Average without Meaning

It's become a cliché: It's the same all over, there are fewer and fewer agricultural businesses, and those that are left are growing in size. Data analysis also confirms a significant change in how, according to size, businesses are divided. The consequence for data lovers is that the average is becoming progressively irrelevant.

Many of those involved, especially economists - and I, your humble servant, am guilty as charged - continue to refer to this indicator. But what alternative did we have? To which, the United States Department of Agriculture (USDA) has come to our rescue. It developed a new indicator, the midpoint. Applied to America's crop farming sector, the midpoint represents the farm size above which half of all cultivated cropland acres. The indicator was 400 hectares in 2011. This means that farms with 400 or more hectares had half off all the cropland in the USA. As indicated in the graph, the average size of crop-growing farms in the US has stagnated over the past 30 years. But during that same time period the midpoint has doubled. When basing our knowledge on the average only, we can be led us astray.

Overall, 6% of Canada's agricultural businesses produce half of its agricultural revenue.

Because the media leads us away from the fundamental reality associated with consolidation, applying the midpoint calculation to Canada and Quebec becomes very interesting. However, access to data sources would be required to properly and accurately assess the midpoint. Perhaps one day these big statistic companies will address the issue. In the meanwhile, we can attempt a decent approximation by referring to census data, which categorizes businesses according to their various revenue strata.

Overall, 6% of Canada's agricultural businesses produce half of its agricultural revenue. The concentration is a little lower in Quebec where half of all production comes from its 2,400 farms (8%). We wouldn't be mistaken should we presume that Quebec is home to nearly 30,000 farms and that their average income is roughly $250,000 per year. But a much clearer picture of the agricultural community emerges when we note that the midpoint is set at $800,000. This means that farms with revenues of $800,000 and more annually account for half of all agricultural revenue. Those involved in and around the agricultural world are instinctively aware of this reality; to ignore it would lead to misguided strategic orientations.

The consolidation trend, a strong current here and elsewhere, will essentially be called upon to continue. Deliberate or hasty, its speed is determined by market whims or the effects of current farm policies, it is ongoing and driven by the brute force of the market economy. Because scale economies do exist (all things being equal, big business generates more profits than a small enterprise), the most elementary mathematical logic leads us to conclude that, now more than ever, the average is becoming irrelevant.


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