Select Committee on International Development Seventh Report


2  THE FUTURE: SMALL AND LARGE SCALE AGRICULTURE

16. As we have highlighted in the previous Chapter, agriculture fell out of favour with development policy-makers. While small-scale agriculture played a major role in poverty reduction in the past, some commentators now maintain that it cannot do so in the future. A debate has therefore started over the future of smallholder agriculture and large scale commercial agriculture.[33] The proponents of the view that smallholder agriculture is not the key to poverty reduction point to three key factors:

  • The growth of very large farms (agri-business) in favoured parts of the world (mainly the Americas). These are achieving continuous cost and price reductions and qualitative improvements, and are increasingly integrated into supermarket supply chains.
  • Trade liberalisation is causing increased import penetration of the domestic food markets of poor countries by produce which has originated in middle to high income countries. At the same time, the trade preferences which some poor countries have enjoyed in rich country markets are being eroded.
  • The growth of supermarkets within poor countries themselves. To the extent that they procure from domestic agriculture, these supermarkets tend to deal with the larger less labour-intensive farms which can meet their volume and quality requirements.

17. We recognise the logic of the arguments in favour of a declining role for smallholder agriculture where development is successful. On the other hand, in many of the poorest countries there are few realistic alternatives to smallholder agriculture for creating employment-intensive growth. Agriculture's core contribution to poverty reduction is at the earlier stages of a process of development. Increased growth and prosperity within labour-intensive (smallholder) agriculture will trigger forces which will lead to diversification out of agriculture and eventually to a rapid fall in the numbers it employs. This is a desirable outcome. Some commentators may have a romantic attachment to smallholder farming: if so, we do not share it. We are convinced that the process of economic development necessitates an eventual reduction in the role of agriculture, particularly small-scale agriculture. But the central issue is one of timing and circumstance.

18. Where there is a decline in agricultural activity (or where it becomes less labour-intensive), policies should allow people to make what might be termed "good exits" from farming. These exits will, in the main, be made by younger people who were raised in moderately prospering rural economies and who in their youth were adequately fed and who had access to, and benefit from, schooling. They will move out of agriculture gradually, as and when opportunities appear in the cities or locally. By contrast, "bad exits" arise when farming ceases to provide the basis of an even minimally acceptable livelihood, and younger people abandon farming precipitously, despite the lack of alternatives. Many end up in petty trading, an intensely competitive and low-return activity with minimal prospects. In today's poorer countries far too many "bad exits" from farming are occurring.

19. We accept that the role of smallholder agriculture will ultimately decrease and that it is critical to assist those leaving agriculture to leave successfully. But smallholder agriculture is a practical reality in sub-Saharan Africa, with a substantial share, and in extreme cases as much as 85%, of the population living on smallholdings.[34] Even with changing demographics smallholder farming dominates: globally, 1 billion people could leave agriculture altogether and the average farm size would still be a smallholding of 1 hectare.[35] The move to large-scale agriculture in Africa would involve major land concentration to create substantial parcels on which to carry out large-scale production.[36] But this would not necessarily be an easy process, as Stephen Carr emphasised:

    "Inevitably you have to ask the question: if you displace 100,000 people off their land in order to have commercial agriculture, what are you going to do with the 100,000 people? That is a question very few people have an answer to".[37]

Land issues will be discussed further under the heading of access to land and other productive assets.

20. Witnesses also told us that smallholder farming can be efficient.[38] Peter Hazell stressed this point:

    "In a poor country where labour is cheap and capital is scarce and often land is scarce, small farming is economically not only viable; it is the most efficient form of farming. As countries grow and labour becomes more expensive farmers expect to earn a higher income to keep up with their urban counterparts, then farms do have to get bigger, but it is quite appropriate for Africa to have small family farms at this stage of its development, and also in much of Asia".[39]

In arguing for the efficiency of small farms Stephen Carr told us that, in Malawi, local people had been able to produce maize at substantially lower cost than on commercial farms.[40] Michael Lipton couched the argument for the efficiency of small scale agriculture in terms of its employment-intensive nature:

    "The fact is that for most crops in most African situations smallholding is actually a rather efficient way of managing resources. If you are using a lot of labour and you cannot afford much capital, what you want to do is cut the supervision costs of labour, and a family is good at cutting supervision costs of labour…. They are also good at supervising hired labour … If you have a labour-based farming system, as almost everywhere—not everywhere—in sub-Saharan Africa does, smallholding does pretty well."[41]

21. There may be drawbacks to working in a family unit. The obligation to employ unproductive workers is an obvious one, but, in addition, the differing objectives of family members, coupled with the power of family hierarchy, can have an effect on the management of the smallholding. It is also necessary to recognise that while smallholders may have the comparative advantage in the labour markets, they are still at a comparative disadvantage (in relation to big farms), in credit, input and output markets. But there is certainly room for governments, donors, NGOs and the private sector to work with smallholders to overcome some of these disadvantages.

22. Smallholder farms have the potential to operate commercially. [42] This is particularly the case if their relationship with supermarket purchasers is mediated by a third party, such as a cooperative or association.[43] Providing the quantity required by purchasers may require smallholders to club together, but having a single point of contact will usually be more manageable for purchasing agents. The relationship may also have positive benefits for smallholders who can have a stronger voice when operating collectively.

23. Aid agencies and national governments must re-emphasise the short- to medium-term strategic importance of labour-intensive agriculture and devise new strategies which take account of lessons learned and trends in the global economy. The role of smallholder agriculture has to be understood as part of a process of development in which small-scale agriculture plays a key role at the initial stages, but will ultimately evolve into medium- and large-scale farming. An approach that recognises this will also need to consider the way in which people make their exits from agriculture.

Regional trade

24. A further argument in favour of small-scale farming in Africa rests on the level of demand and the potential for regional trade within the continent. In a food-deficient continent there is huge potential for increased production and marketing of food grains. Africa currently has a large internal demand for food grains and other commodities, an increasing share of which is supplied from imports (commercial and food aid). Recapturing a greater share of its own domestic market provides an avenue for African agriculture to expand without difficult changes in commodity composition. Peter Hazell suggested that there is $50 billion worth of domestic Africa-wide consumption in basic food staples, including crop and the livestock products.[44] This demand is, in part, being met through imports. The domestic market was identified as growing:

    "The traditional food staples, the $50 billion dollar market today, is going to double. A lot of small African farmers can double or triple their income over the next ten years by increasing their productivity in food staples".[45]

25. Particular countries' food deficits are already met by regional trade within sub-Saharan Africa; northern Mozambique, for example, exports its surplus grain to Malawi.[46] This brings into focus the importance of regional trade in foodstuffs, a very difficult area for governments to manage. Achieving free regional agricultural trade requires regionally coordinated agricultural policies which would not only be difficult to negotiate in the first instance, but would also run risks of limiting extra-regional trade negotiations. Despite these concerns, it is essential that agricultural strategies tap into the potential of the African domestic market, which in the short- to medium-term holds greater potential than the broader global market.

The needs of smallholders

26. New strategies for agriculture in the poorest countries must focus on the needs of smallholders. The challenge for smallholders is to raise agricultural productivity to the extent that an annual harvest will provide enough to feed (whether by producing a crop to eat or sell) the smallholder family for the entire year.[47] Witnesses identified the main obstacle to smallholders raising productivity as inadequate use of modern inputs, principally fertiliser and high-yielding seed.[48] A lack of access to financial services and training in skills is a major reason for the low use of inputs and technology. Land quality and water availability and management are also challenges. Smallholders are also exposed to significant risks such as bad weather, changing commodity prices and market failures. New technologies, which despite their potential to deliver higher productivity are dominated by commercial interests, can increasingly put smallholders at a disadvantage in local and global markets if they are unable to access them.[49] Weak service delivery and failings in governance and administration infrastructure are further challenges—not to mention the impact of the AIDS pandemic.

27. One problem is that agriculture is inherently risky. Smallholder farmers investing scarce saved cash and/or borrowings in inputs and their labour (which could have earned a wage working for others) are not just taking a chance on weather and pests, but also on the state of the market up to nine months later. This implies that the business environment for investment in farming, and for agricultural finance in particular, would be transformed by reducing risk. Reducing risk may involve government intervention in markets. This could be achieved by setting minimum prices for agricultural outputs, or experimenting with market-based mechanisms for managing risk, such as futures markets. In summary, much more support is needed to enable small farmers to engage in the transactions which would be normal for most other businesses. What is needed is support for practice-based research across a broad front: from the practical difficulties faced by farmers, to working out how national and regional agricultural policies may be developed to reduce risk and provide incentives to farmers, at acceptable fiscal cost. We cannot emphasise strongly enough the need to bring sustainable solutions to the financial needs of smallholders.

INPUTS

28. The Green Revolutions of Asia were driven by the use of fertiliser and seed. By comparison, use of fertiliser in Africa has been concentrated in a few countries, and even in those countries has been 10-14kgs less per hectare than in south and southeast Asia.[50] We were told that Africa has little hope of raising its agricultural productivity without access to these key inputs:

    "In the last 15 years of the last century, fertiliser use throughout the whole of south and east Asia increased by not less than double in every country and in countries like Vietnam it went up six fold … For some reason people are expecting Africa to feed itself without using any fertiliser."[51]

Not only has fertiliser use in sub-Saharan Africa stagnated or declined in the last fifteen years, but the soil is becoming less and less fertile as it is drained of nutrients. As much as 80,000 tonnes of nutrients are taken out of the soil of sub-Saharan Africa each year without being replaced.[52]

29. Organic strategies may offer an affordable and environmentally-friendly way to replace lost nutrients and raise productivity (and certainly quell environmental concerns about over-use of fertiliser). But although organic strategies can work technically, they are likely to require high labour inputs and farmers have to wait for several growing seasons before any substantial benefit is felt.[53] Most smallholders are too poor to invest their labour for benefits which will be realised so far in the future. There is therefore a strong demand for inputs, notably fertiliser and improved seed. In Asia, government subsidy of fertiliser has made it accessible to farmers but Africa has not been able to sustain similar generalised subsidies, and has often been discouraged from doing so by donors, more often than not for good reasons.[54] Smallholder credit to assist in the purchase of much needed inputs has proved hard to provide for poor families under the current policy environment.[55] But Stephen Carr told the Committee:

    "If we continue to deny African farmers access to the one thing which has transformed the agriculture of all the rest of the world, we can expect to go on with the same kind of failure we have had for a number of years… we have to see how we can give farmers in Africa access to the two things which have transformed Asia. If we cannot do it with subsidies and we cannot do it with credit, then we just have to use our imagination and think of other ways in which it can be done".[56]

We conclude that DFID's strategy for agriculture must include the promotion of mechanisms to increase smallholder access to inputs. In particular, smallholder access to fertiliser and seed is vital to increasing agricultural productivity in the majority of cases.

FINANCIAL SERVICES

30. Inputs require finance and smallholders often have no alternative but to borrow to meet the cost. With the decline of government lending schemes (many of which had performed badly) a major gap emerged in this area which is not being well-addressed by the provision of micro-finance lending. Micro-finance lending is usually provided on the basis of borrowers' track record and consists, at least initially, of very small loans with short maturity periods. To make a difference, agricultural loans have to be larger and longer than those typically offered to micro-finance starter-borrowers. Such services are generally not viable for commercial banks but there may be potential for state involvement in the provision of low interest, somewhat longer-term loans. There is a role for donors and international agencies (World Bank/IMF) to play here. We therefore welcome DFID's comments that:

LAND AND OTHER PRODUCTIVE RESOURCES

31. In many parts of Africa high population density and land scarcity are a fact of life. The poorest may have no land of their own and may instead work on the land of others. Land reform can be a mechanism for increasing the ability of the poor to access land. It has also been argued that, where tenure is based on community membership, the introduction of private property rights over land could give smallholders a form of collateral which would allow access to credit and other financial services.[58] There is also a strong case for actions to strengthen land rights of tenants and sharecroppers who would gain greater security and potential access to credit. But our witnesses noted potential problems of smallholders using their land as collateral for loans:

    "very, very few banks are going to take a smallholder's holding as collateral. To go into a village and confiscate the home of a local person is going to arouse so much antagonism that very few commercial banks would be prepared to do it".[59]

32. Land issues are complex but important. While land reform which provides western-style private property rights might not be able to provide collateral, many argue that land (even a plot for a homestead) remains a critical asset enabling the poor to gain some economic and social stability.[60] In cases where the distribution of land is sharply unequal, redistributive land reform is justified for reasons of equity, pragmatic politics and possibly efficiency. For example, the situation in Zimbabwe would probably be very different today if land reform had helped establish a better relationship between commercial (predominantly white) farmers and (predominantly black) smallholders. Land reform could have involved some limited redistribution and provision of some key services (water, inputs) to smallholders via larger, mainly white-owned, farms. In other cases, there is less scope for re-distribution. Redistributive land reform focused on establishing tradable land rights can lead to the disenfranchisement of some groups (particularly women).[61] Because land issues are so complicated, as well as being politically sensitive, it is tempting for aid agencies to avoid them. DFID must engage with this issue. DFID has reduced its focus on land in recent years and should now seek to regain lost expertise.[62] Detailed analysis of land issues need to be incorporated into agricultural and other development policies.

33. Access to other productive resources has been identified as a challenge for smallholders. Water has great potential to deliver increased productivity. As we have already noted, the challenge of water capture and storage is greater in Africa than in Asia.[63] Our witnesses, Michael Lipton and George Rothschild, felt there was potential for increasing access to water through the use of small scale water storage as well as irrigation technology such as treadle pumps and micro-drip systems.[64] We recommend DFID scale-up its work on water technology and policy as it is vital to helping smallholders raise productivity.

OTHER NEEDS AND CHALLENGES

34. Part of giving smallholders the capacity to take advantage of market opportunities is ensuring market access—this has been a principle behind DFID's strategy of creating an enabling environment. Witnesses told us that lack of infrastructure remains a key obstacle to market access for smallholders.[65] We support DFID's focus on creating an enabling environment through infrastructure development, but there is now a pressing need for the policy to move beyond this. Access to information about markets can also be useful to smallholders, as can assistance in building relationships and linkages with existing market players.[66] New information technology has great potential to increase access to market information.[67]

35. AIDS poses an unprecedented challenge to farmers in Africa and across the world. It is difficult to overstate the impact of the HIV/AIDS pandemic on agricultural capacity and production, particularly in Africa. The World Food Programme (WFP) reports that seven million farmers have been lost to AIDS in Africa alone.[68] The death of women has had a particular impact on food production. The impact on agriculture due to loss of life to AIDS is greatest in the thinly populated countries where access to labour is a constraint. Even where there are sufficient able bodies to work the land, the AIDS pandemic and the rising number of AIDS orphans commonly means that a smallholder may have to provide for a greatly increased number of dependents.[69] Agricultural strategies have to respond to this, for example through the development and promotion of labour-saving crops. In addition, supporting existing investments (such as small tea and coffee plantations) by letting out land on a tenancy basis can also deliver cash benefits to smallholders. We conclude that it is vital that any agricultural strategy considers emerging evidence about the devastating demographic and socio-economic effects of the AIDS pandemic.

Practical solutions

36. During the course of the inquiry we heard suggestions for practical solutions. Not all of them will provide long-term remedies but many can deliver quick results while the long-term policy is being formulated. We were told of interventions to deal with problems of access to inputs and finance. For example, the DFID-supported inputs for work programmes in Malawi are promising, and in our view warrant continuing support on an increased scale.[70] Animal loan schemes (such as those for goats supported by Farm Africa in Kenya) can be very helpful in building up household assets, especially those under the control of women. Practice-based research into creating warehouse receipts systems, also DFID-supported, could develop the infrastructure of local commodity trade, thereby improving the competitiveness of local agriculture, and also provide farmers with tradable instruments which can pay for inputs.[71] The World Bank and the FAO are currently researching ways of providing crop insurance to smallholders and of making forward markets available as a means of reducing risks to producers and consumers.

37. Pest management can contribute to raising farmers' incomes, particularly if techniques require a low level of inputs. [72] Integrated pest management systems and use of biological controls have significant potential.[73] Witnesses also emphasised the role of publicly-financed plant breeding, which has to be followed through with effective seed production and distribution. Crops must be adapted to local environments and to the particular needs of smallholders rather than solely focused on the requirements of commercial farms. This will not occur without government support. Smallholders need traits in plants such as drought and weed-resistance, good storage and on-farm consumption characteristics, as well as higher yields.[74] Developing these traits will need to be done while minimising financial outlay. None of the practical solutions mentioned here are panaceas, but they will prove helpful to different segments of the smallholder population, and are examples of the kinds of innovation which should be strongly encouraged by DFID and other agencies.


33   Launching the DFID consultation "New Directions for Agriculture in Reducing Poverty", Simon Maxwell, March 2004: http://dfid-agriculture-consultation.nri.org/launchpapers/simonmaxwell.html Back

34   Q 61 Back

35   Q 90. See also Rural Poverty Report 2001: the Challenge of Ending Rural Poverty, Rome: IFAD which states that even by 2020 60% of the world poor will still be living and working in rural areas , page 6 Back

36   Q 40 Back

37   Q 61 Back

38   Q 49 Back

39   Ibid. Back

40   Q 61 Back

41   Q 90 Back

42   Q 49 Back

43   Q 90. See also Reardon, T., Donron, J., Bush, L., Bingen, J. and Harris., C. (2001), 'Global change in agrifood grades and standards; agribusiness strategic responses in developing countries'. International Food and Agribusiness Management Review 2,3; Reardon, T., Berdgue, J., and Farrington, J. (2002), 'supermarkets and farming in Latin America: pointing directions for elsewhere?', Perspectives, 81 (December), London: Dept of International Development: Reardon, T., Timmer, P., Barrett, C. and Berdeque, J. (2003), 'the rise of supermarkets in Africa, Asia and Latin America'. American Journal of Agricultural Economics, 85, 5 (December), and Reardon, T., Rozelle, S., Timmer, P. and Honglin Wang (2004), 'Emergence of supermarkets with Chinese characteristics'. Development Policy Review, forthcoming Back

44   Q 49 Back

45   Ibid. Back

46   Q 72 Back

47   Q 63 Back

48   Qq 19, 20 Back

49   Reaching the poor - a call to action: Investment in smallholder agriculture in sub-Saharan Africa, Farm Africa, Harvest Help and Imperial College London, Spring 2004, page 9 Back

50   Between 1991-1995, four countries (Ethiopia, Kenya, Nigeria and Zimbabwe) used 60% of all fertiliser used in sub-Saharan Africa, excluding south Africa. (Macro trends and determinants of fertiliser use in sub-Saharan Africa, A. Naseem and V. Kelly, Michigan State University, International Development Working Paper no. 73, 1999). Average fertiliser use in Kenya in the mid 1990s was 48kg per hectare, compared with 58kg per hectare in south Asia and 62kg per hectare in southeast Asia (Fertilizers to Support Agricultural Development in sub-Saharan Africa: What is Needed and Why, B.A. Larson and G.B. Frisvold, Food Policy, 21(1996): 509-525.)  Back

51   Q 63 Back

52   Ibid. Back

53   Q 64 Back

54   For example, we noted in our report on the humanitarian crisis in southern Africa that general maize subsides in Malawi were not likely to strike the right balance between short-term relief and longer-term development, removed incentives for farmers to increase productivity and that the subsidy schemes were prone to corruption, including the diversion of maize across the borders to be sold in markets in neighbouring countries. HC (2002-03) 116-I, paras 114-116 Back

55   Q 63 Back

56   Ibid. Back

57   Agriculture and poverty reduction: unlocking the potential, DFID, December 2003: http://www.dfid.gov.uk/pubs/files/agripovertyreduction.pdf Back

58   The Mystery of Capital, H. De Soto, London, Sydney, Auckland and Parktown (S.Africa): Bantam Press; New York: Basic Books, 2000 Back

59   Q 78 Back

60   Ev 47 Back

61   Q 16 Back

62   Ev 47 Back

63   See para 15 of this report Back

64   Qq 94, 95 Back

65   Q 22 Back

66   Reaching the poor - a call to action: Investment in smallholder agriculture in sub-Saharan Africa, Farm Africa, Harvest Help and Imperial College London, Spring 2004, para 49. See also discussion in this report of the potential role of intermediaries/cooperatives and associations in helping smallholders engage in commercial agriculture (para 22 of this report) Back

67   Q 22 Back

68   See written evidence on Orphans and Children made vulnerable by AIDS, International Development Committee, Session 2003-04, HC 573 (Ev 95) Back

69   Q 87 Back

70   Q 63 Back

71   Ev 37 - 42 Back

72   Q 97 Back

73   Q 98, 99 Back

74   Q 96 Back


 
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