Proceedings

NPR – IS THE DISAPPEARANCE OF ARCHETYPAL FAMILY FARMS INEVITABLE IN QUEBEC DAIRY PRODUCTION? USING AN INTERNAL BUYOUT VALUE TO QUESTION THE FINANCIAL FEASABILITY OF TRANSFERRING FARM TO THE NEXT GENERATION

Montel, B., Perrier, J-P., Lepage, F.


Abstract:

Dairy production lies at the core of Quebec agriculture and enjoys the benefits of supply management. Yet, despite these favourable conditions, the average financial conditions of dairy farms in Quebec has been deteriorating over time. In particular, this has made farm transfer more difficult by widening the gap between the exiting farmers’ valuation of the farm and what the new entrants can afford to pay. The purpose of this article is to investigate the extent of the gap by analyzing the ratio of the internal buyout value of the farm to its net worth – an indicator of the transferability of the farm – and the influence on this ratio of profitability, indebtedness and size of the farms. We will use a sample of farms followed by AGRITEL. These results highlight that the transferability of two thirds of our sample in conditions that would meet both seller’s and buyer’s expectations is largely compromised. Besides, about a third of our sample is made of farms whose financial conditions and transferability are pointing directly toward dismantlement as the most reasonable outcome. High indebtedness and low profitability would preclude any new entrants from accessing the capital required for completing the transfer transaction. Only 5 % of the farms our sample could be transferred without foregoing more than a third of their net worth. In most cases, donation or reduced ownership would not be sufficient to complete the transfer in adequate condition within the traditional framework of farm transfer. Considering the current imbalance in the quota exchange and farmland market, any dairy farm deciding to dismantle will most probably succeed in maximizing its sale value. This will be a strong incentive for smaller farms to not look after a transfer to install a young farmer. In the meantime, this will probably accelerate the consolidation of dairy farming, most likely in the form of incorporated farms whose ownership will be more diverse than strictly farming families. This leads us to conclude that the future of Quebec dairy production is not in jeopardy yet, but the future of the traditional dairy family farms seems to be.

Keywords: farm transfer, dairy farm, internal buyout value

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Author(s): Lepage, F., Montel, B., Perrier, J-P.

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Organizations(s): Ceressys, Université Laval