Diversification leads to intensification.

Somewhere in the neighborhood of 30,000 Saskatchewan enterprises are facing significant financial challenges. All those enterprises fit into one market segment. They're farms.

As Saskatchewan's annual mega-project -- spring seeding -- is about to hit high gear, the challenges facing the agricultural sector continue to frequent the headlines. Whether it's calls for aid or another rally, the public image of agriculture -- especially for observers who live outside the province -- is not particularly positive.

It's a situation that has been tough on the farm psyche. Yet, with farmers lurching from feelings of fear and frustration to questioning their self-worth and dignity, a trend gaining momentum in business and public policy circles points to a silver lining in this cloud of doubt.

First of all, there is a substantial portion of the farm community that continues to do fairly well, in economic terms, but it accounts for less than one-third of the overall farm population. New figures flowing from the provincial agriculture department put this number at roughly 15,000 farm units. They account for approximately $4 billion in gross revenues out of total farm gate receipts in Saskatchewan of just under $6 billion. These tend to be larger operations with annual revenues averaging $267,000, a very small business by any other standard, but responsible for two-thirds of all farm revenues.

Another 10,000 to 15,000 farms, representing those at or nearing retirement age, generate between $60,000 and $100,000 annually or about $1 billion. For the most part, these producers are all but debt-free so revenues at this level still generate a positive bottom line.

It's the remaining group -- about 30,000 farm enterprises, or more than half of all farms in the province -- that generate the final $1 billion in gross receipts. With average revenues of $33,000 a year, these units face significant challenges. Even with a 100 per cent gross profit margin, they still would be in the lower income strata.

Nonetheless, if you subscribe to the theory of buying low, there is an argument that there may be no better time than the present to invest heavily in this province's agricultural sector.

There is a growing belief in business circles that the most promising economic development opportunity Saskatchewan holds these days is in the farm sector. It's a belief, however, that comes with a different twist. Its focus is intensifying agricultural activity to generate significantly higher gross revenues than currently seen.

One of the underlying challenges in addressing the farm problems is the fact that, while it is a crisis for up to 30,000 of our producers, others are doing all right. Building a support mechanism that differentiates between the two, remains commodity neutral and doesn't contravene our international trade pacts is tantamount to herding cats. A nice idea but not all that manageable.

Grappling with this challenge has evolved into this relatively new theory of 'intensification' as a solution to the problem.

To understand this more clearly, one only need look at a national comparison of farm revenues on a per acre basis. Saskatchewan, boasting nearly half the arable farmland in Canada, accounts for less than one-sixth (see chart p. 19) of the overall farm receipts in Canada. In short, we specialize in low value production. When broken down to a per acre basis (see chart p. 18) the story is even more poignant. Saskatchewan is at the bottom of the heap on this measurement, just over one-tenth the level being achieved in Newfoundland and 15 per cent of Ontario, Quebec or Prince Edward Island.

Clare Kirkland, president of the Saskatchewan Water Corporation and a former deputy economic development minister, first identified the 'revenue per acre' concept early last year while a consultant in the private sector. Tasked by the Saskatchewan Chamber of Commerce with preparing an economic blueprint, called Action Saskatchewan, for Saskatchewan's second century, he raised the notion of addressing the farm community's anemic revenue stream.

"When you get into trouble it's typical to look at costs but when you look at the successful turnarounds, it's the top line that made the difference," offers Kirkland.

As president of the water crown, he is regularly in contact with producers who have defied the low value trend by changing their product mix or employing irrigation for added output. Seed potatoes, now a common crop in the Lucky Lake region, can command $1,500 to $3,000 an acre -- a far cry from a couple hundred dollars flowing from conventional cropping options.

One farmer who has taken this concept to heart is Kelvin Meadows of Northfork Seeds, north of Moose Jaw.

His operation has shrunk from a high of 2,300 acres to 1,800 and he's targeting a further decline to 1,000 acres within five years.

"I keep downsizing and intensifying," asserts Meadows who operates a pedigree seed operation and plant. But he's branching out into unconventional crops -- and marketing approaches -- to maximize his revenue stream. Last year, he produced pumpkins for the jack-olantern market and this year is looking at cantaloupe and green peppers, produce that could generate five digit revenues per acre. He's also a big believer in finding non-food alternatives for his crops because consumers seem more willing to pay for a novelty item than if it's used as a food product.

"We're looking at ways to drive more value for every acre," offers Meadows. Being close to Highway 2 as well as cottage country opens the door to agritourism. He also hopes to capitalize on the 100,000 people who visit Moose Jaw's highly successful Tunnels and Spa attractions each year. "They need other things to do," he adds.

Meadows calls it "stacking revenues." He figures if he can charge people to look at a unique product -- such as emu -- and then harvest it, he gets two revenue streams from the same product line. "We set the bar (for revenue per acre) so high that it forced us to change our thinking. We've got to keep changing, intensifying. Downsizing some more.

Another solution lies in the livestock sector.

The Saskatchewan Agrivision Corporation, a non-profit business group dedicated to building the agribusiness sector, recently completed a pair of studies on livestock production in Saskatchewan. The opportunities are nothing short of outstanding.

In pork production, says Agrivision executive director Al Scholz, "we have the killing capacity for at least twice the production on the Prairies. Certainly Saskatchewan is in a better situation to take advantage of that than Manitoba or Alberta."

Saskatchewan, with a $6 billion a year agricultural industry, pales in comparison to Holland which, at only one-tenth our size, boasts $59 billion in annual receipts.

"We've got the cost of production advantage," adds Scholz. "If we don't do it, others will so it's ours to lose."

One major Saskatchewan hog producer recently confided that the 2,400-acre parcel housing his barns generate $10,000 per acre annually. That's a far cry from the current provincial average of less than $100 per acre and underscores the magnitude of the opportunity. Given that these facilities tend to employ roughly 15 people -- compared to one job for 3,000 acres of land in a straight grain operation -- intensive agriculture in the form of livestock production also means more jobs in rural Saskatchewan which has been de-populated for decades. In short, it amounts to a complete reversal of the trend that has diminished the rural economy.

Agrivision's Scholz notes that beef holds the same potential as pork.

"We probably should have the largest herd in North America, given our grasslands," he suggests. Given the consumer appeal of lean beef, a development that saw per capita consumption reverse its decline in 1998/99 and start rising, he suggests the opportunity is going to be magnified. Alberta production has peaked and is beginning to show signs of decline while America's herd is projected to decline by two million head over the next decade.

Agrivision's recent study of the beef sector suggests Saskatchewan has the capacity to absorb half that amount or a million cows.

"The trick then is to hold the calves here, to feed them," Scholz adds. "If we keep them here, that would be the threshold to build another world-class (processing) plant." As a matter of fact, says Scholz, one beef processor has moved into the province "for that strategic reason."

The challenge, however, is to ensure we capitalize on the opportunity and not let it slip through our fingers. "Unless our producers and communities do this, others will do it to their advantage," concludes Scholz.

Government appears to developing a similar analysis. Gord Nystuen, deputy minister of Saskatchewan Agriculture and Food, trots out numbers prepared for a February provincial agriculture ministers meeting in Regina showing only Saskatchewan and Prince Edward Island generate more revenue from crops than livestock.

Livestock provides a secondary impact because, if we use locally grown feed grain to sustain a domestic herd, we reduce the overall impact of rising freight costs for moving feed grains to alternate markets. Revenue from grain, he adds, is subject to two significant variables: price changes and yield fluctuation. Livestock, on the other hand, is somewhat more stable because it's subject only to price change. You can reasonably predict a cow will have a calf each year so yield is not as volatile.

"We need to work toward changing that balance (grain dependency) in Saskatchewan to make our income more stable. It's not out of this world because eight or nine out of 10 provinces already do it. We do do it (livestock production) too, we just need more of it," offers Nystuen.

                       Provincial shares of Canadian
                      primary agriculture GDP in 1998
Ontario        27%
Alberta        23%
Quebec         18%
Saskatchewan   15%
Manitoba        7%
B.C.            7%
New Brunswick   1%
Nova Scotia     1%
P.E.I.          1%
Newfoundland  0.2%
Source: Statistics Canada