The future of farming in developing countries Klaus von Grebmer Research Fellow Emeritus International Food Policy Research Institute HFFA, Berlin, January 17, 2013
Why the interest? Global food security is under stress Strategies with regard to smallholders can enhance or hinder national and global (food) security Innovations in technologies and institutions are needed to increase smallholder productivity and income
Global food security is under stress
The goal of halving hunger is off-track Number of hungry people, 1990-2015 946 584 29 countries have alarming/extremely alarming levels of hunger (GHI) Source: Fan 2010
US$/metric ton Food price hikes and volatility 800 700 600 Wheat Maize Rice Global hikes since June 2010 Wheat: 73% Maize: 60% 500 400 300 200 100 0 Source: FAO 2011 High food inflation China: 12% (Nov. 2010) India: 18% (Dec. 2010) Driven by non-staples Volatility due to Natural disasters Panic purchases Trade restrictions, etc.
Climate change will push up food prices World food price increases under various scenarios, 2010 2050 (% change from 2010) Source: Nelson et al. 2010
High farmland constraints Global extent of soils with low nutrient capital reserves (percent of area) Source: Ahamed et al 2006
Growing water constraints Projected water scarcity in 2025 Economic water scarcity: due to lack of investment, poor infrastructure, unequal distribution Source: IWMI 2000
Biofuels boom and food security Grain-based bioenergy is NOT: a solution to the energy problem a solution to the environmental problem friendly to small farmers Grain-based bioenergy would hurt many poor people in developing and developed countries prices of maize will be 16% higher by 2020 with biofuel expansion (Zhang et al. 2009)
Demand-side challenges Rising population and demographic changes World population reaches 9 billion by 2050 Income growth Urbanization Changing consumer preferences Source: FAO 2009 Larger and more urban population will demand more and better food
The opportunities of smallholders to enhance food security and the severe national and global challenges
Who is the small farmer? Sole consensus maybe the lack of a sole definition: smallholder, family, subsistence, resource-poor, low-income, low-input, or low-technology farming Small farms are operated units in which most labor and enterprise come from the farm family, which puts much of its working time into the farm (Lipton) Farmers with limited resource endowments, relative to other farmers in the sector (FAO) Those with a low asset base, operating less than 2 hectares of cropland (World Bank) Generally a woman having less than 2 hectares of land, living on less than $1 a day, with poor access to inputs, technology, extension and credit among many others (Pingali)
How many and where are they? There are around 500 million farms operating at less than 2 ha: 87 percent of these farms are located in Asia 8 percent in Africa 4 percent in Europe 1 percent in the Americas Africa constitutes about 33 million small farms. 80 percent of these farms have an average size of 1.6 hectares
The share of small farms is large Farm size (ha) % of all farms Africa Asia <2 80 89 2-10 15 10 10-100 3 1 >100 0 0 Shenggen Fan, based on most recent data available from FAO Agricultural World Census from late 1980s-2000s Higher productivity of small farms = agricultural and overall economic growth
Factors affecting farm size Availability of (farm) land Land reform Other land legislation (inheritance) and policy changes Development of the nonagricultural sector Development of the rural nonfarm sector Government subsidies, taxes or support to agriculture Culture, value and ideology
Downward trends in farm sizes
Small farms provide opportunities Use land more efficiently Generate demand for goods and services thereby stimulating the rural non-farm economy Create additional jobs Promote equity and poverty reduction Source: Hazell et al. 2007
but also face multiple challenges Productivity constraints Limited resources (land, capital, human capital) Insufficient access to technology, markets, credit, and infrastructure High marketing and transport costs Rising challenges Supply chains with higher requirements for quality, safety, and traceability Changing consumer demand Climate change and environmental degradation
Income and poverty: Small farm is NOT beautiful India: large share of rural poor are either landless or have small size of land China: small farm size has hindered the increase in farmer s income Thailand: farmer s income is positively correlated with farm size Vietnam: landless households or small farms are positively correlated with their poverty status in the Mekong River Delta
Innovations in technologies and institutions are needed to increase smallholder productivity and income
The strategic aim: Non-disruptive transition Number of small farmers Size of farms t t+5 t+10 t+?
Improve smallholder productivity and income Invest in technology and infrastructure agricultural research and new technologies access to high-quality seeds and fertilizer rural infrastructure Innovate in financial services risk-management mechanisms institutional arrangements
Investment in agric. R&D has higher returns Ghana Uganda Tanzania Ethiopia China India Thailand Returns to agriculture or rural income (local currency/local currency spending) Agric. R&D 16.8 12.4 12.5 0.14 6.8 13.5 12.6 Education -0.2 7.2 9.0 0.56 2.2 1.4 2.1 Health 1.3 0.9 n.e. -0.03 n.e. 0.8 n.e. Roads 8.8 2.7 9.1 4.22 1.7 5.3 0.9 Ranking in returns to poverty reduction Agric. R&D n.e. 1 2 n.e. 2 2 1 Education n.e. 3 1 n.e. 1 3 3 Health n.e. 4 n.e. n.e. n.e. 4 n.e. Roads n.e. 2 3 n.e. 3 1 2 Source: Fan, Mogues, and Benin 2009 Note: n.e. indicates not estimated
Investments in new technologies have high pay-offs Smallholder cassava production, Nigeria Improved cassava varieties, advances in pest control, processing technology, mid 1980s-early 1990s Tripled production in less than a decade Farmer net profits were 18 times higher Returns to labor increased by > 60% Increased income and gender equity Generated significant technology spillovers to Ghana Source: Nweke and Haggblade 2010
Increased access to inputs can raise smallholder productivity More affordable fertilizer increased fertilizer usage higher crop yields Baseline Lower urea port price, transport & border crossing costs Maize yield response Source: Guo et al. 2009
Innovations in smallholder finance Modern communication technology cell phone-based payment services, biometric technology to monitor repayment Financial and non-financial service bundles livestock health monitoring + credit Community banking village savings & loan associations, self-help groups Leasing as an alternative to credit Sustainability is still a challenge; enabling environment, legal framework, and supportive rural infrastructure are needed Source: Kloeppinger-Todd and Sharma 2010
Innovations in smallholder insurance Weather index-based insurance for crops and livestock Multiple-peril crop insurance Community-based insurance for health and agriculture risks Microfinance and microinsurance bundles Improved affordability, investment in weather-tracking infrastructure, continuous experimentation are needed Source: Vargas Hill and Torero 2009
Innovations in institutions for smallholders Producer cooperatives Contract farming schemes Social and rural knowledge networks Decentralized, farmer-led, market-driven extension systems Public-private partnerships in knowledge and risk sharing Institutional innovations should be context-specific and successes should be scaled up Source: Asenso-Okyere et al. 2008
Emerging economies have a key role to play New markets for smallholders Additional investments to improve productivity e.g. lowcost technologies, rural infrastructure Share of developing countries FDI from emerging countries (%) New learning opportunities from past experience Source: UNCTAD 2009
Toward a food security agenda with increased support for smallholders 1 Address short-term food price volatility 2 Invest in agriculture and smallholder productivity 3 Link smallholders to high-value chains 4 Promote social protection for poor smallholders and raise their political voice 5 Address food security challenges e.g. climate change and biofuels
Politics and policy aspects
African Democracy Ratings 2011 Source: Economist
Land tenure reform Historical and prevailing land tenure system: Major barrier to beneficial economic change in agriculture Land tenure systems that fail to allow for the development of a purchase or rental market in land reduce mobility, slow down ruralurban transitions, and rigidify uneconomic farm size structures Equity considerations often underpin traditional and state-owned tenure systems, in densely settled zones exhibiting extremes of farm subdivision Absence of a land market and lack of security of ownership or tenure are detrimental Existing tenure systems are deeply gender-biased against women both in custom and law serious dysfunctions between control, decision making, and use of land as a productive resource
Specific policies needed Policies to promote collective action by farmers increase private sector participation facilitate greater participation of smallholder farmers in emerging market chains capitalize on the potential benefits of biotechnology Good policies necessary, but not sufficient, to create the necessary transformation To be effective, these policies should be followed up with implementation plans (strategies, programs, and resources) and monitoring and evaluation systems to detect problems and adverse unintended effects
Policies to strengthen smallholders Promote context-specific farm size Support against shocks and risks Productive social safety nets Innovative insurance instruments Strategies to confront climate change Promoting pro-smallholder value chains Ensuring smallholder access to capital Sustainable Loans Innovative financial products Better-targeted and more productive public and private investment
5 key conditions under which agricultural led growth is most likely to succeed These solutions will be fundamentally country-specific, dependent upon the current set of market rules, property rights, exchange arrangements, experience and perceptions derived from history, and organizational structure in each country
Condition 1 Agricultural growth needs to be technologically driven so that output prices can fall while farm incomes increase It is not enough to simply use more farm inputs like fertilizer and irrigation water this leads to more output but at constant or higher prices. Investments in productivity enhancing agricultural R&D are critical for success
Condition 2 Farmers need favorable incentives if they are to invest and produce efficiently Policies that distort the terms of trade against farmers hold back the entire economy, not just agriculture
Condition 3 Agricultural growth needs to be broad based (or equitable) so that it puts increased purchasing power into the hands of the rural masses, and not just a privileged few Research shows: small and medium sized farms are typically more efficient producers than large farms in low income countries have better consumption and investment patterns for stimulating growth in the nonfarm economy. Broadbased agricultural development in turn requires equitable access to land, modern farm inputs, credit and markets.
Condition 4 Adequate levels of public investment in rural infrastructure are essential for promoting growth of the nonfarm economy and rural towns as well as agriculture, and for strengthening rural-urban demand linkages These investments still give high returns and help reduce rural poverty, even in countries like India and China that have already invested heavily in their rural areas
Condition 5 If the agricultural revolution is to translate into rapid and sustained national economic growth, markets and trade must gradually be liberalized As agriculture develops and food security diminishes as a major constraint, countries need to move quickly toward market liberalization and pro-trade policies
Key question Can production structures of smallholder farmers be geared towards the market and at what cost? The alternative is to remain in a form of production that is semi- or fully subsistence Over time, subsistence farming in any form is not a viable activity for safeguarding household food security and welfare Policymakers then need to consider exit strategies for farmers who cannot remain in farm production
Three part strategy 1 Promote the growth of commercial agriculture and its value chains, using public policy to enable the private sector (farmers and agri-business) to take the lead 2 Shape that engagement in ways that enable as many small farms as possible to link to markets and successfully commercialize 3 Put in place support programmes targeted to those small farms that cannot succeed as viable businesses A balanced portfolio of farm size outcomes, but one that does not neglect smallholders The right balance will vary by country context, particularly the relative abundance of land and labour
To ensure a viable future Concerted effort by governments, NGOs and the private sector to create a more equitable and enabling economic environment for small farmers Assistance in forming effective marketing organizations, targeted agricultural research and extension, revamping financial systems to meet small farm credit needs, improved risk management policies, tenure security and efficient land markets, and (where all else fails) targeted safety net programs The public sector needs to invest in the provision of basic infrastructure like health and education to improve market access and to increase the range of nonfarm opportunities available to small farm households, including permanent migration to urban areas These interventions could unleash significant benefits in the form of propoor agricultural growth. Associated public investments could also more than pay for themselves in terms of their economic and social returns
Only few concepts/strategies (nationally, globally) to cope actively with issues number of farmers/farm size Future of farming (nationally, globally) depends on how important issues are solved (Delphi studies, business as unusual) Good governance vital for success of strategies, especially land markets and land tenure: Monitoring and Evaluation