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Paper 5 - Hazell 2010 The Future of Small Farms
Paper 5 - Hazell 2010 The Future of Small Farms
13491361, 2010
2010 Elsevier Ltd. All rights reserved
0305-750X/$ - see front matter
www.elsevier.com/locate/worlddev
doi:10.1016/j.worlddev.2009.06.012
and
ANDREW DORWARD *
University of London, UK
Summary. While smallholder development has, in the past, led to reductions in poverty and hunger, does this still apply in todays
more globalized world? This paper reviews the debates on the contemporary role of agriculture in development and the case for small
farms in light of the rise of supermarkets, lower commodity prices and liberalized trade, agricultural research funding, environmental
change, HIV/AIDS, and changing policy ideas. Although the answers vary greatly by context, for many low-income countries, smallholder development remains a key option. The policy agenda, however, has changed. In addition to providing public goods, the growing
challenge is to overcome market failures, which is largely a matter of institutional innovation.
2010 Elsevier Ltd. All rights reserved.
Key words small farm, growth, poverty
1. INTRODUCTION
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WORLD DEVELOPMENT
Table 1. Summary of the debate about the role of agriculture in development
Type of argument
Engine of growth
Table 2. The role of agriculture during the early stages of development, by country context
Agricultural potential
High
Low
Manufacturing
Limited
Lead sector for growth and poverty
reduction
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WORLD DEVELOPMENT
and regions that have not beneted much from new technologies in the past. Developments in information technology and
energy generation can overcome some of the constraints of
poor infrastructure. As a result of structural adjustment and
economic liberalization, many countries have created conditions in which the private sector and civil society can play a
greater role in agricultural development than in the past, thus
reducing the burden on the state.
3. THE CASE FOR AND AGAINST SMALL FARMS
(a) The case for small farms
The case for setting small farms at the center of agricultural development can be made on two grounds: eciency
and equity.
Regarding eciency, studies have often reported an inverse
relationship between farm size and production per unit of
land. This shows a common tendency for larger farms to yield
lower gross and net returns per hectare of land per year than
smaller farms. These results are generally strongest in Asia
where land is scarce compared to labor. 4 The explanation
may be found in the dierences in transaction costs faced by
small and large farms for dierent operations, as summarized
in Table 3.
The varying transaction costs stem from asymmetric information in rural markets for labor, credit, and insurance, in
turn originating in the material conditions of agricultural production that typically give rise to specic institutions designed
to mitigate the imperfections (Binswanger & Rosenzweig,
1986). Of particular relevance is the high cost of hiring labor
when the costs of selection of workers and their supervision
are added to those of wages. The household farm with labor
that largely supervises itself is the institutional response to
these costs. As a result, most farms operate at the scale of
the family. In the absence of machinery, the size of the farm
will be small. 5
The implication of this is that when labor costs are an
important part of agricultural costs, small farms may have signicant advantages over larger units. Conversely, once agriculture becomes more intensive in transactions beyond the
farm gate, for example, buying substantial quantities of input
and selling most of the output, larger farms may have the
advantage. Thus, small farms have the edge for less technologically advanced agriculture with low labor costs, but as an
economy develops with increased use of capital intensive technology and hired labor, the advantage shifts to larger farms. 6
Table 3. Transaction cost advantages of small and large farms Source:
Poulton et al., 2005.
Small
farms
p
p
p
Large
farms
p
p
p
p
p
p
p
p
p
1353
4
3.5
3
hectare
2.5
2
1.5
1
0.5
Th
19
80
19
91
rke
y2
00
1
ista
Pa
k
Ko
re
Tu
19
19
78
1
99
aila
3
nd
20
03
80
19
89
n2
00
0
02
82
l2
0
19
Ne
Re
a,
on
Ind
pa
90
p.
19
70
19
80
es
ia
19
19
73
19
93
71
19
77
Ind
ia 1991
19
95
/96
19
69
99
3
19
i1
law
Ma
00
99
/20
70
19
Le
so
tho
pia
Eth
io
ng
Co
90
19
19
/92
01
/02
20
77
19
89
19
oD
19
70
R1
99
0
12
hect are
10
8
6
4
2
01
88
20
19
94
bia
lom
Co
72
19
ru
Pe
y1
ua
rag
Pa
19
99
81
20
19
01
91
19
ma
Pa
na
81
19
71
19
96
19
85
Bra
zil
19
80
19
19
70
Figure 1. Median farm sizes in the developing world. Source: FAO Data from agricultural censuses.
smallholders are deteriorating. Contemporary challenges include changing production methods and increased concentration in supply chains; low world prices and more open markets
to international competition; changes in agricultural research;
environmental degradation and climate change; the impact of
HIV/AIDS; and changes in the policy environment. 8
(i) Changing production methods and greater market concentration
Green revolution technology centered on seeds was largely
scale neutral. Small farmers could participate, especially as
new rounds of crop breeding made the modern varieties less
variable in yield and thus less risky. 9 Where new technologies
require access to information, machinery, or higher capital input, and many high value crops require considerable up-front
cash investment in seeds, fertilizers, and pesticides, small-scale
farmers may be disadvantaged since they cannot obtain credit
and input on the same terms as larger operators.
Of more concern are changes to marketing chains. Supermarket operators or their agents are becoming increasingly
important in parts of the developing world, especially in Latin
America. Buying power is being concentrated in a few hands.
The supermarkets require stricter standards for the quality,
consistency, and timeliness of supply. They may also need to
trace consignments back to source and to arm the conditions
under which they have been produced, in terms of pesticide
applications, organic cultivation, use of child labor, or animal
welfare. Meeting the requirements for these credence characteristics, which cannot be proved by examining the produce,
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WORLD DEVELOPMENT
be limited in the near future. 10 That said, it is devilishly dicult to predict such changes since key processes are discontinuous and nonlinear.
Another question is whether the supermarket buyers have
alternatives to dealing with smallholders. In cases of bimodal
land distribution, the buyers may be able to obtain the supplies they need from a relatively small number of large-scale
growers, thus cutting down on transactions costs. When,
however, supermarket buyers have no alternative to sourcing
supplies from smallholders because there are insucient large
farmers in a country, and importation is uneconomic or restricted by import regulations, they have sometimes proved
willing to invest in technical assistance and credit systems to
small farmers to improve the quantity, quality, and reliability
of supplies (Reardon, Timmer, & Berdegue, 2005). 11
The third consideration is how much credence attributes
matter for agricultural produce, which varies by market and
product. For many staple foods and traditional export crops,
credence attributes are not important while for higher-value
produce, such as horticulture and livestock, 12 they typically
are.
Based on these latter two considerations, a typology of situations can be constructed to assess the prospects for smallholders (Table 4). The two axes distinguish between goods
where credence matters or not and between situations where
buyers have to deal with smallholders since land distribution
is relatively equal, or where land is unequally held and buyers
can deal primarily with large farmers.
Staples and traditional cash crops tend to be in cells A and B
with opportunities for smallholders to compete, especially in
cell A. By contrast, commodity chains for higher-value produce are increasingly located in cells C and D. The well-documented cases of smallholder exclusion from evolving
marketing channels occur particularly in cell D (e.g., Carter
& Barham, 1996; Dolan, Humphrey, & Harris-Pascal, 1999)
and sometimes also in cell B (Latin American supermarket
systems summarized by Reardon & Berdegue, 2002).
The few successes for smallholders in zone D tend to involve
some form of donor or NGO support and subsidy. History,
however, oers some hope. When global buyers began to
source tropical produce from smallholders in the developing
world one hundred or more years ago, similar challenges of
quality and consistency were faced. In most cases, solutions
were found, and much of the tropical exports came from small
farms. Again, policy may be important here if it can encourage
(rather than deter) buyers or large-scale producers to search
for innovations that will draw in smallholder producers.
Will the supermarkets and other high volume buyers turn
the staple chains into those with high credence attributes?
Supermarkets are most likely to try to change supply chains
when there is a strong demand for foods from a thriving market, a situation associated with economic growth and rising incomes. Such circumstances are promising for small farms as
Table 4. Commercial interest in sourcing supplies from small farmers. Source: Poulton et al., 2005.
Demand for output
from small farms
and inequality in farm structure
Comparative
advantage of
small farms
Bimodal land
distributionlow demand
for smallholder produce
higher prices by expanding production. Exceptions to this include the limited number of areas where (a) it is still possible to
expand the total land area planted, or (b) contract farming
systems provide smallholder growers with all the services that
they need. 14 Large farms, on the other hand, with better access to markets, information, and capital will often be better
placed to take advantage of any price gains.
(iii) Agricultural research
There are concerns that research systems in developing
countries are generating fewer innovations to raise yields than
a quarter century ago. Funding to the international agricultural research centers has fallen in real terms. Moreover, the
centers have devoted more of their resources to countering
changing pest, disease problems, and environmental problems
than to furthering yield increases.
Fewer innovations for yield increases aect all farmers, large
and small, but there is one way in which smallholders may be
harder hit. There has been a dramatic shift in the balance of
research funding from public to private sources, particularly
in biotechnology, where there is the greatest potential for more
dramatic advances. Smaller farmers may lose out as private research lacks incentives to address their concerns (Pingali &
Traxler, 2002) and focuses more on the concerns of larger
farmers.
(iv) Environmental degradation and climate change
Farming can degrade the local environment. However, evidence of what is happening is patchy. Historically, careful
studies of changes to soil and water quality have usually had
to be carried out on a small scale although the development
of near infrared spectroscopy (Shepherd, Palm, Gachengo, &
Vanlauwe, 2003) looks set to change this. Extrapolation from
such studies to make estimates for larger areas is fraught with
problems. Studies of environmental change, moreover, tend to
focus on damage and do not always take into account
improvements made by farmers, such as soil conservation
works and tree planting.
Climate change represents a global phenomenon to which
farming contributes to in part and to which it is especially vulnerable since most farming depends on the weather. While the
science of climate change may be reasonably well established
broadly, the precise impacts of processes that play out over
decades are as yet only vaguely discernable. For example, attempts to predict changes in rainfall for large regions have
substantial margins of error. At country scale and below,
much more work is needed to improve predictions of the impact of climate change, but there is increasing evidence that
crop production will be hardest hit in tropical areas, particularly in Africa (Hulme, Doherty, Ngara, New, & Lister,
2001; Royal Society, 2005).
The impact on small farmers of both environmental degradation and climate change are usually assumed to be more severe than for larger holdings 15 since small farmers lack access
to human, social, and nancial capital and information compared to larger farmers. This is plausible but not proven. It
might equally be argued that larger farmers with heavy investments in xed capital are also vulnerable to changes in the
environment. Smallholders whose major asset is their labor
power may more easily adapt their production patterns and
practices to new environmental conditions.
(v) The impact of HIV/AIDS
In Eastern and Southern Africa, where the prevalence of
HIV infection is highest, the direct eects seen on households
aected include loss of labor to sickness, death, and caring,
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Table 5. Priorities for small farms by country context
Land
distribution
Agricultural
potential
Unimodal
High
Low
Bimodal
Later stages of
development
Minerals
Manufacturing
Limited
All
Commercial
opportunities for small
farms selling high value
products in domestic
market. Social value in
retaining small farms to
spread mineral wealth
and provide subsistence
for the rural poor
Social value in retaining
small farms to spread
mineral wealth and
provide subsistence for
the rural poor
Social value in retaining
workers in agriculture
and providing
subsistence for the rural
poor
Commercial
opportunities for small
farms to sell food staples
and high value products
in domestic market.
Social value in retaining
small farms for
employment
Commercial opportunities
for small farms in export
crops, food staples, and some
high value products
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WORLD DEVELOPMENT
staple foods where local producer and consumer interests diverge, rather than export crops. Success with such forums
has been seen in southern and eastern African cotton sectors
(Tschirley, Poulton, & Boughton, 2006) due to the relatively
small numbers of key stakeholders involved and the reasonable coincidence of interests. The potential of forums to
debate issues and to hold public agencies to account for their
performance is particularly important in Africa, where political scientists are pessimistic about the ability of other measures
to push neo-patrimonial political systems in a more developmental direction.
Donors are major players in policy making in Africa even if
there are limitations to their inuence when strong domestic
interests are threatened (de Renzio, 2006). After almost two
decades of declining allocations of donor funds for agriculture
and rural development, there are signs of renewed commitment. There are dangers in increased funding, of course. Additional funds to public agencies could undermine incentives to
reform themselves or to adopt more eective policies. Correcting this by setting prior conditions has not proved eective in
the past. It may be better if donors make credible (and coordinated) commitments to reward better governance within such
agencies with additional resources. Conditionality could be focused on process, such as the encouragement of the forums discussed, rather than on the adoption of particular policy
reforms. 22 Donors may also consider supporting the emergence of farmer organizations for both service delivery and
advocacy. At the local level, they may form a counter-weight
to the power of local elites in decentralized planning processes.
Currently favored ways of providing international aid
through budget support linked to poverty reduction strategy
papers or sector-wide programs do not necessarily do agriculture any favors (Cromwell, Luttrell, Shepherd, Wiggins, &
Cabral, 2005). The kind of blueprint planning envisaged in
such processes is dicult for a sector when there are diverse
stakeholders, in which so much depends on private actors,
rather than the government, and general solutions need local
NOTES
1. There is a large body of econometric literature that uses cross-country
or time series data to estimate growth-poverty elasticities by sector. These
studies generally nd high-poverty reduction elasticities for agricultural
productivity growth, especially in the early stages of development and
relative to other sectors. For example, in a cross-country study, Thirtle,
Lin, and Piesse (2002) estimated that a 1% increase in crop productivity
reduces the number of poor people by 0.72% in Africa and by 0.48% in
Asia. In India, Ravallion and Datt (1996) have estimated the elasticity of
poverty reduction with respect to agricultural value added per hectare at
0.4% in the short run and 1.9% in the long run, the latter through the
indirect eects of lower food prices and higher wages.
2. The World Bank (2002) estimated their total value at about US $330
billion per year.
3. Even if the 2007/08 food price spike raised food prices, in real terms,
they are still well below those seen in the 1960s and 1970s when the Green
Revolution began in Asia.
4. The evidence for the inverse relationship (IR) is not undisputed. There
are particular diculties with denitions of farm size and measures of
productivity. However, when studies tried to rene denitions of size and
productivity (for example, looking at size in terms of land area per worker
and at dierences in productivity per ha with an adjustment for land
quality), the IR has often been strengthened (Lipton, 1993).
1359
16. Indeed, they may conceivably benet from those aected selling
livestock, land, or other valuable assets at distress prices.
17. Although a ubiquitous feature of successful green revolutions
(Dorward et al., 2004), the high scal costs associated with many
marketing and input subsidies became an escalating burden as governments proved unable to phase them out once they had achieved their
initial purposes. India, for example, currently spends about US $10 billion
per year on subsidies that are largely unproductive (Dorward et al., 2004).
Similar problems persist in many other Asian countries.
18. For example, for smallholder farms in Zimbabwe, the estimated cost
of producing one ton of maize was under US $80 in 1995/96 (Sukume,
Makudze, Mabeza-Chimedza, & Zitsanza, 2000). Imports of maize from
the world market usually cost at least US $220 CIF Harare. If these
imports are then delivered to rural areas as food aid, additional transport,
and handling costs have to be added. In Malawi, in 200304, an informed
advisor on food security claimed that while the import parity price of
maize was around US $250 a ton, it cost a leading food aid agency as
much as US $450 a ton to deliver food aid to rural clients, a cost that
includes those of targeting.
19. This can also be achieved by horizontal coordination between buyers
who agree to share information about farmers who default on loans
(Stockbridge, Smith, & Lohano, 1998).
20. Agriculture has recently received a higher political prole in Africa.
In 2003, the Heads of African States of the African Union declared (the
Maputo Declaration) that they would allocate up to 10% of their scal
budgets to agriculture by 2008, and African governments are also working
together on the Comprehensive Africa Agriculture Development Programme (CAADP) through the New Partnership for Africas Development (NEPAD). Subsequently, there has been some, if not rapid, progress
toward this target.
21. This will depend, inter alia, on the rules of the governing party
funding under the evolving political dispensations.
22. Some (e.g., Lockwood, 2005) argue against conditionality of any
kind, suggesting instead that the majority of aid funding should be used to
reward key development outcomes ex-post. In his discussants comments
at the 2005 Small Farms workshop in Wye, Rob Paarlberg argued that
funding should reward measurable outcomes in terms of delivery of
specic rural public goods, such as increases in road density or agricultural
research output. This would leave the search for appropriate institutional
arrangements for the delivery of such public goods entirely up to local
stakeholders.
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