Farm Disintegration and the Business Models That Will Replace It

By Dr. Allan Gray

We often think about agriculture as farmers who farm and collect more land. That's what we have done here in the Midwest, perhaps.

But increasingly, across agriculture, you see disintegration. New business models are emerging because the capital requirements are so high that you have to find capital from different sources. As capital costs increase, you look harder for various places to access that capital.

That is a major shift coming in our industry.

The Capital Crisis

We farmed for at least 15 years with free capital. We don't get to do that anymore. Interest rates are higher and likely to stay higher. We'd be foolish to plan for zero interest rates any time soon.

Here's what that means: interest costs at the farm level are the fastest-rising costs. The data tells us interest charges are the fastest-rising expense on the farm.

Our midsize and large family farms, which produce about 80% of our output, are the ones carrying most of the debt. We have significantly declining margins in the row crop sector.

When you put those things together, you start to think we might need to consider new business models.

The Disintegration Question

Is there a world where row crop farming disintegrates? Where land is held by one group, risk-taking and decisions by another, and the actual farming by someone else?

If you know anything about the hog industry or fresh produce, you’ve already seen this model. Those sectors have gone through this transition.

The Best Hog Farmer in North Carolina

Let me tell you a story that captures what's coming.

There was a hog farmer in North Carolina who was one of the best. He could raise pigs better than anybody. He had the highest productivity of all hogs. And he went out of business.

Why? Because he refused to enter into a contract with a packer. He did not want interdependence. And he's no longer a hog farmer, even though he was one of the best.

That's the challenge with this transition. There are a fair amount of people who will die on the sword of independence. But in vertical coordination, it's interdependence, not independence.

There are many farmers who would say they'd rather not farm than be interdependent with people where they've got to share data and information. Those people are going to be in trouble.

Who Will Farm the Future?

Here's what I promise you: there will be corn and soybeans growing on both sides of I-65 between Indianapolis and Chicago. I have zero doubt about it. Farm bill or no farm bill.

The question is: who will do it? Who's doing it will be different, and the kinds of things they'll do will be different because they'll have no choice but to innovate.

The Government Reality

If you're waiting on the government to be your innovator, you're going to be disappointed. The government is always ten years behind.

I've been doing farm policy work for 30-something years. Farm bills are not up to date. They can't even figure out how to update base acres that would make sense to what farmers actually farm today.

Here's another reality: If you look back over the last 15 to 20 years, the percentage of farm net income that comes from government payments, outside of the last three or four years, is almost 100%.

I have a hard time believing we're going to see more dollars put toward government supports. Our budget situations don't suggest that's something we can continue to do.

Without the government, you end up with more creative destruction, which is part of innovation. When the government chose not to support bulk pork producers in the 1990s, they effectively let the industry consolidate.

My bet? Consolidation, innovation, and less government support. Government payments are what keep innovation down. When a government is heavily involved, you don't innovate.

The Demographics Factor

Another force accelerating this change is labor.

There are 30 million fewer people under 18 in the United States than those 60 and older. We're not making more people go to work. Labor is not coming back to the farm. This is clearly a trend, not a fad.

New Business Models

So, what new business models emerge from disintegration?

Specialized Asset Ownership: Land held by institutional investors or specialized agricultural real estate companies managing long-term agrarian assets.

Risk Management Entities: A separate layer handling commodity risk, weather risk, and market risk with the scale and sophistication that individual farmers can't manage.

Operating Companies: The actual farming operations, agronomic decisions, and day-to-day management are where production agriculture expertise is concentrated.

Each layer requires different capital structures, different expertise, and different risk tolerances. Trying to combine them all into a single operation becomes increasingly complex as capital costs rise and margins compress.

The Trust Challenge

This transition requires something the industry hasn't fully figured out: trust.

You have relationships with growers today. But it's going to take a lot more trust. We're going to have to build relationships with large food companies, financial partners, and technology providers.

Vertical coordination means interdependence. It means sharing data and information. It means being transparent in ways many farmers are not comfortable with today.

Opportunities for Entrepreneurs

The disintegration of traditional farming creates multiple opportunities:

Financial Innovation: New ways to access capital, new ownership structures, new risk-sharing mechanisms.

Coordination Platforms: Systems that enable transparent, trustworthy collaboration across asset owners, risk managers, and operators.

Data Infrastructure: Building the trust layer for data sharing while ensuring farmers capture value from sharing it.

Specialized Services: As farming disintegrates into specialized functions, each function needs its own tools and support systems.

At DIAL Ventures, we're already working with entrepreneurs building solutions for this transition. This is not a five-year-out problem. This is happening now.

The startups that will succeed are the ones that help facilitate this transition, that reduce the friction of new business models, that build the trust infrastructure required for vertical coordination to work.

The Shift That Matters Now

I understand the emotional attachment to independence in agriculture. I respect the pride in owning your own operation, making your own decisions.

But economics are not sentimental. When margins compress, when capital costs rise, when labor becomes scarce, the math changes.

The question for entrepreneurs is: how do you build systems that enable interdependence without creating exploitation? The companies that answer that well will define the next generation of agricultural business models.