Smallholder or family farming in transforming economies of Asia & Latin America: Challenges and opportunities

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1 Smallholder or family farming in transforming economies of Asia & Latin America: Challenges and opportunities Ganesh Thapa Regional Economist, Asia and the Pacific Division, International Fund for Agricultural Development (IFAD) International Conference on Dynamics of Rural Transformation in Emerging Economies April 2010, New Delhi

2 Introduction Definition of small or family farms - Asia (farm size, source of labour) - Latin America (source of labour, management of farm, family s place of residence, farm size, source of income, family capitalization) Significant contribution of small farms to total value of agricultural output, food security, biodiversity Overall trend: declining farm size in Asia, mixed trend in Latin America (e.g. Brazil vs others) Number of small farms and their share in total cultivated area increasing over time in Asian countries (e.g. India)

3 Transformation of agriculture Green Revolution Impressive achievement in raising food production and productivity, economic growth and reducing poverty - Asia: doubling of cereal production between 1970 and 1995; 30% increase in per capita calorie availability; decline in real prices of wheat and rice - Latin America: by mid-1980s, 82% of wheat area planted to modern varieties Marginal areas and crops bypassed Challenges in sustaining past gains deteriorating soil and water quality, build-up of pests, etc.

4 Transformation of agriculture Recent Transformation in Agriculture Growth in consumption and production of high-value commodities - Impact of urbanization, rapid growth in incomes, trade liberalization Transformation of agri-food industry - Restructuring of wholesale, processing, and retail sectors - Roles of public investment, private sector, and FDI

5 Challenges faced by smallholders Declining agricultural productivity - Deteriorating soil and water quality - Degradation of soils and build-up of pests - Displacement of cereals by profitable crops - Diminishing returns to modern varieties Environmental problems - Salinization and waterlogging - Water pollution - Over-exploitation of groundwater

6 Challenges faced by smallholders Land and tenure security - Marginalization linked to lack of access to land and land-use rights - Acute land scarcity in Asia, inequality in Latin America - Prospects for redistributive land reform not bright - Scope for land tenure security (e.g. India), land tenure reform (e.g. China, Vietnam) Water shortages - Rising demand for agricultural and non-agricultural uses - Unsustainable extraction of surface and ground water - Water scarcity

7 Challenges faced by smallholders Diversification - Potential for small farms to switch from grain-based systems to high-value agriculture - But face several constraints high risks in production and marketing, high transaction costs, poor access to credit, stringent food safety and quality standards Impact of climate change - Disproportionate impact predicted decline in yields, flooding, salinization, water scarcity

8 Challenges faced by smallholders Risks and vulnerability - Market-oriented policy reforms or globalization increased degree of potential income fluctuations - High vulnerability of small farmers in semi-arid regions - Significant effects of natural hazards - Lack of access to risk-sharing mechanisms (e.g. insurance)

9 Opportunities Technical innovations to address environmental problems and yield growth Agro-ecological approaches - Conservation agriculture/zero tillage - Organic agriculture - IPM Biotechnology - Asia: > 7 million small farmers adopted GM crops (2005) - Latin America: 32 million ha under GM crops (2006) - Limited to 3 crops (cotton, maize, soybean) and 2 traits (herbicide and insect resistance or a combination)

10 Opportunities Institutional innovations that enable smallholders to benefit from new agriculture Farmer/producer organizations - Help gain access to markets, public services, advocacy Contract farming - Helps incorporate small farmers into growing markets for high-value commodities - Generally positive impacts on incomes - Also problems asymmetrical power, non-compliance of contracts, social differentiation, environmental unsustainability

11 Opportunities Institutional innovations that enable smallholders to benefit from new agriculture Supply chains and supermarkets - Small farmers advantages production technologies and associated labour requirements, adapt more easily to organic production - However, need support for intermediation (e.g support in meeting food safety requirements) and internalization (e.g. producer organizations)

12 Enabling policy and programme support- Examples MERCOSUR/REAF - Forum to promote dialogue among governments and organizations to support family farms - Design and harmonize policies to enable family farms to harness benefits of regional integration - Member states have implemented policies related to access to land, resource allocation, agricultural insurance, cooperative development - Land access Brazil: fund to purchase land through National Programme for farm Credit + development of infrastructure Uruguay: programme to promote access to land for collective use through leasing or renting out private or public land + complementary infrastructure

13 Enabling policy and programme support- Examples MERCOSUR/REAF - Subsidized financial services Brazil: PRONAF provides funds to family farms with capital discounts as reward for timely payments and interest bonuses Chile: INDAF provides subsidies on production capital, non-bank credit designed for family farms, and credit to cover incremental transaction costs incurred by new, small-scale companies - Support for insurance..: National and provincial governments provide partial subsidy on insurance policy to family farms growing fruits & vegetables Brazil: Family farms in semi-arid region receive a minimum monthly wage of about US$ 50 for 5 months, if they lose over 50% of harvest due to drought

14 Enabling policy and programme support- Examples MERCOSUR/REAF - Support to family farmers organizations Brazil: Financial and legal support is provided to cooperative systems for supply of quality products to procurement by public institutions Chile: Cooperatives receive assistance to help family farms meet requirements related to volume and quality of products, and timeliness of delivery to retailers, wholesalers, supermarkets, and exporters

15 Enabling policy and programme support- China 1978 Reforms Changed the agricultural model from centralized planning to household contract farming Significantly boosted farmers incentives to produce more, increase in productivity and reduction in poverty Recent policy support to small farmers Increased resource allocation to agriculture to benefit small farmers RMB 432 billion in 2007 to RMB 596 billion in 2008 and RMB 716 billion in 2009 Abolition of agricultural taxes and other fees since 2006

16 Enabling policy and programme support- China Recent policy support to small farmers Minimum procurement price for grains to protect farmers interest and national food security Increased resource allocation for rural infrastructure and to improve rural production and living conditions Since 2007, tuition and fees exemption for students in rural elementary and secondary schools benefiting over 148 million rural children Establishment of a new rural cooperative medical system covering 815 million farmers

17 Concluding remarks Small and family farms have proved resilient over time Continue to contribute significantly to gross value to production, food security, biodiversity New challenges integrating into new agriculture, adapting to climate change, managing market volatility and other risks and vulnerability, challenges due to globalization and trade liberalization (inability to achieve economies of scale, ineffectiveness in dissemination of new technologies)

18 Concluding remarks Governments responding to these challenges e.g. land rental markets to address declining farm size in China, supporting agricultural insurance in Brazil, etc., supporting farmers organizations in India, LA, etc. Unfinished agenda: reorienting public expenditure away from subsidies towards expenditures on public goods like agricultural research and rural roads (e.g. India), supporting smallholders and family farms in less-favoured areas, policies to reduce rural-urban disparity (e.g. fiscal stimulus focusing on rural areas), further reforms in land/land-use ownership (e.g. China)