IFPRI - Enhancing Profitability of Family Farms, Shenggen Fan

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Shenggen Fan, August 2014
Enhancing profitabilityTransforming 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
Prevalenceofmicronutrientdeficiencies
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-sectoralsocial 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)
79
70
65
21
30
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
Innovation
Region / 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 & Ruel2011
Multipleincl. fortified foods
Nutrition- sensitive chains
Developing countries
Poor and marginal populations
•Better nutrition
•Improved access to nutritiousfoods (availability, affordability, and acceptability)
Bernard & Spielman2009
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

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