Farm giant’s debt woes everyone’s problem

Rumours had been circulating the virtual coffee shops for months, so news this spring that Saskatchewan-based Monette Farms had sought protection from its creditors wasn’t a shock.

The mega-farm operated by brothers Darryl and Russell Monette obtained protection under the Companies’ Creditors Arrangement Act. With an extension granted this month, it now has access to $90 million to continue to operate and come up with a plan before June 19 for how it will service its debts and stem operational losses in an incredibly challenging environment.

Monette embarked on a massive expansion over the past decade to become what court affidavits describe as “one of the largest private farms in the world” — owning and leasing more than 400,000 acres of farmland and employing about 425 workers.

A labyrinth of 17 related companies and three limited partnerships is spread over four western provinces and several U.S. states. It’s farming activities focus on grain, produce, cattle, seed processing, vegetables and even a winery.

Until recently, the company has been operating under a $950-million credit agreement obtained from a syndicate of lenders, including the Bank of Nova Scotia and Farm Credit Canada. After what is described in court documents as “multiple events of default” and restructuring efforts in recent years, the agreement came due April 15. No further extensions were granted.

This created a liquidity crisis at the onset of seeding, threatening the jobs of hundreds of employees and potentially leaving hundreds of thousands of acres unseeded.

If a farmer hits the financial wall owing $1 million, he’s got a problem. If he owes $900 million — that’s everyone’s problem.

Monette Farm’s aggressiveness hasn’t made it popular with its fellow western farmers, especially those who have been outbid on land acquisitions. Few have been cheering the company on, but no one wants this operation to be disbanded via fire sale.

Without careful management, a situation like this can have a cascading effect that ripples through the entire farm and rural economy — deflating land and equipment values, increasing rural unemployment and creating liquidity issues for others. No one wants a repeat of the farm debt crisis of the 1980s, when lenders rushed to foreclose, pushing thousands of farmers to auction their holdings and leave.

That said, there’s lots of farmers who would buy more land — just not mega parcels of it.

Earlier this spring, Monette had listed for sale 10 farms covering 129,000 acres in Saskatchewan, 49,000 acres in Manitoba, 54,000 acres in Montana and 45,000 acres in British Columbia, the Johnson Shoyama School of Public Policy said in a research paper on Saskatchewan farmland ownership.

The report noted the increasing disconnect between the value of farmland, which routinely experiences double-digit growth annually, and its productive ability. And while access to land is necessary to farm, owning it is no longer a prerequisite to the business of farming.

Non-farming real estate investors, both institutional and individuals, have been accumulating land because of its rising value, but they lease it back to farmers.

That’s one thing. It’s quite another to buy up huge blocks of land and farm it, as Monette and other mega operators on the Prairies have been doing.

Average farm sizes have been trending higher since the time the Prairies were carved up into sections, but there’s been a surge in the number of farms that are 10,000 acres or more, growth fostered by easy access to credit and favourable margins.

The Johnson Shoyama report recorded 84 operations in Saskatchewan that collectively own 1.44 million acres or 2.4 per cent of the available farmland — in addition to rented acres.

Just over a century ago, Bonanza Farms was gobbling up huge swathes of land across the northern Great Plains from discouraged homesteaders. It thrived for a few decades until the see-saw between economies of scale and management capacity tipped against it.

Monette’s financial troubles have rekindled the debate over how big is too big. Managing an operation of this scale is a staggering feat at the best of times — and these are not the best of times.

Laura Rance-Unger is editor emeritus for Glacier FarmMedia. She can be reached at lrance@farmmedia.com