Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN) Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN)

Agricultural policy: Small is still beautiful
October 2006
Peter Hazell

Peter Hazell has devoted most of his career to research and advisory work on agricultural development. The British-born agriculturalist has held various research and management positions at the World Bank and the International Food Policy Research Institute. He is currently working at Imperial College London on bioenergy issues related to agriculture and the future of small farms.

Against a background of globalisation, trade liberalisation and new market rules, some policy-makers are urging a shift away from small-scale agriculture towards larger commercial farms and non-farm development. But for many ACP countries, smallholder production continues to represent the best way forward for economic growth and poverty reduction.

Agriculture has played a key role in kick-starting economic growth and reducing poverty and hunger in many developing countries. Most of the countries that have failed to launch an agricultural revolution remain trapped in poverty, hunger, and economic stagnation. But the conventional conclusion that these states should invest more heavily in their agricultural development, and particularly in food staples and small farms, is now being challenged. In an era of globalisation, trade liberalisation, changing market structures and ample world food supplies, a new breed of agricultural sceptics argues that poor countries should downplay the importance of food staples and small farms and focus instead on commercial farms, higher-value agriculture, and rural income diversification through migration and non-farm development. These arguments have merit, but they can also trigger simplistic conclusions that overlook the diverse needs and opportunities facing developing countries today. Not only are there still many viable opportunities for small farms, but the kind of state withdrawal from agriculture being promoted by some could lead to a massive and premature exodus of small farms that could overwhelm the capacity of many countries to cope.

The changing face of agriculture

Agriculture’s role changes as a country develops. As people get richer, agriculture’s share in national income and employment falls, small farms find it harder to compete with larger, more mechanised farms and consumers diversify their diets into higher value products and more processed and precooked foods. Urbanisation accentuates these patterns. In short, as countries become wealthier, farms become progressively larger, more commercial and more specialised in higher-value products. Many small farms disappear, while others adapt either by finding high-value niches in which they can compete, or by becoming part-time farmers. These changes are a normal part of the economic transformation of a country. But over 80% of total farms and 40% or more of total agricultural output.

Left to market forces alone, the major beneficiaries of the new high-value and liberalised agriculture will be the larger, commercially-oriented farms, and ones which are well connected to roads and markets. There is a potential crisis looming as powerful demographic forces collide with powerful market forces and hordes of small farms are squeezed out of their livelihoods. If this crisis is to be averted, governments, NGOs and the private sector need to make a concerted effort to create a more equitable and enabling economic environment for agricultural and small farm development.

Finding the right formula

But the right solutions must be found for different situations. There are huge differences between what is needed in Africa and Asia. Asia’s dynamic and growing national economies offer small farmers many more opportunities to diversify into higher value products and non-farm sources of income. But in Africa’s poorer and slower-growing economies, such opportunities are much more limited and many smallholders are trapped in subsistence modes of farming. It is also crucial to craft different strategies for small farms which have viable commercial futures and those which do not, with greater emphasis on safety nets and exit strategies for the latter. A ‘one size fits all’ approach will not work.

The greatest challenge for small farmers in much of Asia is to find cost-effective ways of accessing modern market chains to benefit from the rapidly growing domestic demands for high-value agriculture. In Africa, however, domestic markets for high-value products remain small and stagnant, and the best high-value opportunities are in export markets. These are particularly difficult for small farmers to penetrate. Recent successes with flower, fruit and vegetable exports from countries like Kenya and Uganda are encouraging. But they are too small to provide much hope for most of Africa’s small farms any time soon. On the other hand, food staples still have a critical role to play in helping large numbers of African farmers to overcome poverty and hunger. Unlike Asia, where growth in demand for food staples (cereals, roots and tubers and traditional livestock products) is flat, demand in Africa continues to grow at 3-4% each year. This offers a much larger and more accessible market for many African smallholders in the next decade than growth in non-traditional, high-value markets.

If many of Africa’s small farmers are to find viable market opportunities, then much more will need to be done to improve their access to basic inputs like fertilisers and farm credit, and to reduce transport and marketing costs. Past failures have highlighted the need for new approaches to achieving these goals, but state neglect and withdrawal from agriculture is not the right way forward.

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