Profitability and competitiveness of grain handling at farm level

Abstract: The Swedish agricultural sector is currently experiencing substantial structural changes, where the number of agricultural enterprises continuously decreases and the average farm size increases. In order to maintain competitiveness, it is important to be aware and adapt to changes concerning the surroundings of the company (Johnson et al., 2011). Agricultural commodity prices sharply fluctuate on the global market in recent years, affecting the profitability of farmers. High volatility market requires tools to reduce price variations and increases the need of decision-making (Bouder & Beth, 2003). Farm-based grain handling facilities increases the sale options regarding agricultural commodities; a flexible strategy to get additional compensation for the storing the grain produced on the farm (Edling, 2002; Edwards, 2013). Storing and drying on farm is compulsory in order to manage seed production, which is not possible when selling to the grain trader at harvest (Pers. Comm., Gillsjö, 2015). A farm-based grain handling facility means streamlining the farm operations and gives the opportunity to achieve higher profitability. The aim of this study is to investigate the profitability and competitiveness of farm-based grain handling facilities. The study accounts for the possibility of combining different investments and crop strategies. Profit maximization determines the optimal strategy of the farm with respect to limitations interpreted from empirical data. The strategy varies based on the possibility to segregate the quality of crops. The study uses mathematical programming, empirical data from statistics and interviews of knowledgeable people within the sector. A mixed integer linear programming model is developed in order to find the most profitable strategy. The results that emerge from this study indicate economic feasibility of farm-based grain handling facilities when seed production is possible. Seed production is a crucial factor regarding the profitability of the optimal strategy of the farm. None of the optimal strategies on the fictitious farms includes an investment in a facility without seed production. However, in order for the farm-based grain handling facility to represent the optimal strategy of the farm, it has to be combined and supplemented by a grain trader at harvest. An investment in exclusively farm-based grain handling facility do not generate higher profitability than selling to the grain trader during the harvest period.