Conference onNew Directions for Smallholder Agriculture

Smallholder Farming in Asia and the Pacific: Challenges and Opportunities

Ganesh Thapa, IFAD and Raghav Gaiha, University of Delhi24 January 2011

Introduction

• Definition of small farm- farm size, source of labour

• Significant contribution of small farms to total value of agricultural output, food security, biodiversity

• Overall trend: declining farm size

• Number of small farms and their share in total cultivated area increasing over time

Transformation of agriculture

Green Revolution

• Impressive achievement in raising food production and productivity, economic growth and reducing poverty

- Cereal production doubled between 1970 and 1995

- Per capita calorie availability increased by 30%

- Real prices of rice and wheat declined

• Marginal areas and crops bypassed

• Challenges in sustaining past gains- Deteriorating soil and water quality

- Build-up of pests and diseases, etc.

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 agro-food industry- Restructuring of wholesale, processing, and retail sectors- Roles of public investment, private sector, and FDI

Farm size and marketed surplus

Past studies

• If output increases in response to a price increase, sales are likely to increase more than proportionately, and vice versa (Krishna 1995)

• The marketed surplus of grains is higher when the relative cereal price is higher, and it is lower when the relative price of commercial crops is higher (Bardhan and Bardhan 2003)

• Our analysis- Based on all-India Rural Economic and Demographic Survey in

17 states in 2006 (sample of 5,695 households)- Used smaller samples (outliers eliminated)- Village access to roads, markets, banks and telephone varies

enormously

Farm size and marketed surplus

Household characteristics

• Households grouped into 3 categories: small (<2 acres), medium (2-5 acres) and large (>5 acres)

• Food commodities disaggregated into 4 groups: cereals, pulses, oilseeds, and vegetables

• About ¾ of sample households small, about 15% medium and just under 10% large

• About 57% of land of smallholder irrigated (lower for medium and large farmers)

• Proportion of farmers not using fertilizer nearly three times among smallholders than large landholders

• Education level lowest among smallholders

Crop yields by farm size

• The generalization that smallholders are more productive is confirmed by our analysis

• However, this relation varies with food commodity group (e.g. not so strong in cereals)

• While much lower fractions of smallholders are concentrated in lower ranges of yields compared with medium and large landholders, segments of smallholders also obtain very low yields (e.g. in oilseeds)

Determinants of marketed surplus

• Our analysis confirms the important effect of price on marketed surplus of all four food commodity groups (cereals, pulses, oilseeds, and vegetables)

• However, elasticities with respect to own price vary, with the highest for cereals (0.41), followed by pulses (0.31), oilseeds (0.27) and vegetables (0.13)

• For vegetables, easier access to market matters a great deal, given lack of cold storage facilities

• Education of household head matters in the case of cereals and vegetables

Determinants of marketed surplus

• For all four food commodity groups, smallholders are associated with lower marketed surplus

• Lower caste households and tribal households marketed lower fractions relative to others

• Researchable issue: whether smallholders marketed lower fractions because they received lower farm gate prices and/or because their access to markets was more constrained

Challenges faced by smallholders

• Declining agricultural productivity growth- 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 water-logging- Water pollution- Over-exploitation of groundwater

Challenges faced by smallholders

• Land and tenure security- Marginalization linked to lack of access to land and land use

rights- Acute land scarcity- Prospects for redistributive land reform not bright- Scope for land tenure security (e.g. India), land tenure reform

(e.g. China, Vietnam), diversification, growth and equity

• Water shortages- Rising demand for agricultural and non-agricultural uses- Unsustainable extraction of surface and groundwater- Water scarcity

Challenges faced by smallholders

• Diversification- Potential for small farms to switch from grain-based systems to

high-value agriculture- But face 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- Both mitigation and adaptation necessary, with greater

emphasis on the latter- Adaptation strategies of smallholders raise specific concerns

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- disruption of livelihoods, loss of assets

- Lack of access to risk-sharing mechanisms (e.g. insurance)

Opportunities

Technical innovations to address environmental problems and yield growth

• Agro-ecological approaches- Conservation agriculture/zero tillage- Organic agriculture- Integrated pest management - Small farmers’ constraints

• Biotechnology- > 7 million small farmers adopted GM crops in Asia (2005)- Limited to 3 crops (cotton, maize, soybean) and 2 traits

(herbicide and insecticide resistance or a combination)- Small farmers’ risks

Opportunities

Institutional innovations that enable smallholders to benefit from ‘new agriculture’

• Farmer/producer organizations- Help gain access to markets, public services, advocacy - Achieve discipline in collective action

• Contract farming- Helps incorporate small farmers into growing markets for high-

value commodities- Generally positive impacts on incomes- Problems- asymmetrical power, non-compliance of contract,

social differentiation, environmental sustainability

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

- Important role of women in horticulture- However, need support for intermediation (e.g. support in

meeting food safety requirements) and internalization (e.g. producer organizations)

- Technology and market support to small farmers through ICT

Enabling policy & programme support- China

Why Chinese agricultural reforms are significant?

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 in 2009

• Abolition of agricultural taxes and other fees since 2006

Enabling policy & 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 fee 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

Concluding remarks

• Small farms have proved resilient over time

• Continue to contribute significantly to gross value of production, food security, biodiversity despite challenges

• Facing new challenges– integrating into ‘new agriculture’, adapting to climate change, managing market volatility and other risks and vulnerability

• Have shown ability to integrate into new value chains, if provided support through intermediation and internalization

Concluding remarks

• Because of high food prices, attractive investment opportunities have opened up in agriculture

• Elimination of policy biases against smallholders will enhance their competitiveness

• Institutional innovations can play an important role

• Role of government –financial, technical and market support to smallholders- and public-private partnerships