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

14-16 April 2010, New Delhi

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)

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.

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

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

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

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

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)

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)

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

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)

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

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

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

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

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

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)

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)