There is a saying: “Father merchant, son gentleman, grandson beggar.” According to United Nations studies, despite the great interest from governmental, private or public investment funds in agriculture globally, more than 80% of the world’s food is still in the hands of family agricultural businesses. In the United States alone, more than 90% of the fields producing row crops—mostly commodities—are family-owned, and these family fields are, in turn, becoming larger.
As a business form, the family business is the most common structure, representing more than 90% in the U.S., more than 80% in numerous European countries, and likely more than 70-80% in Chile. This means that the family business is the predominant form of company in the business world as we know it, and agriculture is no exception. However, family businesses do not grow perpetually.
Unfortunately, in Chile and Peru, we are increasingly seeing family-owned agricultural operations being bought by investment funds, falling into reorganization, or sadly coming to an end. These are traditional companies with a long history in different export sectors with fresh or frozen products. Companies related to high-value and popular fruits such as blueberries, table grapes, avocados, citrus or apples, as well as nuts, appear more and more frequently in newspapers and local financial press.
The reason for the end of a family business in agriculture is the same as for any other sector: the family grows faster than the business itself. It’s the arithmetic growth of the business versus the geometric growth of the population and the size of the family.
Family-owned businesses in agriculture will inevitably face increasing expenses and needs, amid increased rivalry among relatives, particularly if there is agricultural land (a non-depreciable asset) in the equation. Globally, less than 20% of family enterprises survive beyond the third generation, and again, agriculture is no different. The ideals and life goals have changed, a phenomenon that is amplified in the countryside. Today, many of the second or third generations do not see the family farm as their life project, especially if the company becomes increasingly indebted and gets overcrowded with family and relatives.
Now, in Latin American agriculture, other relevant factors come into play. For example, living in Fresno (USA), Piura (Peru) or Copiapó (Chile) has considerable differences in development, facilities and life standards for a third-generation table grape family owner. If the operation is not close to Lima or Santiago, getting independent managers of a high standard will be tough.
Other structural factors are the counter-season reality, distance from consumer markets (Southern vs Northern Hemisphere), and the El Niño climatic phenomenon, which has affected Andean agriculture for thousands of years and which again impacted local economies in 2023.
Then, in a globalized world that requires the same agricultural products, with the same quality, 12 months a year: What chances does a local national family-owned agro-exporting company in South America have, to survive more than two generations? There are many examples of crises that challenged these companies, including the Subprime Crisis, Covid, the conflict in Ukraine, the cost crisis, the logistics crisis of 2022, and lately El Niño 2023.
Even when the family business has good executives, a solid strategic plan, and some financial leeway, the probability of continuity in the agro-exporting business will be lower without geopolitical and productive diversification. A family business might eventually withstand or manage a severe adverse event—or ‘black swan’—but not two or three as some fruit exporting businesses have experienced in recent years.
What’s the solution? As with everything in agriculture, it depends, but it will surely be a combination of what some family agro-exporting companies that persist and grow are doing already.
What could certainly help is diversifying crops, productive areas, and production countries, first within Latin America—probably first along the Pacific coast—and then towards the Northern Hemisphere in areas such as the U.S. or EU, which are closer to consumption centers.
The same applies to the sources of financing needed for growth. It seems advisable to combine local, regional, and international banking, just as a company protects its assets and cash flow with diversification, it should do the same with its liabilities.
Companies go bankrupt because of cash flow shortage, not because of a lack of net worth. As a family manager of an agro-exporter operating with a high level of seasonal leverage, you surely would not want to have to renew and negotiate annual working capital lines only with local banks after a major El Niño event like that of 2023, where production decreased by 30%, 50%, or even 80%, depending on the crop.
Commercially, it also seems appropriate to seek good partners: North-South alliances that strengthen vertical integration and have a multidisciplinary board that captures all these elements in its experience.
It seems reasonable, then, to review success stories, study, replicate or adapt their good practices to allow the agro-exporting family businesses to better prepare their second generation, to reach the 3rd generation with greater security (only 12% will make it), or even better, be a part of that lucky and scarce 3% to 5% of companies that will pass to the 4th generation. As the Chinese proverb says, good luck is where preparation meets opportunity, and agriculture is no exception.
- Gustavo Cardemil Katunaric is the managing director at Asesorías del Agro GCA, a Santiago, Chile-based food & agriculture financial consultancy.