms being a thing of the past. It has rarely worked in agriuculture anywhere - from the early days in the Canadian west with the likes of the Bar U to an outfit in Scotland in the 1950s "the Great Glen Cattle Company" to the collectives of former USSR. On paper giant size works and is "more efficient" but the reality is usually somewhat different as the risks are just too large and successful operation is dependant on employed labor. They tend to do "crazy" things too somehow adopting an attitude of invincibility because they have a huge bankroll behind them. I hear One Earths cattle manager is under instructions that some of the cow herds are not to receive supplementary feeding in winter. Maybe they should read up on the history of the early days of the large scale cattle ranching in AB and what caused its demise !!

Family farms are more efficient than they are often credited with because the people are invested in it wholeheartedly and are in it for the long run, the good and the bad. They are more likey to have a diversity of enterprises and the flexibility to change direction or enterprises. At the end of the day a farm wife can take a job off farm if things go wrong - the corporate boardroom looks at a multi-million dollar loss and makes the decision to shut it down.

I did a little consulting work for a TO based investor group a few years back who wanted to put together 20,000 acres or so and produce and market grass-fed beef from pasture to plate. The problems were the logistics and management - to have someone (or several people) able to manage the grass on that scale to keep it all at the right stage and quality with thousands of head of cattle just isn't a job that you would be able to find many people capable of.

Much to BTOs chagrin I think we already have the successful model for large scale farming in western Canada in the Hutterite colonies. Outstandingly successful when you measure sucess in ability to retain the young generation on the farm and their ability to expand. The diversity of operations mitigates the risks of weather and crop failure and their ability to work together between colonies gives them the advantages of a co-operative system across the country without the formal management structure of a giant Co-op.
Given that fewer and fewer farmers kids want to farm I have no problem with a continued Hutterite expansion - it's not like they are Quebecers and want to seperate they just want to stay here and farm and bring up their kids in their faith. They are slowly integrating more with the rest of society, look at the leadership roles they now have in the remnants of the pork industry. I'd certainly back them to succeed longterm over any investment backed mega-farm operation.

[kato]

The way I see it is that some day there will be two kinds of farms. Big and small. Those of us currently in the middle will need to decide which we want to be.

The big ones will provide the commodities, and the small ones will deal direct with the public. They will have two different customer bases and philosophies.

Which one is better for the economy? I lean toward the smaller model, in the long term. That's mainly based on rural depopulation. I think we can all look around our neighbourhoods and see the population decline that has been going on for many years now. Neighbours are gone, and their yards have been cleared and are now just a location in a field where someone might remember someone used to live.

In our immediate area, we now have four main farmers working land that held at least twenty five family farms. One of those farms is famous for not paying it's rent and bills, but they're considered "to big to fail". They never turned a wheel this spring, due to the wet, We'll be surprised if our neighbours across the road even have their land cultivated this year, and don't expect they'll get any rent money either.

[rkaiser]

A couple of points in reply FS. OEF bought ten bulls in our "live auction sale" not one. The bull buyer suggested buying the whole pen prior to the sale as he really liked what we have been doing over the past 20 years. I said that a lot of other did as well and said he would have to bid against them in our sale. They took a rather cautious approach and bought a lot of the lower priced bulls this year. I personally appreciate every bid at our sale and still love the idea of free enterprise in our country. What could be more free enterprise than a live auction.

As for OEF or the others that will follow. Yes it is already happening, and has been for years. Family farms deciding to sell to bigger players. The way that BTO and others brag about the size of their own operations means that they too have purchased land from neighbors with less potential for survival. Free enterprise is not limited to one sector. When an enterprise becomes profitable, greed can be confused with good, and sometimes ruthless business.

OEF has chosen to adopt a somewhat different model where the average Joe family can sell all, or part of their farm to the corporation and lease it back. This model is on top of their main goal of acquiring native land and hiring the natives to operate it under the management of some very professional ranchers and farmers.

I have a sister and brother in law who took the route of joining up with an investor 25 years ago. Of course they had neighbors like BTO who whined and complained as they expanded their operation, however, during this time, they also added land and infrastructure to their own personal portfolio. OEF is giving more folk that same opportunity.

Not every family farm is one the papa or grandpa or great grandpa handed down. And don't get me wrong, those farms are as worthy as any. Taking a different approach to the family farm issue, rather than saying it is going to die, is simply a change in the way things currently are.

My brother in law and sister could have struggled along for 25 years on their own and possibly survived. Now they have their own ranch built up to a nice point that they may or may not have reached on their own.

I will say that some of the tax advantages that groups like the Hutterites could be looked at to allow a level playing field. And as the "investors" come along, the rules need to be fair to not allow slash and burn policy that will destroy competitive advantage.

We all know that volume allows profit in the free world of capitalist economics.

OEF is giving landowners an option,along with taking advantage of an economic system that has worked --- as long as the rules are abided --- to make our country one of the best in the world.

It is often times of change like FS is suggesting that innovation is ignored due to past or forecasts of a dim future.

[smcgrath76]

The OEF model is somewhat of a reattempt
at what government worked on back in the
early days of the creation of the
reservations, in trying to get the
aboriginal population into agriculture.
We will see how it works, but I think
they have a good idea.
I agree that the guys in the middle are
getting squeezed, but many of our
suppliers in town say they don't worry
about the smaller guys, because the
smaller folks worry a lot about paying.
The economies of scale are very real.
GF is very correct about a hard to come
by skill set.
I think private land ownership is a good
thing, but I think one of the biggest
mistakes we may have made in agriculture
is having each generation of the
business buy the same land base over and
over again. Each generation then spends
all of its' efforts paying for that
land, and in many cases when they are
done farming, they have to sell it, as
it is the only asset they have ever
invested in. This is not part of the
Hutterite model and may also be a huge
strength of corporate farms with an
unlimited legal lifespan.

[burnt]

Sean, you raise some good ideas in your post. I would be interested in knowing more of your thoughts on inter-generational transfers without saddling the next generation with a life-long debt-load.

In our case, as you mentioned, the land is our only asset we have to sell and support our "retirement". With land values pushing $10,000/acre, that's a daunting challenge for the one who wants to take it over even with $7 corn . . .

[smcgrath76]

Burnt - there are a lot of ways to do
things if one generation wants to take
over from the next.
I am the younger generation and farm in
partnership with my parents and my
spouse. In our specific case, we
brought some of our own land and cattle
to the equation and the farm covers the
portion of debt that was there when we
partnered. We (spouse and I) cover the
debt for the home we built.
Farm pays out to Mom and dad with the
idea that we take increased equity and
they take cash. We are very hard and
fast that the farm covers all farm
expenses (no one's external income pays
for farming).
I know some rental agreements or rent to
own agreements that have worked, but it
is usually dependent on the older
generation staying out of micromanaging
the younger.
If we take on more debt, it will be for
expansion purposes and will be the
responsibility of the farm. In some
businesses this also has challenges as
the younger generation often lacks the
skill to start out managing a large
business.
We found timing and planning and
cooperation are working for us.
One challenge we have that is similar to
yours is that the price of land exceeds
the agricultural capability of that
land. This is driven by a combination
of oil, acreage development, large
neighbours with leverage and very poor
math skills.
FWIW.
I would like to hear others ideas as
well.

[grassfarmer]

Good point about the families buying the same land over and over again Sean I never thought of it exactly in those terms.
Many of the successful multi-generational operations in the old country are passed down with essentially no cash cost for land paid by the incoming generation. Often the young generation will start working for the parents at 16 or 17 for minimal spending money for 10 years or so before taking over the reigns. An amicable agreement is often reached whereby the retiring generation of parent gets a home purchased for them by the farm business but they are usually self sufficient financially in their retirement through retained profits earned through their farming career. The incoming generation assumes the farm operation and any debt it may be carrying but pays nothing for the land.
More often than not non-farming kids in this situation don't get a share of the farm value because they have decided not to farm - but they would share the parents estate (cash and/or house value) upon their death which the farming kids wouldn't.
I kind of like that system of passing on land because it ties in with my belief in the old saying about us merely being the custodians of our childrens and grand-childrens land. It encourages long term thinking and sustainable management rather than short term mining of land resources.

Of course this system is dependant on two things - on going profitability in agriculture to generate the returns to support the different generations but of course that is necessary if there is to be any future.
The second thing it requires is for people not to be greedy - there are too many of the current "me" generation that see fit to break this chain and cash out spending what should be their kids and grand-kids future.

[smcgrath76]

The other tool many are now using (us too)
is that the older generation carries a
life insurance policy that is basically
paid out to the non-farming children as
their inheritance. Too often the land
gets split "equally" rather than fairly
and creates operations that are too small
to be viable, as other siblings may be
uninterested, lack the skill set to farm
or want to cash out.

[kato]

There are not a lot of young people wanting to farm here. I can only think of a small few.

I've been noticing that in our area a lot of farms stay in the family, even after the owner retires. Land rent makes a decent retirement income addition. Land ownership is also likely a better investment than money in a low interest bank account, and can be safer than the roller coaster stock market. (Assuming your tenant pays his rent)

I have done a lot of family history research over the years, and what I've found is that "retirement" is actually a fairly recent phenomenon. I've found one obituary where it says, "He worked to the admirable age of 90", and said it with pride. It used to be that you worked until you couldn't work any more, and the longer you could do it, the more you were admired. Things have sure changed eh? The good old days maybe weren't quite as good as they seem.

[rkaiser]

not sure why you say they were not as good as they seem kato. I think the days of working until you die are admirable days and the whole retirement thing as led to the condition we are in that I refer to entitlement. This entitlement issue is rubbing off on those who are not even close to retirement and even as far down as our children. What is wrong with continuing to contribute to society or humanity until the day we surrender our bodies to the earth. Maybe we don't have to physically work until we are dead, but contributing by way of knowledge with such things as using a phone or a computer, or a pen and paper can be considered jobs.

I don't think you are suggesting entitlement kato, but I felt a need to add my two bits to the conversation.

[smcgrath76]

I think you have touched on an issue of
a disposable society. We work until we
are disposed of at age 65 (give or take)
and we are not supposed to enjoy work.
We are also told to work to earn the
money so that we can do what we really
want to do in the evenings and on
weekends.
My dad is a good example, 73 and not
retired (although not working as hard as
he used to). He does not enjoy finance,
etc. so I handle that part of the
operation. He does like picking bulls,
checking cows, riding horses, driving
tractor and likes to contribute
positively. He also has limited other
hobbies (read none). He likes ranching
and so that is what he does in his
"retirement".
I see a lot of people my age working for
the money and planning what they will do
when they retire. I do what I want to
do every day, and don't plan to retire
until I am dead (although I don't plan
to work as hard later in life). I have
also seen a lot of farmers move to town
and literally die from boredom or the
loss of self. I can't imagine not
enjoying the work I do, and would prefer
to "retread" rather than "retire".

[kato]

By "not as good", I meant that back then there were no other options except work. Which is OK if you are healthy. If you are not, then things could get rough. There was no pension, no safety net.

As for retirement, we're not really planning on it either. We're just going to keep chugging along, and downsize as needed to match the workload to the desire and ability to work.

We know some people who have retired in their 50's, like all the experts say they should. What we've noticed is that it didn't take long for idleness to get pretty boring. Some went back to work pretty quick.

[farmers_son]

Interesting discussion really. I did not foresee this ending up talking about retirement. Really the discussion about retirement anticipated agriculture being much the same as in the past while the original post tried to make the point that agriculture may be completely different in as little as ten years. Just like how one or two changes in the way grain freight rates were determined completely changed the prairie landscape with the disappearance of the grain elevator the way the land is farmed could change just as quickly. My point was that if, actually it is happening right now, investment capital from pension funds, insurance funds, the stock market and so on is attracted to agriculture as we see with Sprout Resources and One Earth Farms then the reality of agriculture in North American could change almost overnight. And it very well might. As fast as the prairie elevators came toppling over the small individual farms dotting the landscape will all be bulldozed over and the land farmed.

One Earth Farms has become the largest farm in North America in just three years. Three years ago OEF did not exist. And that was done with less than 60 million dollars of investment capital. Plus there is Assiniboia Capital Corp, Agriculture Development Corporation, Agcapita and that is just the tip of the ice berg. Think about the trillions of investment dollars (estimated to be over $23 trillion) that are out there looking for a home and you might begin to appreciate the future when agriculture attracts some more of those dollars.

I think Grassfarmer made some good points about the big farms of olden days versus family farms being more efficient. The USSR collectives had other problems one important problem being no profit motive. I think there is a point to be made that presently agriculture is undervalued, undercapitalized and so fragmented that opportunities to demand a decent return from the market place are missed. North American agriculture and the mom and pop farms are ripe for an “unfriendly takeover”.

We tend to think of our industry in terms of the past. And some of the discussion here made reference the past. But forget the past. It is gone. With subsidized ethanol the new agriculture produces energy not food. It is a new reality and part of that reality (I think I will use the word “will” not “might”) will attract hundreds of billions of investor capital dollars that will create a whole new landscape for agriculture. An agricultural landscape that has no more place for the mom and pop family farm than the new grain industry had for the prairie grain elevator.

[ASRG]

I suspect farmers son might be right.
That very well could be the future?
I'm not sure that is a bad thing?
At the end of the day that scenario might be better with a better rate of return on investment and probably a better standard of life and stability for the people doing the actual work.
Change is never easy.