Last Chance for the Small Farm?

Peter Hazel

(December 18, 2004) Few symbols of economic inefficiency are as potent or enduring as the small farm. Consider the U.S. wheat farmer in his combine harvester, single-handedly cutting a swathe through his 10,000-acre farm versus the labor-intensive efforts of his ricegrowing counterpart in Bangladesh. Karl Marx viewed small farms as self-exploiting, while many experts see them as an anachronism in today's market economy.

The view that small farms are not commercially viable and even an impediment to development continues to be widely held, with many development experts arguing it is wiser to promote large-scale operations and higher-value agriculture, especially in today's increasingly integrated and consumer-driven markets.

Yet such a position ignores the enormous diversity of small-farm situations around the world, and hence fails to take into account the substantial prospects for small-farm development in many developing countries, where 80 percent of the poor are either small farmers or landless workers. Nor does it suggest how a rapid disappearance of small farms could be managed without leading to a much larger number of people becoming trapped in rural poverty and urban ghettos.

Small farms offer important economic and social advantages for the poor in countries in the early stages of their economic transformation into industrial economies.They are more efficient producers in labor-surplus economies (because family workers are less costly and more motivated than hired workers and small farms are more likely to use labor rather than capital-intensive technologies), they help contain poverty by providing an affordable and reasonably healthy home platform from which poor households can experiment with ways to improve their livelihoods, and they help prevent premature urban migration and the explosive growth of large cities.

Crucially, they also ensure a degree of food security in rural areas where high transport and marketing costs can drive up food prices, while at the national level their higher land productivity has the potential to greatly help poor countries attain selfsufficiency in staples such as cereals, tubers, and even livestock.

Many of these advantages slowly disappear as countries develop and labor becomes more scarce relative to land and capital, leading to a natural transition toward larger farms and an exodus of small farm workers to towns and nonfarm jobs. But this transition does not normally begin until countries have grown out of low-income status, and it typically takes several generations to unfold. A common misdiagnosis stems from overlooking this broader economic context for determining the economics of farm size.

For most low-income countries, the problem is not that most small farms are inherently unviable in today's marketplace, but that they face an increasingly tilted playing field that, if left unchecked, could lead to their premature demise.

Among the more powerful forces working against the small farmer is the shift toward consumer-driven markets as part of market liberalization and globalization.The small farmer is increasingly being asked to compete in markets that demand much more in terms of quality and food safety; that increasingly come under the sway of supermarkets, processors and large export traders; and that reflect far more international competition. As small farms struggle to diversify into higher-value products, they must increasingly meet the requirements of these demanding markets, both at home and overseas.These changes offer new opportunities and pose serious threats to small farmers.

At the same time as markets have become more unforgiving, structural adjustment and privatization programs have left many small farmers without adequate access to key inputs and services, including farm credit. State agencies no longer provide many direct marketing and service functions to small farms, leaving a vacuum that the private sector has yet to fill in many countries. The removal of subsidies has also made some key inputs, such as fertilizer, prohibitively expensive for many small farmers, and the removal of price stabilization programs has exposed farmers to greater price volatility.

Other obstacles include the tradedistorting agricultural policies of most developed countries that not only limit export opportunities but also unfairly enable developed-country farmers to undersell small farmers even in their own domestic markets.

HIV/AIDS is also taking a severe and increasing toll among small farms in many developing countries, reducing the number of able adult workers and leaving many children as orphans with limited knowledge about how to farm.

These forces are particularly challenging for small farms in Africa and South Asia. Left to market forces alone, the major beneficiaries of the new high-value and liberalized agriculture will mostly be the larger and commercially oriented farms, and farms that are well connected to roads and markets. If agricultural growth is to play a key role in reducing rather than worsening rural poverty, then developing viable strategies for small farms is probably one of the fundamental problems that policymakers will need to resolve. Fortunately there are many opportunities to guide and support small farms so that they can survive and even prosper.

Context is very important when thinking about appropriate interventions to assist small farms. Countries with dynamic and growing national economies and rising per capita incomes offer small farmers many opportunities to diversify into higher-value products or nonfarm sources of income, or to exit farming entirely. But poorer and slower-growing economies offer far fewer such opportunities.

In many poor countries, especially in Africa, there is still excellent growth potential for small farms in the food-staples sector (cereals, roots and tubers, and traditional livestock products). Demand for these products is projected to double by 2015, worth another $50 billion each year at today's prices.These markets are easier for small farms to access and are less demanding in terms of their quality requirements. Many small farms could double or triple their incomes if they could capture a decent share of this potential market growth.

In many middle- and higher-income countries, on the other hand, food-staple markets offer fewer opportunities, with changes in staple-crop demand linked more to growth in livestock feed or export markets than to domestic food consumption. In these cases, small farms need to diversify into higher-value products such as fruits and vegetables, oils, fish, and niche markets such as organic crops that have much better prospects than staple crops.

For this to happen, infrastructure and education in rural regions need to improve. And small farmers need to get better access to yield-boosting technologies and other key inputs such as fertilizer and credit. They also need risk management assistance, secure property rights, and producer-marketing organizations that can link them to the new market chains (supermarkets, processors, exporters, and the like).

Small farmers cannot do all these things on their own, and the public, private, and NGO (nongovernmental) sectors all have important roles to play.

Unfortunately, current trends suggest this is not going to happen; research and extension for small farms is declining, credit for small farms has virtually disappeared, and donor and government investment in crucial rural infrastructure is stagnant at best.

Unless policymakers adopt a new agenda toward small farm agriculture, there is a growing risk that rural poverty could soon increase dramatically, sending waves of migrants to urban areas where infrastructure, the job market, and support services could be overwhelmed.

Peter Hazell is the director of the Development Strategy and Governance Division. of the International Food Policy Research Institute (IFPRI)Reprinted with permission from the International Food Policy Research Institute, www.ifpri.org. The article can be found online at: http://www.ifpri.org/pubs/newsletters/ifpriforum/200410/if08small.htm

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