The future of small farms

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1 The future of small farms International Food Policy Research Institute Imperial College & Overseas Development Institute

2 Questions to be covered Why rural development? Why agricultural development? Why small farms? Importance of context Policy and research pointers

3 Why rural development? MDG 1: halve poverty by % of the world s poor live and work in rural areas will be no less than 60% in 2025 NB: Rural areas will lose population but will take time Some will benefit from transfers from urban economy, but most of these poor will depend heavily on their own incomes, and from transfers within the rural economy

4 Why agricultural development? Two arguments: (1) Agriculture can sustain livelihoods of many; by growing it can reduce poverty: Theory: Farming can employ much labour, little capital Generates returns to land, an asset that some poor have Agricultural growth pushes down food prices History few if any countries have industrialised without an agricultural revolution Recent analyses: A 10% rise in farm yields 7% fall in poverty [Irz et al. 2001] In Africa, through farm incomes, in South Asia through farm wages, in Latin America, through jobs in food chains [de Janvry & Sadoulet 2002]

5 Case for agricultural development (2) (2) What s the alternative in rural areas? Agriculture can be difficult, with growth rates that struggle to beat 5% a year; while manufacturing industry can expand at twice that rate But mining, tourism, rural manufacturing all have limited possibilities

6 Average real wholesale prices rice & wheat, , Bangladesh [IFPRI]

7 Note debates may be: Why small farms? Clarifications SF Kenya versus LF Brazil SF Kenya versus LF Kenya Small farms: how small? India classifies : The prospects for SF (and semi-medium) are much better than those for marginal farms

8 The case for small farms Efficiency: SF use land more intensively inverse ratio of farm size: yield/ha and this may explain why farm sizes fall in the developing world Equity labour use, strong consumption links to local economy T-cost advantages SF LF Labour supervision Local knowledge Self-provisioning Knowledge of markets & technology Access to inputs, credit, markets Quality assurance Risk management X X X X X X X

9 India: farm sizes DESRIPTION SIZE AVERAGE SIZE HA % OF Total HOLDINGS % OF AREA % OF IRRIGATED AREA MARGINAL FARMS <1 ha O SMALL FARMS 1-2 ha SEMI-MEDIUM 2-4 ha MEDIUM 4-10 ha LARGE >10 ha ALL FARMS

10 Rupees/acre US$/ha Brazil & India: farm size & yield/area India: Farm size and output per unit area Brazil: Farm size and output per unit area > > 500 Acres Hectares

11 Farms sizes fall in developing countries

12 Do small farms have a future? The share of both holdings and cropped area accounted for by small farms continues to rise in most developing countries. Small farms are not about to disappear! Is this rising share of small farms indicative of: their superior efficiency market imperfections (especially for land) social, insurance or other values attached to land? Can increasingly small farms still act as a driver for growth and poverty reduction?

13 The changing world for small farms This is not mid-1960s Asia! Lower international commodity prices Environmental limits to intensification Exhausted easy options in crop technology HIV/AIDS Climate change GR context of closed domestic markets & heavy subsidies now unthinkable in many developing countries These affect all farms in given countries / regions, but may be differential impacts across regions Concentration in supply chains

14 Concentration in supply chains Key point: to keep down T-costs, buyers favour a few large suppliers Different contexts Two key questions: How fast is concentration? If this responds to economic growth, then impact on SF/MF is much mitigated Ability of SF to organise and meet new demands

15 High Demand for Output from Small Farms Low Low (Mainly small) Inequality in Farm Structure High (Dualistic) High Low Comparative Advantage of Small Farms Low Importance of credence attributes High

16 Importance of context Driver Supporter Export manufacturing potential, coastal - Mineral economies - Agrarian potential, unimodal land distribution Agrarian potential, bimodal land distribution Low agrarian potential, landlocked - -??

17 Pointers for policy Need good governance, macro-economic stability, rural roads, research but also following need attention: Follow demand and look for competitiveness Institutional innovation in supply chains Farmer organisation Rural financial systems Encouraging linkages & providing jobs for marginal farmers