IFPRI - Enhancing Profitability of Family Farms, Shenggen Fan

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Shenggen Fan, August 2014

Enhancing profitability

Transforming smallholder family

farms

Shenggen FanDirector General | International Food Policy Research Institute

Asia Pacific Regional Consultation

Chennai, India | August 9, 2014



Key messages

Most smallholders farmers are family-based

Smallholders have a big role to play in achieving

global food security and nutrition

Not all smallholders are the same and they face

an emerging set of challenges and opportunities

Strategies should be tailored to different types of

smallholders and country’s level of transformation



Global hunger and undernutrition persist

0

5

10

15

20

25

30

WORLD Africa E Asia S Asia

1990-92

2011-13

Source: Data from FAO 2013, HarvestPlus 2011

Prevalence of undernourishment %

Smallholders make up 50% of world’s undernourished

people, and live off 2 ha of cropland or less

Prevalence of micronutrient deficiencies

Source: Data from FAO 2013

+2 billion people are micronutrient

deficient

Source: UN 2005



Most smallholder farms are

family-based

Of the world’s 570 million farms

• 88% are family farms

• 84% are smallholder farms

Smallholder farms provide

• Livelihoods for 2.5 billion people

• More than 80% of food consumed

in Asia and Africa south of Sahara

Smallholder family farms are critical in achieving food security and nutrition

Source: FAO 2014

Note: Most recent data on holdings used; Data for Algeria in 2001, Burkina Faso in 1993, Egypt in

2000, Iran in 2003; Ivory Coast in 2001; Morocco in 1996; Yemen in 2002

Share of farm size less than 2 ha (%)

Source: IFAD 2013; FAO 2014



Is small still beautiful?

Old wisdom: small is beautiful → efficiency benefits

As agriculture and food systems transform, optimal farm

size varies

Small is still beautiful: weak nonfarm growth and

increasing rural population

Bigger is better: booming nonfarm sectors and

increasing urban population

However, many countries artificially control farm size

Optimal farm size is dynamic concept that reflects

different types of smallholders and economies



Differences exist on

Potential to commercialize

• Soft constraints

— E.g. access to info and financial capital

• Hard constraints

― E.g. high population density and low quality soil

Stage of economic transformation

• Level of productivity in and outside of agriculture

• Economic diversification and growth

Not all smallholders are the same

Source: Fan et al. 2013

Agriculture-based

Transforming Transformed



Food price volatility

Rising agricultural-related risks to health

Climate change and higher frequency /

intensity of extreme weather events

Land and water constraints

Limited access to finance and capital

Emerging challenges facing smallholders



Improves long run agric. growth, reduces poverty

Short run/ volatile

Hurts net sellers and buyers of smallholders

Long run/ secular

Price increase

Food price increases and volatility

Access to inputs

Infrastructure

Markets and services

Capacity to convert high food prices

to high income

Price volatility can have harmful effects on the poor, but long run

impacts of higher food prices can increase smallholder income and

stimulate poverty reduction

Food price increases can be positive or negative…

Source: Headey 2014, Christiaensen et al. 2011

Capacity

…but smallholders require support for long-run gains



Rising agriculture-related risks to health

Picture Source: ILRI 2013

Human health

increasingly

affected by intense

food production

Affects smallholders’ ability

to undertake more

productive and innovative

activities

Food safety risks

• Unregulated food production

• Increasing proximity of industrial

and agricultural activities

• E.g. milk and rice contamination

Animal-borne diseases

Source: ILRI 2012



Limited access to financial options for savings and loans

Incompatibility of microcredit with

• Risks that affect whole communities

• Seasonality of smallholder production and income cycles

• Smallholders’ long-term needs for more productive capital investments

Uncertain impact of resource-seeking FDI on smallholders

Limited access to finance and capital

Source: Motes 2011

Agricultural investment needs, investment flows, and the remaining gap

in developing countries (excl. infrastructure), 2008



Smallholders should be supported to either

MOVE UP

• Smallholders with profit potential move from

subsistence farming to profitable farming systems

• Already profitable smallholders scale-up commercial

activities

OR

MOVE OUT

• Smallholders with no profit potential move out of

agriculture for non-farm employment

Policies should differ across smallholders

Source: Fan et al. 2013



Policies should also reflect country’s stage of transformation

Increased

productivity among

smallholder farmers (e.g. smallholder-friendly

investment and access to

finance)

Cross-sectoral social safety nets to protect during shocks and acquire

skills to undertake more productive activities

Institutional reform

to facilitate

consolidation of

farms and

movement out of

agriculture

High-value agriculture

Improved links to global and

urban markets

Agriculture-based

Transforming Transformed



Economic

Promote market based price stabilization mechanisms that

encourage smallholder profitability

Support institutional reforms that link smallholders to value chains

Ensure smallholder-friendly financing and investment

Develop programs and projects that target young farmers

Strengthen land rights for smallholders and promote optimal size of

operations through land rental markets

Environmental and Social

Advance smallholder-friendly climate-smart and sustainable

agricultural technologies

Scale up productive and cross-sectoral social safety nets

Pathways to enhancing profitability of smallholder family farms



Land, capital, and skill-building are crucial to develop next

generation of farmers

Improve rural infrastructure to increase access to services,

goods, jobs, and leisure

Young people + opportunity = “Youth dividend”

Developing youth in agriculture

Percentage of Rural Youth Workforce in India by

Sector (Age 15-24)

7970

65

2130

36

1993-94 2004-05 2009-10

Agriculture

Non-Agriculture

Source: Motkuri 2013

Source: Brooks, Zorya, and Gautam 2012



Linking smallholders to value chains

Author Type InnovationRegion /

Country

Actual / potential beneficiaries and

impact

Saenger et al.

2012

Dairy Contract

farming

Vietnam Small farmers and processors

• Higher productivity

• Better milk quality with quality-

dependent pricing

• Lower per-unit transaction costs with

independent quality control

Chenevix

Trench et al.

2011

Perishable

foods

Modified risk

analysis

framework

General Poor small farmers and consumers

• Higher incomes from producing

high-value foods

• Lower health risk

Hawkes & Ruel

2011

Multiple incl.

fortified foods

Nutrition-

sensitive chains

Developing

countries

Poor and marginal populations

• Better nutrition

• Improved access to nutritious foods

(availability, affordability, and

acceptability)

Bernard &

Spielman 2009

Grains Producer

cooperatives

Ethiopia Smallholders

• Positive spillovers from cooperative

activities



India: Linking smallholders to dairy grid

Linked small dairy producers to urban consumers

• Chain of production, procurement, processing, and marketing

Created national milk grid of village cooperatives,

district unions, and state marketing federations

13 mil. participants, 3.7 mil. women in 2008

Dairy production rose by 4.5% per yr,1970-2001

Source: Cunningham 2009

Increase bargaining power; provide demand information; and

reduce transaction costs and risks



Smallholder family farms are key to ending global

hunger and undernutrition

Priority-setting in policymaking must include

transformation of smallholder family farms

Strategies to enhance profitability should be

tailored to different types of smallholders and

country’s level of transformation

In conclusion

Education

IFPRI - Enhancing Profitability of Family Farms, Shenggen Fan