Small or Big: What Prospect for African Farmers?

There is an interesting debate about the future of agriculture in Africa and whether the small holder farmer will be an important player in this field. This post summarizes two positions which are at the opposing end of the spectrum. In the final part it outlines an interesting model which is emerging in Ethiopia and seeks for a middle ground.

Smallholders are the past. The bottom line of this line of thought is the following: for agricultural growth and economic development to happen labor productivity must grow exponentially in Africa. For this to take place one fundamental shift needs to occur: people need to move out low-productivity jobs in agriculture and transition in higher productivity jobs in urban contexts. From this perspective the key policy challenge today is not how to bring up the productivity of smallholders because countries developing economically will do away with smallholders altogether. The challenge instead is to create jobs in urban areas which can employ those people pouring into cities: as Collier puts it “Africa’s future is not as a continent of happy farmers“. This argument is built on the observation that evidence do not support the claim that investments in small farmers will trigger a growth of African agriculture. On the other hand what one should strive for is the establishment of large scale farmers as commercial enterprises which can integrate some of the smaller scale farmer through vertical integration.

Smallholders can feed the world. The opposite side builds a counter-argument on the basis of one observation: if one looks at the agricultural growth rate of those countries with a majority of small farmers and compares it to the performance of countries with large-farms sectors one notices that former have a better track record than the second. On the basis of this observation one can the conclude that the size of the farm does not represent the decisive factor underlying agricultural growth because this growth is determined by many other concomitant factors. If this argument acknowledges that in principle labor productivity is higher in large scale commercial farmers, it also points to the fact that the historical record shows that small farmer in African countries have led to agricultural booms (as defined by increased marketed output in food and cash crops) whereby large farmers has generally failed.

A new model for African agriculture needed? (source cartoostock.com)

Counter-counter-argument. T counter o the claim that historical records show that smallholders are more more productive, Collier and colleagues argue that what is defined as large farmers in Africa are actually not that large: the vast majority of farmers in Africa are below 2 hectares with few above 5 hectares and therefore far from the Brazil-style large farmers. In other words what these cross-farmers/cross-country comparisons are comparing are small farmers with relatively less small farmers. Another counter-counter-argument is that asking if small farmers produce more proportionally than large farmers is the wrong questions to answer: one should on the other hand asks what is the mode of agricultural organization which is suitable for prolonged productivity growth. From this perspective, commercial farm enterprises are better positioned to take up decisive factors: if one considers for example new technology such as seeds and fertilizers large farmers are more likely to adopt new technologies (they are less risk-adverse) and diffuse them. These economies of scale applies not only in production but also in trading, marketing and storage.

Recipes for today. One model which synthesizes both positions by emphasizing the importance of commercial value chains while recognizing the importance of smallholder farmers is the model of Ethiopian Agricultural Transformation Agency. It focuses on integrating smallholders farmers grouped in cooperatives or union to commercial supply chains so that they access the world’s output market. The important point is that ATA recognizes the advantages of economies of scale with regard to resources pooling and knowledge uptake/diffusion and this is why is working to strengthen the farmers union and cooperatives. Interesting is also how ATA is envisioning the introduction of smallholder farmers into big leagues: one way is the contract farming and forward-purchase delivery.

Contract farming and forward purchase delivery contracts are effective ways to link farmers directly to secure end markets in Ethiopia. Direct linkages between buyers and Ethiopian smallholder farmers will enable farmers to generate pre-finance for inputs, produce a better quality product (adding incremental value), and capture a bigger share of product value, while enabling end buyers to reduce transaction costs by sourcing form a reliable, consistent and uniform market. Such linkages also encourage investments across the whole value chain, including in aggregation, storage, access to finance, and marketing.