* The apparent exception, Korea, had its initial agricultural growth thrust before 1939.

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1 GLOBALISATION, TECHNICAL CHANGE, SCALE ECONOMIES: CAN SMALL FARMS SURVIVE IN LOW/MIDDLE-INCOME COUNTRIES (LICs/MICs)? IF NOT, WHAT CAN BE DONE? ODI series: Rural Poverty & Food Security: a new agenda Michael Lipton, 23/5/ (Transp. 1) The answer to the second question is: little can be done about '$/day poverty reduction' in LICs (where most poor live) without quickly-rising small-farm employment incomes. a. Workers' income (employed or self-employed) is crucial; the poor have little asset income. b. In LICs >60% of workers depend on farm/farmwork income (Transp. 2). c. The proportion of the POOR so dependent is higher. At least 70% of the world's dollar-poor are rural, depending mainly on farm incomes, partly on non-farm incomes based mainly on sales to farmers/farmworkers. Even 8-15% of urban workers live mainly from agriculture: more among the poor. Proportion of poor people depending on ag. is even higher than of poor workers. d. Working-age populations in the developing world are growing faster than total populations, typically by over 2%/year through Among the poor and in rural areas the rate is higher. e. Affordable extra workplaces for finance-short countries will continue to be mainly (though decreasingly) rural and agricultural. Urban, even informal and service, workplaces are usually much costlier, especially allowing for external and congestion effects. f. But this anti-poverty advantage of agriculture-based growth (affordable workplaces) is linked to small-farm emphasis. Very big farms (>1000 ha) in Latin America typically employ barely 10% of workers per cropped ha as very small farms (< 1 ha), using capital instead. g. Small family-run farms cut transactions-costs on home-grown food and so are likelier to address local staples needs directly; below the dollar poverty line c.70% of income is spent on food (c. 50% on staples); yet growing small farms increasingly diversify into cash-crops. h. Outside entrepot city-states and tourist islands, all substantial and successful cases of poverty-reducing mass development since 1950 * started with employment-intensive agricultural expansion, usually based on small (sometimes smallish) farming. With half the world's poor projected to be still rural in 2035 and capital scarce, alternatives are not apparent. i. MICs (& advanced areas of LICs) face a 'transition problem': carrying successful farm-based rural poverty reduction into (a) left-out areas, (b) times of non-farm-based growth. On E Asian experience this works best on the 'back' of successful, not-too-unequal farm-based development. 2. More positively Agricultural and rural development provide a bridge between efficiency and equity: small, labour-intensive, poverty-reducing, is also efficient in low-income developing areas. Within agriculture much the same applies to small, farms: lower transactions costs for labour supervision mean more labour-intensive practices and product-mixes, and higher yields. Rising workforce/population ratios raise both the CHANCE to use these attributes of small farms to escape poverty, and the URGENT NEED to do so. 3. Yet developing-country yields in main food crops are crawling up at one-third the pace of the 1970s; land reform has slowed down; farm employment is rising much more slowly; and aid to agriculture has collapsed to one-third of its real 1988 values. Why? Is it related to the sharp slowdown since the late 1980s in world poverty reduction? Do globalisation, technical change, or scale economies destroy small-farm advantage and with it most hope of poverty reduction? * The apparent exception, Korea, had its initial agricultural growth thrust before 1939.

2 4. Globalisation and technical progress, separately, should not decrease the advantages in developing countries of small labour-intensive farms if they have access to markets, skills, science. 5. Agro-globalisation - i.e. freer international flows of agricultural goods, inputs, investment, technology - should increase specialisation along the lines of comparative advantage. This would shift rich countries out of labour-intensive farming, focusing them on big, capital/skill/landintensive products and farms. Developing, increasingly labour-surplus economies would increasingly find competitive edge in small labour-based farms and products suitable for them. No shift towards big farms in Asia. Sometimes globalisation HAS induced the latter trend (horticulture in E Asia and initially, with co-operative marketing, in Guatemala) but often not. Why? (a) Persistent protection/subsidisation of highly input-intensive agricultures in developed areas without huge farmland expanses - mainly EU and Japan but also parts of N America. Getting too costly (as EU enlarges), trade-conflictual (post-uruguay), and environmentally suspect and will be squeezed out, leaving two sorts of agro-economy: labour-intensive in S and E Asia and (increasingly) Africa; and capital-land-intensive in Australasia and parts of N and Latin America. Unskilled/low-science operators squeezed out in both types of ag except where remoteness/ transport-cost offers natural protection. (b) Persistent biases - despite reduced price extraction - against agriculture (and within it towards employment-light, capital-heavy, surplus-oriented large-farms) in many developing countries. (c) Market organisation problems: push towards product standardisation, pesticide standards, child labour conditions, raises cost of supervising many small farms, reversing their natural advantage (low labour-linked transaction costs). Yet in other areas such costs/scale-economies have been organisationally captured outside the farm (KTDA, nucleus estate, sugar/rubber collection), leaving small-farm labour-supervision advantages in direct production; similar approaches should emerge for product standardisation. 6. Technical progress: the record on irrigation, new seeds, fertilisers, shows small/labour-heavy/deficit farms no less benefited in long run as big ones. Biotechnology (and, when it comes, new water technology) is not obviously less divisible or usable by small farms. Credit, early-risk management, and skill/science access problems remain, but have been dealt with in the past. 7. So, much technical progress and much globalisation - separately - are on balance benign for small-farm competitiveness. But there is a public-goods problem about their interlocking that is deeply threatening for small farms. Past technical progress has been developed and often conveyed via public/pro-bono sector action, under great local and global pressures to be at least somewhat pro-poor. Now, agricultural research (and extension and infrastructure provision) are becoming increasingly privatised as they are globalised. Incentives and public-private partnerships, to shift private action to meeting the needs of small farmers, is needed but inadequate. Lacking it, the generation and delivery of technical progress, and of the water and other infrastructures for its economic use, will concentrate unduly on the needs of rich, big, capital-intensive farmers, processors, and food consumers. This is the real threat to small farms in low-income countries. In particular African small farmers and farmworkers will seldom escape poverty unless they obtain a far larger share of world research resources in crop biotechnology and water development.

3 1. If small farms dwindle, dollar poverty won't fall much Workers' income is central to poverty reduction. Most poor workers depend on agriculture. Workforce growing much faster than population. Affordable extra workplaces initially mainly farming. And big farms fare less employment-intensive. Also small farms likelier to provide food staples locally. Post-1950 mass poverty reduction all small-farm based. Later transition to nonfarm poverty reduction also eased by initially small-farm-based growth. 2. There is a positive side In labour-surplus LICs, ag. focus is efficient and equitable. So is small-farm focus within ag. ('inverse relationship'). Rising workforce/population: window of opportunity (for small Asian farms, African infrastruc.) or unemployment? 3. But Staples yield growth has slowed right down since 1990 Ag. workplace growth slowdown post-1980 even sharper Land reform initiative lost? Collapse of aid to agriculture Related (?) slowdown in poverty reduction Is this due to impact of globalisation or technical change on small-farm possibilities, practices or prices?

4 % of workers mainly dependent on agricultural income Region E/SE Asia S Asia Sub-Sah. Africa Lat. Amer./Car All developing Source: FAOSTAT

5 4. Globalisation & tech. progress each not bad for small farms. 5. Why globalisationæno big output shift to LIC labourintensive small farms? a. They face (a) capital-intensive HIC big farms, (b) inputsubsidised HIC farms; squeezed (cost/trade/environment). b. Remaining mainly non-price bias in some LICs/MICs. c. Market organisation, supermarkets, pesticides, labour standards: but resulting transaction costs can be 'externalised' from small farms. 6. Technical progress, like trade, should (if profit-seeking) respond to local scarcities, helping labour-intensive small farms in LICs. Past seed/fertiliser/water progress often did. 7. But the interlock of technical progress with globalisation, plus the privatisation of many formerly publicly provided activities (in research, extension, infrastructure), creates a problem for small farms in LICs. For example, private biotech is less responsive to their needs than was the largely public-sector green revolution. Transfer of many activities from (national and global) public to private sectors creates interlock of technical change with globalisation that does threaten small farmers' prospects in LICs, especially Africa. [And, unless protected by transport costs and remoteness, few unskilled farmers will survive and compete either labour-intensively or capital-intensively.]