Regional community development PhD Project: Corporate farming and regional communities

Phd Candidate:  Wendy Strachan

Supervisors:  A/Prof Ben Lyons (RECoE) Prof Geoff Cockfield (USQ)

Status: Confirmation completed 2021

Aims and objectives of the research

 The aim of this research is to explore how people in agriculture communities perceive the extent and effects of corporate farming in their regions.  The study will show how Australia’s rural and regional communities have played a substantial role in the economic development of Australia. However, latest trends indicate an increased presence of corporate managed farms in areas where farms have been traditionally owned and operated by families. 

Literature Review

Introduction

Australia’s farmers and rural communities play a significant role in the social fabric and economic development of Australia.  According to the ABS (ABS, 2018) 52% of Australia’s land is used for farming.  Previously the majority of farming enterprises have been small holdings, owned and operated by individual families who reside on the property.  Statistics show in recent years, family farms have become greater in acreage in order to maintain viability, while at the same time corporate owned/managed farms are increasingly taking up large tracks of arable land. The result of this is a significant decline in the actual number of farmers which in turn will impact rural communities.  This research attempts to determine how people in agricultural communities perceive the extent and effect of these changes in their region.   There is very little research available on the social and economic impact which corporate farming in Australia is having on local activities, employment opportunities, social services and infrastructure.  While there is evidence of research in agricultural land ownership by corporations in countries similar to Australia (USA, Canada and New Zealand), based on trade, there appears to be a dearth of research here.

Current trends

According to the National Farmers federation, Australian farms are still predominantly owned and operated by family enterprises.  “More than 99% of Australia’s agricultural businesses are wholly Australian owned, owning 88% of Australia’s agricultural land”.  The significance of this is that while corporations represent only 1% of farming business they in fact control 12% of the land.  According to Pritchard, Burch, and Lawrence (2007, p. 75) there are few researchers who would contest the general argument that farming has been corporatized, in the sense of becoming more capital intensive, involving fewer but larger economic units and integrating more directly with off-farm supply chains.

In recent years the agricultural industry is being challenged at local, national and global levels which is then tests the viability of the industry and the surrounding rural and regional communities that depend upon agriculture. At a local level the agricultural industry is facing severe weather events including flooding, drought and bush fires.  These natural phenomena have contributed to farms being sold off and often acquired by their neighbour.  According to Nuthall and Old (2017) this style of ownership will continue, though it is possible that family farms will increase in size and involve family conglomerates facilitating the management of larger, and in many cases, multiple farms.  The impact on rural communities for such a trend to continue is yet to be investigated.  On a national level, there is strong competition for farmland from other industries, for example energy providers acquiring land for gas fracking, solar and wind farms.  These industries are competing for both land and labour.   At an international level competition is being played out in a global marketplace where there is declining commodity prices and worldwide economic downturn ((Miller, Van Megen, & Buys, 2012; Sheng, Zhao, Nossal, & Zhang, 2015). 

What is the focus of this research project, however is the increase of corporate investment in agriculture production.  This has gained momentum from around 2007, coinciding with the end of the millennium drought, according to Magnan (2015).  This has resulted in a range of corporate and financial interests in farmland which has been termed as a ‘land rush’.  This was partly driven by the food crisis of 2007-2008 where it was identified that global insecurity of food production was a powerful attraction for investors and superannuation funds to invest in ‘real’ and stable asset (Sippel, Larder, & Lawrence, 2017).  A case study by Larder, Sippel, and Lawrence (2015) reported that one investing company, Hassad, purchased horticulture farms with the intention of controlling production, when traditionally their involvement was purely financial. 

The Australian government has always encouraged foreign investment in Australian land with the current government still holding that position according to Larder et al. (2015). I. W. Gray (2001) as cited in (Alston & Kent, 2009) agrees with Larder et al. (2015) and found that federal and state governments favoured a neo-liberal policy, that is one where the government fades from the market place and service provisions decline, with the expectation of rural communities becoming self-reliant and self-sufficient. 

Neo-liberal policy, according to Pritchard et al. (2007), has threatened to displace family farming production as dominant social and economic structure and instead morph into ‘family farm entrepreneurs’.  For farms wanting to maintain family ownership there is evidence suggesting that family networks need to become intergenerational with the aim of overcoming difficulties securing financial borrowings.  Entrepreneurial farmers need to interact with large-scale agribusiness and to do so they need to be economically informed and become more like a corporate family business rather than an independent ‘family farm’.

Barnaby Joyce, the then leader of the National Australia Party and Minister for Agriculture and Water Resources, opened his address at Outlook 2016 by speaking on creating a culture whereby Australian investment in agriculture land became a logical choice, appealing on the moral grounds that farm businesses and super funds should aim to keep Australian farmland in national hands (Ruth Sippel, 2018).  The selling of Australian farmland has caught the attention of voters, with the topic featuring in two previous election campaigns. As a result of public debate surrounding what some considered as ‘selling out’ of Australian farmland to foreigners, the Federal government revised the land register in 2010 to record agricultural land sales to foreign owned entities (Ruth Sippel & Weldon, 2020).  Federal Treasure Josh Frydenberg said this land register was important to ensure that foreign investment was monitored and in the national interest.  There does however appear to be some change in attitude towards foreign ownership of Australian land.  A statement from the Federal Treasure’s Office said “The government understands that trade and foreign investment created jobs for Australians.  We recognise that while foreign investment is an important contributor to growth, productivity and jobs in agricultural communities, it is important to ensure that foreign investment is not contrary to the national interest” (Cranston, 2017).

At the same time the Agricultural Land Register revealed that foreign investors have increased the size of their land holdings by 4.1% to 52.6 million hectares in the 12 month to June 2018.  While the government appears to be tightening the conditions for foreign investment there is little known about what rural dwellers feel about such a policy given that the interest in farmland has increased the value, and hence the equity, of family farms.  It would appear the impact of this change on ownership in rural communities is yet to be researched thoroughly. 

Social Issues

Ruth Sippel (2018) concluded that farming is considered as contributing to the national character.  Cockfield and Courtenay Botterill (2012) came to a similar conclusion after a random survey of people from major cities, inner regional, outer regional or remote and very remote areas.  The survey, conducted by way of telephone, canvassed attitudes towards rural industries and people.  What was found was support for the decline in the “countrymindedness” proposition, (where ‘country-mindness equates to the salt of the earth’ characteristics of rural residents) but there was strong belief in family farming methods in particular and for the importance of agriculture in general. 

Studies show a declining fortune in agriculture has significantly impacted rural communities that are highly dependent on agricultural prosperity.  For example, the Federation Shire has experienced a steady decline in population which is reflected with a decline in manufacturing (Economy.id).   Many small communities are expressing declining populations, infrastructure, loss of services and employment opportunities, as well as declining political influence (Alston, 2002).  Erosion of service infrastructure, the closure of schools and hospitals, a withdrawal of government and non-government services, for example banks and health providers, a decline in employment opportunities and a rise in debt levels.  Responses to rural community hardships have not been sympathetic, for example in 1998, the Executive Director of the Australian Bureau of Agriculture and Resource Economics (ABARES) the government agency on rural economics, recommended that family farms facing hardships should seek out welfare and counselling and then sell their farm ((Pritchard et al., 2007).

While the literature to date reveals that an aging population and the on-going drought are critical factors in the decline of rural communities, there is little data on how people in these agricultural communities perceive the extent and effects of corporate farming in their region. 

Land ownership changes include both ‘asset switching’ (one large corporate owner replacing another) and ‘corporatisation of agriculture’ (a large corporate owner replacing a family farm).  When investors such as Macquarie Group, Westchester Agricultural Asset Management and Hassad Food purchased, and now control, 11% of the total non-urban land in Warren Shire, research shows there were three types of responses by locals – acceptance, accommodation or feeling of unease (Sippel et al., 2017). The acceptance, or not, of these new landowners depends on community perception of ‘good corporate citizenship’ – that is, their willingness to make financial contributions to the community by way of maintaining local employment and the making of charitable donations.

Proficiency of production

A study by (Sheng et al., 2015) applied production theory which examines the relationship between inputs and outputs. The theory was used to understand the correlation between an increase in farm size and farm output. Sheng et al. (2015) argues that as farm sizes expands, gross output increases proportionally more than the change in inputs.  Economists have therefore questioned the future of small family farms given their inability to expand easily.  Without expansion family farms cannot take advantage of opportunities where large volumes are required and market competition is strong.  However, the research by Sheng et al. (2015) also found that productivity improvements among smaller farms can be achieved through increasing their ability to access advanced technologies, rather than simply expanding their operations.  In addition, farmers need to acquire the skills to deal with the more complex management, financial, technical and operational matters that are associated with the operation of large farms.  This indicates that small family farms are viable and it is not necessary the economies of scale that corporations pursue are the only successful business model.  If rural communities comprise of numerous family farms as opposed to one large corporation what influence will that have on survival of communities is yet to be researched.

Mugera and Nyambane (2015) also finds evidence that broad acre farms are not utilising the best available technology and are therefore operating below the optimal level.  Farm short-term debt structures has a positive relationship with technical and scale efficiency, but has a negative relationship with return on assets.  Mugera and Nyambane (2015) also found that technical efficiency could be improved by using short-term debt to purchase necessary farm inputs and maintain farm operations.

Most of the large scale corporate investment groups are made up of foreign owned organisations or are Australian subsidiaries of foreign funds.  These investment groups according to Magnan (2015), aim to diversify by region, climate and crop variety.  A large majority operate farmland as a subsidiary with farmers involved in a joint venture arrangement or outsourced to a third-party.  There is also an emergence of mega-farms that specialise in agricultural production which are made up of public or private companies rather than investments funds that seek to create economies of scale and specialise (Magnan, 2015)

Global Comparisons

Research conducted by Suess-Reyes and Fuetsch (2016), Graeub et al. (2016) and Magnan (2015) provide documented literature on what is occurring on a global scale and form a basis for which comparisons can be made to current Australian situation.

Throughout developed countries, the agricultural industry has recently undergone massive changes which affect both farm businesses and the life of farming families.  Political reforms have led to decreasing support for the agricultural sector, food safety and quality standards are being tightened, changes are occurring on the demand side and markets are volatile.  Changing social values, technological shifts and environmental disasters further challenge the agricultural industry (Suess-Reyes & Fuetsch, 2016).

These factors have led to a decline in the number of agricultural holdings in the European Union with an estimated annual decline of 4% in the period between 2005 and 2010.  At the same time, the average farm size had grown by 4%, indicating a trend towards bigger entities (Suess-Reyes & Fuetsch, 2016).

According to a study of two very different family farms, one in Brazil and the other in Malawi, Graeub et al. (2016), found that worldwide family farms constitute over 98% of all farms but only control 53% of the agricultural land.  Therefore 47% of the agricultural land is owned by only 2% of the population.  These findings demonstrate the tremendous diversity of family farms worldwide but do not examine the impact on rural communities when corporation presence dominate and control the farmland.

A USA based study by Hendrickson (2015) looks at the consolidation, industrialization of the agrifood system and ability to generate future food, while considering how food production might become more resilient in the process.  A small number of agribusiness firms who operate globally have power in shaping who produces food, what is produced, how and where it is produced and by whom it is eaten.  This has resulted in a highly concentrated food system because of horizontal and vertical integration in, and globalisation of, agricultural and food markets.  As a result this system constrains farmers in making choices that may be more sustainable and socially more accommodating whilst creating a process of eliminating smaller farms and businesses.  The impact of such externally controlling influences could be to the detriment of family farms and rural communities.

Magnan (2012) conducted a study similar to Hendrickson by looking at the changes in organisational size and business strategies used by mega-farms and the implications of this on traditional family farms.  The study found that the exceptional size and economic clout of mega-farms will add competitive pressures to smaller family farms. As input prices rise and margins are reduced, mega farms gain enormous buying power and therefore create a competitive advantage over smaller operations.  What is not yet know is how these rural communities who live among mega-farms feel about such pressure and loss of competitive edge.

The focus of an article by Suess-Reyes and Fuetsch (2016) systematically reviews and critiques 53 articles over the last 16 years which addresses factors relating to innovation, sustainable and succession strategies in family farming in the European Union.  The findings indicate there is a strong fragmentation of approaches in innovation, sustainability and succession planning.  As a result family farms need to pursue innovative strategies to tackle present and future challenges caused by a rapidly changing economic environment.  Diversification is one method for family farms to remain economically viable and protect against environmental disasters, price fluctuations and other challenges.  Another option is of off-farm income, however this may come at the detriment of the farm because production capacity may be reduced which leads to an increase in the probability of farm closure.  The literature review also found that farms of larger size are more attractive to potential successors and thus more likely to remain operational for the next generation.  Larger family farms have a competitive advantage due to economies of scale.  Family attachment to the farms also plays a role in succession to the next generation (Suess-Reyes & Fuetsch, 2016).

Conclusion

Agricultural business have played and continue to play a significant role in Australia’s economic development and social landscape.  Changes on local, national and international levels combine to impact rural communities in ways yet to be explored.

It would seem the more economically sustainable farms are more attractive to potential successors plus farm business practices are trending towards a more vertically integrated model.   Larger farm size constitutes a competitive advantage due to economies of scale.  This combined with a more corporate styled management structure is seeing the demise of the traditional small family holding.  Most of the large scale corporate investment groups are made up of foreign owned organisations or are Australian subsidiaries of foreign funds.  While free trade agreements ease the way for foreign investment, there is growing debate on foreign land acquisition with food security at the heart of the discourse.

Taken together, the findings, which emerge from a variety of research fields show a multitude of different factors associated with both family farms and corporate acquisitions. What is not shown is the link between the trend towards corporate ownership and the insuring impact on rural communities.  How rural dwellers perceive these changes is yet to be thoroughly researched.

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