FOOD POLICY

REPORT

FROM SUBSISTENCE TO PROFIT

Transforming Smallholder Farms
SHENGGEN FAN, JOANNA BRZESKA, MICHIEL KEYZER, AND ALEX HALSEMA
 JULY 2013

From Subsistence to Profit

Transforming Smallholder Farms
Shenggen Fan, Joanna Brzeska, Michiel Keyzer, and Alex Halsema

International Food Policy Research Institute

Washington, DC
ABOUT IFPRI
The International Food Policy Research Institute (IFPRI), established in 1975, provides
research-based policy solutions to sustainably reduce poverty and end hunger and mal-
nutrition. The Institute conducts research, communicates results, optimizes partnerships,
and builds capacity to ensure sustainable food production, promote healthy food sys-
tems, improve markets and trade, transform agriculture, build resilience, and strengthen
institutions and governance. Gender is considered in all of the Institute’s work. IFPRI
collaborates with partners around the world, including development implementers, pub-
lic institutions, the private sector, and farmers’ organizations. IFPRI is a member of the
CGIAR Consortium.

Copyright ©2013 International Food Policy Research Institute. All rights reserved. Con-
tact [email protected] for permission to reprint. This food policy report has been
peer reviewed.

Design  David Popham

Cover photo  © 2008 G. M. B. Akash/Panos
DOI http://dx.doi.org/10.2499/9780896295582
ISBN 13-digit 978-0-89629-558-2
CONTENTS
Tables and Figures.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Acknowledgments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Executive Summary.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
Is Small Still Beautiful?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Emerging Challenges Facing Smallholders.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Policy Options to Strengthen Smallholder Farmers

with Agricultural Potential. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Conclusion.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

References.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
About the Authors.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
TABLES AND FIGURES
TABLES

1 Typology of smallholder farms and appropriate strategies and interventions. . . . . . . . . . . . . . . 4

FIGURES

1 Trends in farm size in selected developing countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

2 Expected impact of drought and floods on Malawian farmers’ annual earnings. . . . . . . . . . . 8
3 Agricultural investment needs, investment flows, and the financing gap in developing
countries, 2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4 Land area allocated to investors, 2004 to early 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

iv 
ACKNOWLEDGMENTS
We thank Tolulope Olofinbiyi, Rajul Pandya-Lorch, Alexander Stein, and Klaus von
Grebmer for their excellent advice and suggestions at various stages of the process. We also
appreciate the thoughtful and detailed comments provided by IFPRI’s Publications Review
Committee and two anonymous reviewers as part of the IFPRI peer-review process.

 v
EXECUTIVE SUMMARY
T his food policy report presents a typology of the diverse livelihood strategies and
development pathways for smallholder farmers in developing countries, and offers
policy recommendations to help potentially profitable smallholders meet emerging risks
and challenges.

MAIN FINDINGS
Smallholder farmers in developing countries play a key role in meeting the future food
demands of a growing and increasingly rich and urbanized population. However, small-
holders are not a homogeneous group that should be supported at all costs. Whereas some
smallholder farmers have the potential to undertake profitable commercial activities in the
agricultural sector, others should be supported in exiting agriculture and seeking nonfarm
employment opportunities.
For smallholder farmers with profit potential, their ability to be successful is hampered
by such challenges as climate change, price shocks, limited financing options, and inad-
equate access to healthy and nutritious food. By overcoming these challenges, smallholders
can move from subsistence to commercially oriented agricultural systems, increase their
profits, and operate at an efficient scale—thereby helping to do their part in feeding the
world’s hungry.

POLICY IMPLICATIONS
Such achievements are possible only in a policy and investment environment that
• promotes context-specific farm size,
• supports productive social safety nets,
• improves risk-mitigation and adaptation strategies,
• links agriculture, nutrition, and health,
• promotes pro-smallholder value chains, and
• increases smallholder-friendly financing and investment.
All of these measures, adapted to each country’s stage of economic development and
transformation, will play a critical role in bringing down the barriers to profitable and scale-
efficient agricultural operations by smallholders.

vi 
Is Small Still Beautiful?

I n the coming decades, world agriculture will need to undergo major changes
to meet the future food demands of a growing and increasingly rich and urbanized population.
Smallholders in developing countries play a key role worldwide in this food security equation.
They supply a large share of global agricultural output and are among the poorest and most food-
insecure people in the world. However, smallholders are not a homogeneous group but rather
a diverse set of households with varying farm and household characteristics. Smallholder farm
systems are also not a permanent phenomenon that should be maintained at all costs. Whereas
some smallholders have the potential to shift from subsistence farming to commercially oriented
and profitable farming systems, others have more opportunities to improve their livelihood strat-
egies outside of the agricultural sector.

Traditionally, literature on smallholders has focused time, conditions should be created for other smallhold-
on challenges to their livelihood strategies, such as lack of ers to exit agriculture either altogether or as their primary
human capital and limited access to infrastructure, mar- activity, so that the remaining efficient smallholders can
kets, and technologies. But smallholders have also become increase the size of their operational holdings.
increasingly vulnerable to a spectrum of emerging cli- This report presents a typology of the diverse liveli-
matic, health, price, and financial risks and challenges. hood strategies and development pathways for smallholder
Not only does the occurrence of these shocks endanger farmers, followed by a discussion of the emerging risks and
already fragile food production systems, but the mere likeli- challenges facing smallholders. It concludes with policy rec-
hood of their occurrence makes some smallholders more ommendations that focus on interventions for potentially
risk adverse and more likely to pursue more subsistence- profitable smallholder farms.
oriented activities, thus causing smallholder poverty to per-
sist (Dercon 2009). THE IMPORTANT BUT SHIFTING ROLE
In the face of these emerging challenges, smallholder OF SMALLHOLDERS
farmers who have the potential to become profitable need Thinking about the role of smallholders has evolved over
access to the right set of productivity-enhancing tools, such time, and this role is increasingly being seen in a broader
as technology and capital, to become profitable and resil- economic context. The discussion about smallholder farms
ient participants within the agricultural sector. At the same should be expanded beyond a strict focus on small versus

 1
2  FROM SUBSISTENCE TO PROFIT

large farms to reflect the idea that optimal farm size is a Agricultural growth can provide the economy with much-
dynamic concept that changes as a country’s overall econ- needed stimuli such as capital, labor, and foreign exchange
omy grows and as nonagricultural sectors develop. Within to finance and fuel growth in nonagricultural sectors (see,
this framework, interventions must be tailored to the differ- for example, de Janvry and Sadoulet 2009). The connection
ent types of smallholder farms and the specific contexts in is not automatic, however, and varies according to country-
which they operate. specific circumstances, especially the country’s potential
The backdrop to the debate on small versus large farms for agricultural and nonagricultural (including minerals
is the dominance of smallholder farming systems in the and manufacturing) sources of growth (Hazell et al. 2010).
developing world. Worldwide about half a billion farms are Past successes in promoting agricultural development, such
smaller than 2 hectares, and these farms are getting smaller as the Green Revolution in Asia, were grounded in inter-
in many countries (Figure 1) (Hazell et al. 2007). The con- ventions and reforms that supported equitable agricultural
tinuing decline is due to factors such as growing rural popu- growth and were led by small farms (Hazell 2009). Policies
lation, urban growth that is not labor intensive, formal and that enabled smallholder participation in the Green Revolu-
informal barriers to rural-urban migration, and distortion- tion included the equitable distribution of land and secure
ary land policies. Small farms are estimated to produce four- ownership and tenancy rights, alongside scale-neutral tech-
fifths of the developing world’s food (FAO 2011). Moreover, nologies, temporary input subsidies, and large investments
they are home to approximately two-thirds of the world’s 3 in infrastructure (such as roads and irrigation).
billion rural residents, the majority of people living in abso- A large body of empirical research argues that there
lute poverty, and half of the world’s undernourished people are efficiency benefits to small farms. Studies have shown
(IFPRI 2005). a strong inverse relationship between farm size and land
To get a better understanding of the role that smallhold- productivity, with smaller farms generating higher per-unit
ers play in a country’s development, it is important to first farm output than larger farms (for a summary, see Heltberg
look at the broader context of agricultural development. 1998). The standard explanations for this inverse relation-
Growth in agriculture has been shown to be an important ship focus on small farms’ more intensive use of inputs and
part of the initial stage of transformation in many countries. the lower costs associated with supervising family labor

FIGURE 1  Trends in farm size in selected developing countries

8
Average farm size (hectares)

2
1

3
03
71 2

Ph t an 9

P h in e 0

Ph ine 71
op 9 89 7

01 2
Eg Eg y 0 0 2

99 90

w 0
a la 69

I n i na 0

I n si a 9

I n si a 3
n e 9 93

I n 0 03

In Indi 71
01 9 1

pa 1
k is e p 92
Ne 201

99
Ch 199

pi 9 9
a il 0 0
19 00

97
20 199

kis 197
ne 97
1 197

k is 9 8
Ch 198

ne 9 9

0
a la 0

9
9
a 2 19

9
M i 19

20
t 1 19

20
M –20

ili p s 1
a1

T h nd 1
1

T h nd 1
ili p s 1
1

l1

Pa n 1
1

Th es 2
2
–2

0–

–
–
ia

wi

a
a
y p pt

d
t a al
si a
9

di
in

ta

an
op

a
a il

a il
p

p
hi

N
do

do

ili p
do

n
Pa
Et

ia

ia

di
op
hi

hi

Pa
Et

Et

Source: FAO (2000, 2010); Fan and Chan-Kang (2003).

 Is Small Still Beautiful? 3

on small farms compared with hired labor on larger farms. Mozambique, where more recent large land acquisition
Multiple studies, however, have called into question the deals have taken place.
absolute efficiency advantage of small farms (Helfand and This artificial promotion of small or large farms through
Levine 2004; Barrett, Bellemare, and Hou 2010). These restrictions on minimum or maximum landownership or
researchers have argued that larger commercial farms have rental has been shown to result in inefficiencies by reduc-
an advantage in terms of finance, technology, and logistics ing farm productivity. For example, preliminary findings
and that the inverse relationship disappears above a certain from the Philippines show that imposing a ceiling on farm
farm size or after factors such as land quality are taken into size results in the misallocation of resources, causing agri-
account—but even these studies have been challenged. A cultural labor productivity to drop by 7 percent and the
more dynamic argument on efficient farm size is that small share of employment in agriculture to increase from 45.1
farms have an advantage over large farms in terms of labor to 48.5 percent (Adamopoulos and Restuccia 2013). The
supervision and local knowledge, but larger farms gain the same can be seen in India and China, where reduced restric-
advantage as an economy shifts toward technologically tions on land rental markets improved agricultural pro-
advanced, capital-intensive, and market-oriented agricul- ductivity by transferring land to more efficient (but often
ture (Poulton, Dorward, and Kydd 2010). still poor) producers (Deininger and Jin 2005; Deininger,
One of the fundamental models of development eco- Jin, and Nagarajan 2008). In fact, evidence from China
nomics asserts that the development of a dual-sector shows that removing constraints on land rental markets
economy occurs through the transfer of low-productivity has a much more positive impact on productivity gains and
agricultural labor to the higher-productivity industrial and rental market participation than does administratively re-
service sectors. The flow of labor continues until the mar- allocating land because the latter is weighed down by high
ginal productivity of labor—in other words, income—is transaction costs and imperfect information.
equal between the farm and nonfarm sectors, after adjusting
for labor quality and cost of living. This essentially means TYPOLOGY OF DEVELOPMENT
that workers will move from one sector to the other until PATHWAYS FOR SMALLHOLDERS
wages are equal in the two sectors. Within this framework, Given the pivotal and substantial presence of smallhold-
farm size is an endogenous variable whose optimal value is ers in many developing countries, policies that directly or
the point of equal marginal productivity (again, income). indirectly affect smallholder farmers have significant effects
Generally, it is expected that as laborers migrate out of rural on the social and economic trajectory of those countries.
areas, operational farm size will increase as those leaving However, the appropriate livelihood strategies should
agriculture sell or rent their land to the remaining farmers not be treated as a single and unique pathway but instead
who can more efficiently expand their operations. as a dynamic process that reflects the different types of
Yet, over the past several decades, farm structures in smallholders and economies (Table 1). We have created
many developing countries have been affected by gov- a typology that reflects the diversity of possible liveli-
ernment policies that distort incentives for, and limit the hood strategies and development pathways for smallholder
extent of, efficiency-enhancing land transactions (this is farmers. This typology distinguishes between (1) the
not to deny any justification for equity-oriented redistribu- profitability of smallholders within the agricultural sector
tive land reforms in certain highly unequal socioeconomic (subsistence farmers without profit potential, subsistence
contexts). Such interventions have included the imposi- farmers with profit potential, and commercialized small-
tion of ceilings on landholding size in a number of Asian holder farmers) and (2) the different stages of economic
countries, such as Bangladesh, India, Pakistan, and the transformation (agriculture-based, transforming, and trans-
Philippines. Alternatively, many land-abundant develop- formed economies).
ing countries, especially in Africa south of the Sahara, have First, smallholders are a diverse set of households and
artificially promoted large-scale, commercial farms. These individuals who face various constraints on their ability to
countries include post-independence Nigeria, Sudan, and undertake potentially profitable activities in the agricultural
Tanzania, as well as the Democratic Republic of Congo and sector. Past studies have divided smallholders based on
4  FROM SUBSISTENCE TO PROFIT

TABLE 1 Typology of smallholder farms and appropriate strategies and interventions

TYPE OF STRATEGIES
CHARACTERISTICS
FARM Agriculture-based Transforming Transformed
Soft constraints to land size • Productive social safety • Flexible arrangements for • High-value production
and agricultural production nets land transfer • Reduced trade restric-
• Limited access to markets • Investment in infrastruc- • Risk reduction and man- tions and subsidies
and information ture, agricultural research agement tools • Flexible arrangements for
• Limited financial capital and extension, and small- • Access to market infor- land transfer
• Limited access to holder-friendly and cli- mation (e.g., ICTs) • Efficiency- and quality-
infrastructure mate-smart technologies • Pro-smallholder, nutri- enhanced production
• Access to innovative
With profit potential

• Limited access to tion-sensitive value systems

smallholder friendly financial services chains • Vertical and horizontal
technologies • Social safety nets and coordination to meet
improved access to safety, quality, and quan-
housing, education, and tity standards
health services for rural
Subsistence farms

migrants
• Vertical and horizontal
coordination to meet
safety, quality, and quan-
tity standards
• Enhanced role of farmers’
organizations, particularly
for women farmers

Soft constraints plus hard • Social safety nets • Social safety nets
constraints to land size and
Without profit potential

• Nutrition-focused crop • Improved access to housing, education, and health ser-

agricultural production production for own viced for rural migrants
• High population density consumption • Education and training for nonfarm employment
• Low quality soil • Education and training • Flexible arrangements for land transfer
• Low rainfall and high for nonfarm employment
temperatures • Migration to urban cen-
• Remote location ters and other agriculture
areas with greater profit
potential

• Soft-constraints • Vertical and horizontal • High-value and nutrition • High-value crops

• Limited access to capital, market coordination to sensitive food chains • Flexible arrangements for
insurance, and other risk meet safety, quality, and • Flexible arrangements for land transfer
smallholder farms

reduction tools quantity standards land transfer • Clear regulatory frame-

Commercial

• Smallholder-focused, • Links to urban and global works and intellec-

climate-smart, and markets tual property rights to
nutrition-enhancing • Vertical and horizontal link private sector with
technologies market coordination smallholders
• Investment in infrastruc- • Enhanced role of farmers’
ture, agricultural R&D, organizations, particularly
and extension for women farmers

Source: Authors' compilation.

 Is Small Still Beautiful? 5

socioeconomic and biophysical variables such as popula- commercial activities by factors such as limited access to
tion density, agricultural potential (determined by agro- capital and risk-reducing tools.
ecological conditions such as water supply, soil fertility, Second, the appropriate development pathway for
and biotic pressures from pests and diseases), and market smallholder farmers also depends on the level of transfor-
access (Omamo et al. 2006). Other determinants of small- mation within the country’s economy. The transformation
holder livelihood strategies include the asset position of process involves increased productivity and commercializa-
households and the characteristics of the production envi- tion in agriculture alongside economic diversification and
ronment (including institutions, power structures, and mar- growth. The exact duration and character of the transforma-
ket policies). tion varies across developing countries, but it includes sev-
Within this typology, subsistence farmers are smallhold- eral fundamental changes in the structure of the economy:
ers who consume the majority of their farm output and a declining share of agriculture in gross domestic product
who are held back from participating more actively in com- (GDP) and employment, increasing rural-to-urban migra-
mercially oriented agriculture by a variety of constraints. tion, the rise of a modern industrial and service economy,
The potential to turn production systems into profitable and a demographic transition to lower birth and death rates
enterprises is greatest among the subsistence farmers who (Timmer 1988). In the typology, agriculture-based econ-
are facing soft constraints—such as limited financial and omies are those that derive a significant portion of their
human capital and asymmetric access to markets and infor- economic output and growth from the agricultural sector.
mation—that can be addressed through various policy and This group includes most countries in Africa south of the
programmatic channels. In addition to soft constraints, the Sahara. Transforming economies, which lie mainly in East
presence of hard constraints—such as marginal lands that and South Asia, are those in which agriculture’s significant
are far from markets, are limited in size, and have extremely role is being gradually replaced by the manufacturing and
low rainfall and soil quality—severely hampers the ability service sectors, although poverty continues to be heavily
of other smallholders to increase their production capac- concentrated in rural areas. Finally, transformed countries,
ity and move toward profitable farming systems. Com- which are mainly in Eastern Europe and Latin America, are
mercial smallholders are already involved in profitable those in which agriculture has become a minor source of
agricultural activities but are held back from scaling up their economic growth.
Emerging Challenges Facing
Smallholders

A large body of literature has traditionally analyzed smallholders’ produc-

tive capacity in the face of several interrelated socioeconomic challenges (Hazell et al.
2007; World Bank 2008). These challenges include insufficient access to markets, infrastructure,
and technology; high marketing and transport costs; and limited resources (land and human
capital). While these traditional challenges persist, increasingly complex natural and human-
caused shocks are making smallholders more vulnerable.

Smallholders often have limited access to markets for Smallholders have become increasingly vulnerable to
both inputs and outputs, and this has a significant effect on a spectrum of emerging climatic, health, price, and finan-
their production activities. In part, the geographic disper- cial risks and challenges as well. These emerging challenges
sion and limited access to infrastructure (including trans- lead many smallholder farmers to pursue livelihood strate-
portation networks and market facilities) in many rural gies that involve lower-risk and lower-yielding agricultural
areas drive up transaction costs, lower smallholders’ profit activities. Such responses can help smallholders cope with
margins, and lead many smallholders to pursue more adverse events, but they also cause poverty to persist, trap-
subsistence-oriented production practices. Similarly, small- ping smallholders in a cycle of little or no profits, with
holders’ limited access to productivity-enhancing technolo- limited opportunities to undertake more productive and
gies is grounded in an environment where national research innovative activities.
systems do not sufficiently prioritize smallholder-friendly
technologies and extension systems fail to help smallhold- FOOD PRICE VULNERABILITY
ers gain access to and adopt such technologies. Distorted The recent food price crisis is by definition associated with
land tenure structures—including insecure property adverse welfare effects, but the increase in food prices also
rights and underdeveloped land rental and sales markets— generated potential opportunities for smallholder farmers
have been linked with less efficient land use and lower in developing countries by creating incentives for them to
productivity-enhancing investments. Smallholders’ produc- increase production and profits. The magnitude and direc-
tivity is also affected by lack of access to education, which tion of the impact of price volatility on smallholder farm-
could help build the skills needed to manage on- and off- ers depend on a number of variables. These include the
farm production systems more efficiently and raise small- concurrent increase in production and consumption costs,
holder adoption of innovative and high-return technologies. whether the farmers are net buyers or sellers of food, and

6 
 Emerging Challenges Facing Smallholders 7

the capacity of smallholders to step up their production productivity. Nutritional deficiencies—especially in terms
and to bring the increased output to market (making use of of micronutrient intake—impair farmers’ productivity
storage and transport). Evidence from Ghana shows that through poor physical health, inability to innovate, and
higher maize prices have the largest adverse welfare effects poor cognitive development (Ulimwengu et al. 2011).
on urban, female-headed, poor, and small farm house- Health shocks and the subsequent loss of agricultural pro-
holds because these groups are traditionally net buyers of duction capacity can also lead to changes in cropping pat-
maize (Minot and Dewina 2013). Similarly, recent stud- terns and diminishing crop diversity. Affected households
ies in Bangladesh and Malawi show that an increase in the may switch to less labor-intensive crops—such as root
price of staple crops—rice and maize, respectively—results crops—that also often have lower yields, lower economic
in a higher welfare loss for small landholders compared value, and lower nutritional value, starting a vicious circle of
with larger landholders (Karfakis et al. 2011). The impact ill health, poor nutrition, and low productivity (Barnett and
of price fluctuations also depends on other household Rugalema 2001; UN 2004). Development efforts over the
characteristics, including off-farm income and the income past several decades have focused on providing an adequate
linkages between buyers and sellers (Aksoy and Isik- supply of food through improved agricultural productiv-
Dikmelik 2011). ity, but they have failed to deliver adequate quantities of
At the same time, an analysis of household data from nutritionally balanced food, especially to poor people. For
before and after the 2007–2008 food price crisis in Indone- example, strategies to increase food production during the
sia shows that the crisis created “forward-looking incentives” Green Revolution were disproportionately concentrated on
for farmers to increase investments in productive assets productive cereals at the expense of more nutrition-dense
(Nose and Yamauchi 2012). Rising food prices translated crops and placed little focus on increasing nutrient intake
into higher investments by both large and small farmers, and human health (Welch and Graham 1999).
with higher prices and the resulting higher incomes partly As developing countries’ populations grow larger, richer,
relieving credit constraints among smallholders. These find- and more urban, the intensification of agricultural produc-
ings also reveal, however, that unanticipated price shocks tion will occur in rapidly changing agrifood value chains
had a smaller positive impact than anticipated shocks. This (Reardon et al. 2009). Increasingly globalized and liber-
means that although some smallholder farmers with mar- alized agrifood markets are dominated by supermarkets,
ketable surplus stand to profit from rising food prices, the distributors, processors, and agro-exporters that are intro-
volatility and uncertainty of prices make it difficult for ducing and expanding food safety and quality standards that
them to take advantage of these opportunities. The uncer- many smallholders are unable to meet. These developments
tainty concerning future food prices raises questions about are further shifting the competitive advantage away from
smallholders’ future income and risks as both producers smallholder farmers toward large-scale producers. At the
and consumers. same time, more intensive agricultural practices will have
significant implications for food safety, disease transmis-
NUTRITION AND HEALTH sion, and environmental sustainability. In fact, the presence
Agriculture, nutrition, and health are closely linked, and of contaminated food in the food distribution chains and
smallholders play an important role in this relationship (as the transmission of zoonotic diseases, such as avian influ-
both consumers and producers). Shocks to the health and enza, is already an emerging public health concern in many
nutritional status of smallholder farm households have developing countries. In China, for example, the contamina-
been shown to reduce these households’ ability to under- tion of milk and baby formula, which sickened an estimated
take more productive and innovative activities that generate 300,000 people, has been linked to the rapid and unregu-
food and income (for an overview, see Fan and Pandya- lated development of the dairy sector (Pei et al. 2011).
Lorch 2012). This is largely because such shocks lead to
losses in physical and financial assets and work capacity CLIMATE CHANGE
and skills. Nutrition has a particularly significant influ- Climate change is likely to increase the vulnerability of
ence on the relationship between health and agricultural many poor rural communities. Given their already weak
8  FROM SUBSISTENCE TO PROFIT

resource base, smallholder farmers are especially sensi- climate change and where the largest increase in vulnerabil-
tive to rising temperatures, changing precipitation pat- ity will occur in the coming decades (Borja-Vega and de la
terns, increasing risk of crop pests and diseases, and more Fuente 2013). In other words, smallholders are more likely
frequent extreme weather events—all of which can raise to experience climatic extremes that will add stress and
the incidence of crop failure and harm livelihoods. Cli- uncertainty to their production systems, and these small-
mate change is likely to aggravate existing nonclimatic holders have less adaptive capacity and are more sensitive
stress factors for smallholders, such as marginal land use to these changes.
and limited access to technical knowledge, insurance, and In recent years, several consecutive poor rainy seasons
financial services. Projections of the potential impact of led to a severe drought in large parts of the Horn of Africa,
climate change point to further threats to already strained resulting in crop and livestock losses alongside lower yields
global food production systems, with the yield of major in crop and livestock production among the region’s small-
smallholder crops—such as wheat, maize, and rice—pre- holder farmers and pastoralist communities. As a result,
dicted to decrease in many areas (Lobell, Schlenker, and many of the region’s smallholder farmers and pastoral-
Costa-Roberts 2011; Nelson et al. 2010). Moreover, results ists have become more food insecure and cash strapped.
from model simulations show that climate change–induced In Ethiopia, for example, where a significant fraction of
losses in agricultural productivity are largest in develop- the rural population consists of semi-nomadic herders or
ing countries, with losses forecast to reach 10–20 per- pastoralists, drought has had devastating impacts on the
cent throughout Africa, Southeast Asia, and South Asia, rural poor. A changing climate has the potential to magnify
regions where smallholder populations are relatively large the vulnerability of global food systems by increasing the
(Wheeler 2011). occurrence of unpredictable and extreme weather as well as
Extreme natural events—such as droughts, wildfires, generating a rise in sea levels, thereby posing progressively
heat waves, and floods—have the capacity to threaten more complex and frequent challenges to food producers
the already fragile livelihoods of smallholders. Evidence and consumers alike.
from Malawi shows that small-scale farmers suffer greater
drought- and flood-induced
economic losses than medium-
and large-scale farmers
FIGURE 2 Expected impact of drought and floods
(Figure 2) (Pauw, Thurlow,
on Malawian farmers’ annual earnings
and van Seventer 2010). For
example, small-scale farm- Small-scale farmers
0.5
ers are more likely to pro- Medium-scale farmers
Large-scale farmers
duce drought-sensitive maize
Change in earnings (%)

0.0
while medium- and large-scale
farmers grow more drought- - 0.5
resistant tobacco. This dif-
ference in cropping patterns -1.0
means that smallholders
-1.5
experience greater economic
losses during droughts. Simi-
-2.0
larly, findings from Mexico
reveal that smallholder and -2.5
subsistence farmers are more
likely than larger-scale farmers -3.0
Drought Flood
to live in areas where agricul-
Source: Authors, based on data from Pauw, Thurlow, and van Seventer (2010).
ture is highly vulnerable to
 Emerging Challenges Facing Smallholders 9

FIGURE 3 Agricultural investment needs, investment flows, and the financing

gap in developing countries, 2008
Foreign direct investment (private), US$22.8 billion
Financing gap, US$107.5 billion
Remittances, US$17.4 billion

Official development assistance (ODA), US$12 billion

Global private philanthropy, US$5.3 billion

Domestic savings (private and public), US$110 billion

Investment needs
US$275 billion

Source: Authors, based on data from Motes (2011) and Center for Global Prosperity–Hudson Institute (2011).
Note: These data do not include investment in infrastructure.

LIMITED ACCESS TO FINANCE than on tertiary education, vaccination or other medi-

AND CAPITAL cal expenses, home improvements or construction, and
Current capital flows to the agricultural sector as a whole rent combined. The indirect cost of funerals may be even
remain grossly insufficient in the face of upcoming agricul- higher because they divert time away from labor—an aver-
tural demand (Figure 3). age funeral takes three days, and all villagers are expected
Many smallholders are excluded from productivity- to come.
enhancing financial services and are unable to secure Another challenge to smallholder financing is the lim-
much-needed fixed and working capital, which ranges from ited number of loans from commercial banks to agricul-
land and buildings to machinery, high-yielding seeds, and ture and the rural poor in many developing countries: for
fertilizer. One of the major financing challenges facing example, only a quarter of agricultural loans in Africa south
smallholders is their limited access to financial options and of the Sahara originated from a bank (Banerjee and Duflo
services for keeping their savings in formal accounts. The 2007). Reasons for this situation include the dispersed
absence of financial savings services contributes to the low demand and high cost of service in low-population areas;
savings rate among smallholders and their lack of buffers the weak administrative capacity of rural banks; agriculture-
against adversity and shocks. China and other countries specific covariate risks such as variable weather patterns,
in Asia record higher savings rates than Africa. For exam- pests, and price fluctuations; and lack of formally defined
ple, the savings rate of the rural poor is 20–30 percent in property and land-use rights to act as collateral for loans.
China (Horioka and Wan 2007; Dewen 2010), compared In recent years, the financial crisis has forced the bank-
with 3 percent in Nigeria (Obayelu 2012). Savings are also supervising authorities in many countries to raise reserve
frequently invested in social capital (weddings and funer- requirements, making it even more difficult for small farm-
als) to secure participation in the local community and to ers to secure loans.
help cope with adversities such as accidents or illness at the Over the past several decades, microfinance designed
individual level, but this approach loses its effectiveness to improve rural smallholders’ access to credit has gained
when the whole community is affected. A survey among prominence as a poverty-reduction tool, but the reality
Ghanaian cocoa farmers showed that median spending on has been mixed (Bateman 2011). The small size and short
funerals equaled the median savings (Hainmueller, Hiscox, maturity of microcredit loans do not adequately address
and Tampe 2011). On average, more was spent on funerals the seasonality of smallholders’ production and income
10  FROM SUBSISTENCE TO PROFIT

cycles or their long-term needs for more productive capi- and less than 1 percent in Bangladesh (UNCTAD 2009).
tal investments, such as machinery and storage facilities. FDI flows to African agriculture are growing, how-
Further, microcredit schemes are often incompatible with ever, and have tripled in the period from 1989–1991 to
high covariate risks (including droughts and floods that 2005–2007.
affect whole communities) and the high transaction costs Although FDI in agriculture is not new, recent trends
of delivering services to small-scale and geographically indicate increasing levels of resource-seeking investments
dispersed farmers. This situation forces some smallhold- (compared with past market-seeking investments). A signif-
ers to turn to informal moneylenders (who charge even icant fraction of the growth in FDI flows to Africa is spent
higher interest rates) for short-term loans to cover their on land acquisition. Figure 4 shows the amount of arable
unsustainable microfinance debt. Microfinance loan delin- land allocated to investors between 2004 and early 2009 in
quency in Bosnia and Herzegovina, Morocco, Nicaragua, five countries in Africa. Almost 80 percent of this amount
and Pakistan has been linked to borrowing from multi- is from foreign investors, except in Ethiopia, where 60 per-
ple geographically concentrated microcredit institutions, cent is owned domestically. It is often unclear, however,
overstretched microfinance capacity, and a loss of micro- whether the land is leased or purchased, whether invest-
finance credit discipline (Chen, Rasmussen, and Reille ments are installments or full payments, what fraction is
2010; Schicks and Rosenberg 2011). spent on investments beyond land acquisition, and what
Foreign direct investment (FDI) offers another way to proportion is accrued by smallholders. Although large-scale
bridge the investment gap in agriculture, but challenges land deals have the potential to stimulate rural economic
remain on how to link it better to smallholders and maxi- development by bringing in capital and technology, there
mize smallholder benefits. Currently, only a small segment are potential risks, including irreversible natural resource
of FDI in developing countries reaches the agricultural degradation; displacement of smallholder farmers by large,
sector. In Cambodia, 15 percent of authorized FDI bene- capital-intensive farms; and increasing domestic food inse-
fits agriculture, in Mozambique the share is 9 percent, and curity due to rising food exports (Robertson and Pinstrup-
in other countries it is even smaller: 4 percent in Ethiopia Andersen 2010).

FIGURE 4  Land area allocated to investors, 2004 to early 2009

900 2.5

800 Other land allocations (left axis)

Largest single land allocation (left axis)
Total area (thousand hectares)

suitable for rainfed crops (%)

Allocation as a share of land

2.0
700
Allocation as a share of land
suitable for rainfed crops (right axis)
600
1.5
500

400
1.0
300

200 0.5

100

0 0.0
Madagascar Ghana Ethiopia Mali Sudan
Source: Cotula et al. (2009).
Policy Options to Strengthen
Smallholder Farmers
with Agricultural Potential

T he vicious circle of vulnerability, low-yielding activities, and food insecurity

among smallholders needs to be broken. While many smallholder farmers can find more-
profitable livelihood opportunities outside of agriculture, other smallholders can be transformed
into profitable businesses that operate at an efficient scale within agriculture. However, this
group of potentially profitable smallholder farmers needs a policy environment that supports
and nurtures this transformation and helps them overcome the challenges they face. This section
focuses on a number of key (and often interlinked) interventions for potentially profitable small-
holder farms described in Table 1 (page 4).

PROMOTE CONTEXT-SPECIFIC several decades. As a result, a greater emphasis needs to be

FARM-SIZE POLICIES placed on improving smallholders’ productivity through
Given the heterogeneous character of economic growth stronger links to input and output markets; better access to
and structures across developing countries, optimal farm rural infrastructure and agricultural services; access to capi-
size depends heavily on context, including the stage and tal and capacity building, especially among young people
structure of a country’s economic and demographic devel- in agriculture; land policies that enable efficient smallhold-
opment. Because well-functioning land sale and rental ers to expand their operations by acquiring or renting land
markets can have a major impact on agricultural productiv- from less efficient neighbors who find other employment;
ity, governments in developing countries should not imple- and other business-friendly government policies (such as a
ment policies that promote cookie-cutter farm structures sound legal and regulatory framework). A balance needs to
(for both rental and owner-occupied farms), which can be found between easing access to land among all farmers,
lead to misallocation of resources. Demographic projec- including smallholders (especially the young), and large-
tions show that the rural and agricultural population in scale land acquisitions by foreign and domestic entities.
Africa—especially the rural youth—will continue to grow In many Asian countries, strong economic growth
in absolute numbers for the next several decades, while in nonfarm sectors and large-scale exit from agriculture
these groups will soon decline in Asia (FAO 2012; van der and rural areas offer an opportunity to increase farm size.
Geest 2010). The resulting decline in farm size in Africa Economies with vibrant nonfarm sectors and declining agri-
can be mitigated to some extent if policies and investments cultural populations (in absolute and relative terms)—for
conducive to urban and nonfarm growth are adopted. But example, emerging economies such as China and Viet-
the reality is that increasingly smaller farms will be a major nam—are in need of institutions and policies that facilitate
part of the agricultural landscape in the region for the next the growth of farm size and the movement of labor out of

 11
12  FROM SUBSISTENCE TO PROFIT

agriculture into other sectors. Short-term rental or long- agriculture-based economies can benefit from the coupling
term leasing arrangements facilitate labor mobility and of productivity-enhancing tools with social safety net sup-
transfer land to more productive users. Restrictions on port. This linkage could help smallholders augment their
rental transactions—such as ceilings on rental rates or pro- incomes and deal with shocks while they acquire the skills
hibitions on absentee landownership—should be relaxed to undertake more productive activities. Interventions
to enable rental markets to expand. Further, policies that along these lines would include conditional cash transfers
identify legitimate owners play an especially critical role in that are tied to household participation in primary school-
on- and off-farm development by enabling the efficiency- ing and health services, as seen in a number of Latin Ameri-
enhancing transfer of land (through either rental or sale) to can countries.
more productive users. For instance, evidence from China Cross-sectoral social protection initiatives that support
shows that documenting formal land rights has a positive a broad collection of productivity-enhancing investments
impact on both farm productivity and nonfarm labor sup- have shown promising results. For example, Ethiopia’s Food
ply (Deininger and Jin 2005). Security Programme combines conditional and uncon-
Similarly, social protection and improved access to hous- ditional income transfers with products and services that
ing, health services, and education for rural migrants and promote agricultural productivity and microenterprise
their families in urban centers will help them give up their development, including credit, extension, and technology.
land to farmers who stayed behind, allowing these farmers The program has increased asset holdings and productivity-
to increase the size of their farms. As labor becomes more enhancing investments among beneficiary households in
expensive and moves out of agriculture in transforming and rural areas (Gilligan, Hoddinott, and Seyoum 2009). It has
transformed economies, policies are needed to reorient the also been credited with making many farmers and herd-
economies away from labor-intensive agricultural practices ers in Ethiopia more resilient to the drought-induced food
toward a more knowledge-based and mechanized agricul- security crisis that ravaged the Horn of Africa in 2011.
tural model (, Yang, and Wang 2010). For example, the Similarly, Bangladesh’s Vulnerable Group Development
rising wage rate and ensuing labor shortage in China’s agri- Programme combines food security and nutrition inter-
cultural sector are fueling a mechanization revolution. With ventions with income-generating activities that especially
the emergence of private mechanization service providers, target women, increasing their per capita expenditure by
machinery has replaced labor in land preparation and har- a larger amount than the size of the transfer (Ahmed et
vesting—activities that were previously labor intensive. The al. 2009).
emergence of these service providers has been supported To enhance productivity, social protection initiatives
by pro-mechanization policies at the central and local levels, could promote vocational training and other education
including subsidies for the purchase of agricultural machin- schemes tailored to the technical needs of smallholder
ery (Yang et al. 2013). farmers and backed by national research and exten-
sion systems that promote smallholder-friendly and
ESTABLISH PRODUCTIVE SOCIAL smallholder-accessible technologies. At the same time, such
SAFETY NETS interventions could be used to help smallholders without
Many smallholders will not be able to survive or transform profit potential increase their access to nutritious foods in
themselves into profitable businesses in the agricultural the short term and acquire nonfarm skills and employment
sector. These farmers will need humanitarian assistance in in the long term.
the short run and viable exit strategies in long run. At the
same time, many other smallholders have the potential to IMPROVE RISK MITIGATION AND
become profitable businesses with the support of targeted ADAPTATION STRATEGIES
productive social-protection policies that offer opportuni- Farmers, and in particular smallholders, urgently need
ties for them to escape poverty, diversify their outputs, and better access to risk-management tools and strategies to
cushion livelihood shocks such as the recent food price increase their resilience to myriad shocks, including price
increase. Potentially profitable smallholder farmers in and weather. Such tools offer farmers added incentives to
 Policy Options to Strengthen Smallholder Farmers with Agricultural Potential  13

take productivity-enhancing risks such as adopting new To minimize the negative impact that volatile energy (and
technologies and switching to high-value crops. Insurance hence food) prices have on farmers’ incentives and perfor-
tools that could potentially help farmers manage risks range mance, the competition between food and biofuel produc-
from basic weather and agricultural insurance to more tion should be minimized by limiting policies that promote
sophisticated hedging options such as futures contracts and the use of grain feedstock to produce biofuels. Such a shift
loan-guarantee funds. The International Finance Corpo- would require more investment in developing either biofuel
ration (IFC)—the World Bank’s private-sector arm—has crops that grow on marginalized lands that are unsuitable
developed the Agriculture Price Risk Management tool for food crops or feedstocks that come from the non-edible
to extend access to hedging products among agricultural parts of crops or from nonfood crops.
producers and consumers in developing countries to help Policies that promote climate change mitigation and
shield them from price instability (IFC 2011a). Other inno- adaptation in agriculture are especially useful for helping
vative instruments include partial premium support (in smallholders manage risks while improving productivity.
conjunction with capacity-building efforts and regulatory Investments in mitigation include helping farmers improve
reforms) and “insurance-for-work” schemes. their energy efficiency and manage their land in ways that
These initiatives are steps in the right direction, but increase carbon storage. In fact, the global mitigation poten-
more collaboration among private institutions, govern- tial of agriculture has an estimated worth between US$32
ments, and donors is needed to support research into billion and US$420 billion (Bryan et al. 2008). Investments
the design of innovative, simple, and flexible insurance in adaptation could focus on helping farmers adjust their
tools (such as group-based risk sharing and credit) that planting dates as well as on developing and ensuring public
are adapted to the varying needs and constraints facing provision of high-yielding crop varieties and technologies
smallholders, especially targeting subsistence farmers with that are adapted to changing precipitation patterns and tem-
profit potential. The products need to be accompanied by peratures. The key is to prioritize investments and find the
investment in infrastructure (such as weather stations for appropriate mix of flexible climate change mitigation and
weather-based indexes) and capacity building of farmers adaptation policies and tools with the highest productivity-
and providers. Most important, insurance schemes need enhancing impact among different types of farmers, crops,
to overcome the capital and credit constraints that limit and regions (Bryan et al. 2011).
smallholder demand for insurance, something that the At the same time, it is important to create policy incen-
current push for weather-based index insurance has been tives for smallholders to invest in mitigation and adapta-
criticized for lacking (Binswanger-Mkhize 2012). To make tion because many of the inputs and technologies required
insurance more affordable, “aggregators”—such as farm- for low-carbon agricultural practices have high costs of
ers’ organizations, financial service providers, and input production, purchase, and use. Brazil’s Low-Carbon Agri-
suppliers—could provide insurance and financial products culture Program, for example, provides financial incentives
as part of input contracts and vertical coordination mecha- to encourage farmers to adopt crop and soil manage-
nisms to help smallholders both manage risks and meet the ment activities that neutralize or minimize on-farm green-
demands of modern supply chains (Dries et al. 2009). house gas emissions, including no-till farming, planting
Reducing risks associated with price volatility requires of commercial forests, and integrated crop-livestock-
supportive macroeconomic policies. National governments forestry systems.
should encourage transparent, fair, and open global trade
by eliminating formal and informal export restrictions LINK AGRICULTURE, NUTRITION,
and refraining from imposing new ones. Although export AND HEALTH
bans may help secure domestic food supplies, they tend to A more integrated approach is needed to increase small-
exacerbate global price hikes, thus hurting the poorest net holders’ productivity and improve their nutrition and
buyers of food. Food prices have been increasingly linked health status. As both producers and consumers of more
to energy prices because of the growing diversion of food nutritious foods, smallholders have a potentially major role
crops toward biofuel production as energy prices increase. and stake in maximizing the linkages and synergies among
14  FROM SUBSISTENCE TO PROFIT

agriculture, nutrition, and health. Investments to increase because they cannot meet increasingly specific and strict
smallholder productivity should therefore be leveraged to quality standards, high volume requirements, and logis-
improve nutrition and health in developing countries. Such tics specifications. For obvious reasons, companies tend
investments could combine productivity-enhancing efforts to contract with larger farmers first and prefer farmers
with biofortification and biotechnology initiatives to breed with certain nonland assets, such as irrigation or access
nutritionally fortified varieties of staple food crops that are to paved roads. These preferences act as barriers to small-
often grown by smallholder farmers and consumed by poor holder participation in domestic (especially urban) and
people in developing countries. Investments such as this international markets. Overcoming these barriers requires
can link agriculture to nutrition by creating economic value institutional innovations for vertical and horizontal coordi-
for producers and traders along with nutritional and health nation among smallholders, including group lending, rural
value for consumers. Experiences in Mozambique and marketing cooperatives, and producer associations. These
Uganda with increasing the production, availability, and mechanisms will provide smallholder farmers with reduced
consumption of vitamin A–rich sweet potatoes are good transaction costs, improved access to market information,
examples of successful value-chain approaches (Hawkes and increased bargaining power. However, such coordina-
and Ruel 2011). Countries should establish effective and tion mechanisms require strong institutional capacity and
transparent regulatory and monitoring systems to govern the active promotion of smallholder participation—not
biotechnology and other emerging technologies so that just membership—within these organizations to gain the
producers and consumers can make timely and contextually maximum benefit for smallholders (Fischer and Qaim
relevant decisions about these technologies. 2012). Similarly, information and communication tech-
As smallholders become active participants in the food nologies (ICTs) can offer smallholder farmers a wealth
supply chain, their production activities increasingly have of opportunities to acquire real-time market informa-
an impact on food safety and, at the same time, are affected tion—on, for example, prices, demand, quality standards,
by food safety standards. Safety regulations and monitoring and weather. With this information, farmers can make
systems need to be developed and implemented to ensure better-informed production and marketing decisions and
that agricultural intensification does not harm people’s participate more actively in value chains. Access to such
health, but regulations must be implemented in a way that technologies needs to be accompanied by efforts from the
does not alienate smallholders. Institutional innovations public and private sectors to improve both the information
and cooperation—such as public-private partnerships, pro- content of ICTs and the ability of potential users to employ
ducer organizations, and group certification—are needed these technologies.
to help smallholders gain access to information, technolo- A related concern within current agrifood supply
gies, and training to satisfy food safety regulations, espe- chains is that roughly one-third of global food production
cially in transforming and transformed economies. Above is lost or wasted in the journey between farmers’ fields and
all, more smallholder-specific research and evidence are consumers’ plates (Gustavsson et al. 2011). Most posthar-
needed on how to integrate the agricultural, nutrition, and vest losses in developing countries occur before the farm-
health sectors in ways that have the most benefits for small- gate (not at the consumer level, as is the case in developed
holders and on how to scale up successful innovations countries) because of factors such as poor postharvest
and initiatives. handling and storage that increase crop vulnerability to
biodeterioration, pests, and unfavorable weather (Hodges,
PROMOTE PRO-SMALLHOLDER Buzby, and Bennett 2011). The dearth of postharvest
VALUE CHAINS capacity and infrastructure among smallholders and the
Linking smallholders to agrifood value chains is an impor- subsequent loss of output significantly limit smallhold-
tant component of building smallholder resistance to ers’ profit potential, conservation of natural resources, and
shocks and improving their productivity and livelihoods. participation in high-value markets. In fact, evidence from
However, many smallholders in transforming and trans- Malawi shows that smallholder farmers who have access to
formed economies are unable to participate in value chains postharvest storage technologies are more likely to adopt
 Policy Options to Strengthen Smallholder Farmers with Agricultural Potential  15

higher-value maize varieties, holding other farm-level by smallholders, such as machinery and storage facilities,
characteristics constant (Ricker-Gilbert and Jones 2012). which are critical for increasing productivity and moderniz-
In response, public and private investments in agriculture- ing smallholder agriculture. Areas that are worth exploring
based and transforming economies should focus on and test-piloting include the provision of long-term loans
reducing food loss along entire supply chains, from the through producer organizations, development of financial
development of crop varieties with better postharvest leasing schemes, and the expansion of accepted collateral
traits to better storage equipment and facilities that have through the introduction of movable asset registries. ICTs
low initial and recurring costs. Extension services should can also be used to establish an electronic credit history
help smallholders build their postharvest crop manage- for smallholders, thereby giving them a foundation for
ment skills and maximize the benefits of postharvest tech- access to longer-term financing mechanisms (IFC 2011b).
nologies (Bokusheva et al. 2012). Policies in transformed Above all, a vibrant rural financial system is needed that
countries should also place more emphasis on promoting includes a diverse mix of financial institutions and networks
consumer awareness of food waste. that work together to support innovation and rural access
among smallholders.
ENSURE SMALLHOLDER-FRIENDLY The public spending portfolio should also be strategi-
FINANCING AND INVESTMENT cally positioned to offer a short-term cushion for coping
Moving from subsistence to more commercially ori- with livelihood shocks as well as long-term productivity-
ented activities requires increased capital and investment enhancing or exit opportunities for smallholders to escape
flows that focus on smallholder farmers and their specific poverty and food insecurity. Public investments should
constraints and needs during times of both price stabil- be directed toward providing essential public goods that
ity and volatility. Increasing capital flows toward rural have the highest economic and social returns, including
areas requires innovation in the channels and instruments rural infrastructure (especially rural roads) and agricul-
through which financial services are offered to smallholders, tural research and development. National research systems
including young people. The potential for novel approaches need to prioritize the development of location-specific and
is wide and includes value-chain finance, rural leasing, loan- smallholder-friendly technological innovations across the
guarantee funds, and ethical and Islamic banking. When it whole agricultural value chain. A sound legal and regula-
comes to smallholders, however, more research is needed tory environment is needed to maximize the private sector’s
to explore the viability and benefits of these innovative contribution to smallholder productivity and to protect the
services before they can be scaled up. For example, loan- property rights of smallholders and their surrounding natu-
guarantee funds under the Innovative Financing Program of ral resources. In conjunction, more research is needed to
the Alliance for a Green Revolution in Africa (AGRA) have define appropriate instruments and strategies for integrat-
been used to leverage much larger loans from commercial ing public-private partnerships and FDI into local econo-
banks and have lowered interest rates for smallholders, but mies. For example, regional and local governments could
questions remain about whether this program has actu- work with private businesses (foreign and domestic) to
ally reached new customers who previously were unable to design and provide supportive services, including techno-
access such loans (Poulton and Macartney 2012). Increased logical and organizational support, to smallholder farmers
efforts are needed to examine and promote ICTs, such as who serve as their suppliers ( Jordaan 2011). The promo-
mobile phones and Internet kiosks, that can boost access to tion of FDI from other developing and emerging countries
affordable payment, savings, and credit services for small- also has the potential to generate greater spillover of more
holders. Such financial products can be bundled with other contextually appropriate technologies and skills to small-
development services, such as capacity-building and exten- holders (UNCTAD 2012). Sound evidence-based research,
sion services. information systems, and regulations at the national and
The focus of financing efforts should also be shifted global levels are needed to enhance the transparency of
toward more medium- and long-term financing mecha- transactions and to understand the opportunities and
nisms to support commercially oriented capital investments threats for smallholders.
Conclusion

World agriculture will need to undergo major changes if nutrition, and health, (5) promoting pro-smallholder value
the demands of a growing and increasingly rich and urban chains, and (6) increasing smallholder-friendly financing
population are to be met against a background of increasing and investment.
scarcity of natural resources and other emerging challenges. As with all public investments, the costs of investments
Smallholders are an important part of the development and programs designed to improve smallholders’ produc-
equation. However, smallholders are not a homogeneous tivity need to be compared with the likely benefits in each
group, and development policies should not treat them country. Public funds have alternative uses, such as other
as such. Instead the development pathways of smallhold- investments within or outside agriculture. Moreover, in
ers consist of dynamic processes that vary according to the many circumstances, agricultural development requires
constraints they face and the stage of economic transforma- addressing the obstacles faced by groups of agricultural pro-
tion. While some smallholder farmers have the potential to ducers other than smallholders.
undertake profitable commercial activities in the agricul- This report has identified several areas in which further
tural sector, other farmers should be supported in exiting research could shed light on the opportunities for small-
agriculture and seeking nonfarm employment opportuni- holder farmers with profit potential to move from subsistence
ties. For smallholder farmers with profit potential, agri- to commercially oriented agricultural systems, as well as the
culture is risky in the face of climate change, price shocks, challenges to their doing so. It is now time for governments
limited financing options, and inadequate access to healthy in developed and developing countries, the research com-
and nutritious food. Smallholders can successfully adapt munity, and private companies to focus their investments,
their livelihood strategies to these challenges but need a innovations, and policies on helping these smallholders man-
supportive policy environment. age risk, improve their resilience to shocks, and increase their
These policies and investments should focus on access to finance and capital while promoting future growth.
(1) promoting context-specific farm-size policies, (2) sup- All of these measures, adapted to each country’s stage of eco-
porting productive social safety nets, (3) improving risk nomic development and transformation, will play a critical
mitigation and adaptation strategies, (4) linking agriculture, but varying role in bringing down barriers to profitable and
efficient agricultural operations by smallholders.

16 
REFERENCES
Adamopoulos, T., and D. Restuccia. 2013. The Size Distribution of Farms and International
Productivity Differences. Working Paper 480. Unpublished, Department of Economics,
University of Toronto.
Ahmed, A., A. Quisumbing, M. Nasreen, J. Hoddinott, and E. Bryan. 2009. Comparing Food
and Cash Transfers to the Ultra-Poor in Bangladesh. IFPRI Research Monograph 163.
Washington, DC: International Food Policy Research Institute.
Aksoy, M., and A. Isik-Dikmelik. 2011. “Are Low Food Prices Pro-Poor? Net Food Buyers
and Sellers in Low-Income Countries.” In Food Prices and Rural Poverty, edited by M.
Aksoy and B. Hoekman, 113–138. Washington, DC: World Bank.
Banerjee, A., and E. Duflo. 2007. “The Economic Lives of the Poor.” Journal of Economic
Perspectives 21 (1): 141–167.
Barnett, A., and G. Rugalema. 2001. “HIV/AIDS.” Brief 3 in Health and Nutrition: Emerging
and Reemerging Issues in Developing Countries, edited by R. Flores and S. Gillespie. 2020
Vision Focus 5. Washington, DC: International Food Policy Research Institute.
Barrett, C., M. Bellemare, and J. Hou. 2010. “Reconsidering Conventional Explanations of
the Inverse Productivity-Size Relationship.” World Development 38 (1): 88–97.
Bateman, M. 2011. Microfinance as a Development and Poverty Reduction Policy: Is
It Everything It’s Cracked Up to Be? ODI Background Note. London: Overseas
Development Institute.
Binswanger-Mkhize, H. P. 2012. “Is There Too Much Hype about Index-Based Agricultural
Insurance?” Journal of Development Studies 48 (2): 187–200.
Bokusheva, R., R. Finger, M. Fischler, R. Berlin, Y. Marín, F. Pérez, and F. Paiz. 2012.
“Factors Determining the Adoption and Impact of a Postharvest Storage Technology.”
Food Security 4 (2): 279–293.
Borja-Vega, C., and A. de la Fuente. 2013. Municipal Vulnerability to Climate Change and
Climate-Related Events in Mexico. Policy Research Working Paper 6417. Washington,
DC: World Bank.
Bryan, E., W. Akpalu, C. Ringler, and M. Yesuf. 2008. Global Carbon Markets: Are There
Opportunities for Sub-Saharan Africa? IFPRI Discussion Paper 832. Washington, DC:
International Food Policy Research Institute.
Bryan, E., C. Ringler, B. Okoba, J. Koo, M. Herrero, and S. Silvestri. 2011. Agricultural
Management for Climate Change Adaptation, Greenhouse Gas Mitigation, and Agricultural
Productivity: Insights from Kenya. IFPRI Discussion Paper 1098. Washington, DC:
International Food Policy Research Institute.
Center for Global Prosperity–Hudson Institute. 2011. The Index of Global Philanthropy and
Remittances 2011. Washington, DC: Hudson Institute.

 17
18  REFERENCES

Chen, G., S. Rasmussen, and X. Reille. 2010. Growth and Vulnerabilities in Microfinance.
Focus Note 61. Washington, DC: Consultative Group to Assist the Poor.
Cotula, L., S. Vermeulen, R. Leonard, and J. Keeley. 2009. Land Grab or Development
Opportunity? Agricultural Investment and International Land Deals in Africa.
London: International Institute for Environment and Development; Rome: Food
and Agriculture Organization of the United Nations and International Fund for
Agricultural Development.
Deininger, K., and S. Jin. 2005. “The Potential of Land Rental Markets in the Process of
Economic Development: Evidence from China.” Journal of Development Economics 78
(1): 241–270.
Deininger, K., S. Jin, and H. Nagarajan. 2008. “Efficiency and Equity Impacts of Rural Land
Rental Restrictions: Evidence from India.” European Economic Review 52 (5): 892–918.
de Janvry, A., and E. Sadoulet. 2009. “Agricultural Growth and Poverty Reduction:
Additional Evidence.” World Bank Research Observer 25 (1): 1–20.
Dercon, S. 2009. “Risk, Poverty, and Insurance.” Brief 3 in Innovations in Insuring the
Poor, edited by R. Vargas Hill and M. Torero. 2020 Vision Focus 17. Washington, DC:
International Food Policy Research Institute.
Dewen, W. 2010. Can Social Security Boost Domestic Consumption in the People’s Republic of
China? ADBI Working Paper 215. Tokyo: Asian Development Bank Institute.
Dries, L., E. Germenji, N. Noev, and J. Swinnen. 2009. “Farmers, Vertical Coordination,
and the Restructuring of Dairy Supply Chains in Central and Eastern Europe.” World
Development 37 (11): 1742–1758.
Fan, S., and C. Chan-Kang. 2003. “Is Small Beautiful? Farm Size, Productivity, and Poverty
in Asian Agriculture.” Plenary paper prepared for the 25th International Conference of
Agricultural Economists, July 17, Durban, South Africa.
Fan, S., and R. Pandya-Lorch, ed. 2012. Reshaping Agriculture for Nutrition and Health.
Washington, DC: International Food Policy Research Institute.
FAO (Food and Agriculture Organization of the United Nations). 2000. 2000 World Census
of Agriculture. Rome.
—. 2010. 2010 World Census of Agriculture. Rome.
—. 2011. Save and Grow: A Policymaker’s Guide to the Sustainable Intensification of
Smallholder Crop Production. Rome.
—. 2012. FAOSTAT database. Accessed July 26, 2012. http://faostat.fao.org.
Fischer, E., and M. Qaim. 2012. “Linking Smallholders to Markets: Determinants and
Impacts of Farmer Collective Action in Kenya.” World Development 40 (6): 1255–1268.
 REFERENCES 19

Gilligan, D., J. Hoddinott, and M. Seyoum. 2009. “An Analysis of Ethiopia’s Productive
Safety Net Programme and Its Linkages.” Journal of Development Studies 45 (10):
1684–1706.
Gustavsson, J., C. Cederberg, U. Sonesson, R. van Otterdijk, and A. Meybeck. 2011. Global
Food Losses and Food Waste: Extent, Causes, and Prevention. Rome: Food and Agriculture
Organization of the United Nations.
Hainmueller, J., M. Hiscox, and M. Tampe. 2011. Sustainable Development for Cocoa Farmers
in Ghana: Baseline Survey: Preliminary Report. Cambridge, MA: Massachusetts Institute
of Technology and Harvard University.
Hawkes, C., and M. Ruel. 2011. Value Chains for Nutrition. 2020 Conference Paper 4.
Washington, DC: International Food Policy Research Institute.
Hazell, P. 2009. “Transforming Agriculture: The Green Revolution in Asia.” In Millions Fed:
Proven Successes in Agricultural Development, edited by D. Spielman and R. Pandya-Lorch,
25–32. Washington, DC: International Food Policy Research Institute.
Hazell, P., C. Poulton, S. Wiggins, and A. Dorward. 2007. The Future of Small Farms
for Poverty Reduction and Growth. 2020 Discussion Paper 42. Washington, DC:
International Food Policy Research Institute.
—. 2010. “The Future of Small Farms: Trajectories and Policy Priorities.” World
Development 38 (10): 1349–1361.
Helfand, S., and E. Levine. 2004. “Farm Size and the Determinants of Productive Efficiency
in the Brazilian Centre-West.” Agricultural Economics 31 (2–3): 241–249.
Heltberg, R. 1998. “Rural Market Imperfections and the Farm Size-Productivity
Relationship: Evidence from Pakistan.” World Development 26 (10): 1807–1826.
Hodges, R., J. Buzby, and B. Bennett. 2011. “Postharvest Losses and Waste in Developed
and Less-Developed Countries: Opportunities to Improve Resource Use.” Journal of
Agricultural Science 149 (S1): 37–45.
Horioka, C., and J. Wan. 2007. “The Determinants of Household Saving in China: A
Dynamic Panel Analysis of Provincial Data.” Journal of Money, Credit, and Banking 39
(8): 2077–2096.
IFC (International Finance Corporation). 2011a. IFC Annual Report 2011.
Washington, DC.
—. 2011b. Scaling Up Access to Finance for Agricultural SMES: Policy Review and
Recommendations. Washington, DC.
IFPRI (International Food Policy Research Institute). 2005. The Future of Small Farms:
Proceedings of a Research Workshop, Wye, UK, June 26–29, 2005. Washington, DC.
Jordaan, J. 2011. “FDI, Local Sourcing, and Supportive Linkages with Domestic Suppliers:
The Case of Monterrey, Mexico.” World Development 39 (4): 620–632.
20 
  REFERENCES

Karfakis, P., J. Velazco, E. Moreno, and K. Covarrubias. 2011. Impact of Increasing Prices of
Agricultural Commodities on Poverty. Agricultural Development Economics Division
(ESA) Working Paper 11-14. Rome: Food and Agriculture Organization of the
United Nations.
Lobell, D., W. Schlenker, and J. Costa-Roberts. 2011. “Climate Trends and Global Crop
Production since 1980.” Science 333 (6042): 616–620.
Minot, N., and R. Dewina. 2013. Impact of Food Price Changes on Household Welfare in
Ghana. IFPRI Discussion Paper 1245. Washington, DC: International Food Policy
Research Institute.
Motes, W. 2011. Global Food and Agriculture Productivity: The Investment Challenge.
Washington, DC: Global Harvest Initiative.
Nelson, G., M. W. Rosegrant, A. Palazzo, I. Gray, C. Ingersoll, R. Robertson, S. Tokgoz,
T. Zhu, T. Sulser, C. Ringler, S. Msangi, and L. You. 2010. Food Security, Farming,
and Climate Change to 2050: Scenarios, Results, Policy Options. Washington, DC:
International Food Policy Research Institute.
Nose, M., and F. Yamauchi. 2012. Long-Term Impacts of Global Food Crisis on Production
Decisions: Evidence from Farm Investments in Indonesia. Policy Research Working Paper
6065. Washington, DC: World Bank.
Obayelu, O. A. 2012. “Saving Behavior of Rural Households in Kwara State, Nigeria.”
African Journal of Basic and Applied Sciences 4 (4): 115–123.
Omamo, S., X. Diao, S. Wood, J. Chamberlin, L. You, S. Benin, U. Wood-Sichra, and
A. Tatwangire. 2006. Strategic Priorities for Agricultural Development in Eastern and
Central Africa. Research Report 150. Washington, DC: International Food Policy
Research Institute.
Pauw, K., J. Thurlow, and D. van Seventer. 2010. Droughts and Floods in Malawi: Assessing
the Economywide Effects. IFPRI Discussion Paper 962. Washington, DC: International
Food Policy Research Institute.
Pei, X., A. Tandon, A. Alldrick, L. Giorgi, W. Huang, and R. Yang. 2011. “The China
Melamine Milk Scandal and Its Implications for Food Safety Regulation.” Food Policy 36
(3): 412–420.
Poulton, C., and J. Macartney. 2012. “Can Public-Private Partnerships Leverage Private
Investment in Agricultural Value Chains in Africa? A Preliminary Review.” World
Development 40 (1): 96–109.
Poulton, C., A. Dorward, and J. Kydd. 2010. “The Future of Small Farms: New Directions
for Services, Institutions, and Intermediation.” World Development 38 (10): 1413–1428.
Reardon, T., C. Barrett, J. Berdegué, and J. F. Swinnen. 2009. “Agrifood Industry
Transformation and Small Farmers in Developing Countries.” World Development 37
(11): 1717–1727.
 REFERENCES  21

Ricker-Gilbert, R., and M. Jones. 2012. “Does Access to Storage Protectant Increase
Smallholder Adoption of Improved Maize Seed? Insights from Malawi.” Paper presented
at the 2012 Agricultural and Applied Economics Association Annual Meeting, Seattle,
WA, US, August 12–14.
Robertson, B., and P. Pinstrup-Andersen. 2010. “Global Land Acquisition:
Neo-Colonialism or Development Opportunity?” Food Security 2 (3): 271–283.
Schicks, J., and R. Rosenberg. 2011. Too Much Microcredit? A Survey of the Evidence on
Overindebtedness. Occasional Paper 19. Washington, DC: Consultative Group to Assist
the Poor.
Timmer, C. P. 1988. “The Agricultural Transformation.” In Handbook of Development
Economics. Vol. 1, edited by H. B. Chenery and T. N. Srinivasan, 275–332. Amsterdam:
North-Holland.
Ulimwengu, J., S. Liverpool-Tasie, J. Randriamamonjy, and R. Ramadan. 2011.
Understanding the Linkage between Agricultural Productivity and Nutrient Consumption:
Evidence from Uganda. IFPRI Discussion Paper 1128. Washington, DC: International
Food Policy Research Institute.
UN (United Nations). 2004. The Impact of AIDS. New York: UN Department of Economic
and Social Affairs–Population Division.
UNCTAD (United Nations Conference on Trade and Development). 2009. World
Investment Report 2009: Transnational Corporations, Agricultural Production, and
Development. New York.
—. 2012. Technology and Innovation Report 2012: Innovation, Technology, and
South-South Collaboration. New York: United Nations.
van der Geest, K. 2010. Rural Youth Employment in Developing Countries: A Global View.
Rome: Food and Agriculture Organization of the United Nations.
Welch, R. M., and R. D. Graham. 1999. “A New Paradigm for World Agriculture: Meeting
Human Needs: Productive, Sustainable, Nutritious.” Field Crops Research 60 (1/2):
1–10.
Wheeler, D. 2011. Quantifying Vulnerability to Climate Change: Implications for Adaptation.
CGD Working Paper 240. Washington, DC: Center for Global Development.
World Bank. 2008. World Development Report 2008: Agriculture for Development.
Washington, DC.
Yang, J., Z. Huang, X. Zhang, and T. Reardon. 2013. “The Rapid Rise of Cross-Regional
Agricultural Mechanization Services in China.” American Journal of Agricultural
Economics, forthcoming.
Zhang, X., J. Yang, and S. Wang. 2010. China Has Reached the Lewis Turning Point. IFPRI
Discussion Paper 977. Washington, DC: International Food Policy Research Institute.
ABOUT THE AUTHORS
Shenggen Fan is director general of the International Food Policy Research Institute,
Washington, DC.
Joanna Brzeska is a consultant researcher at the International Food Policy Research Insti-
tute, Washington, DC.
Michiel Keyzer is a professor of economics at the Vrije Universiteit and director of
the Centre for World Food Studies of the Vrije Universiteit (SOW-VU), Amsterdam,
the Netherlands.
Alex Halsema is a researcher at the Centre for World Food Studies of the Vrije Universiteit,
(SOW-VU), Amsterdam, the Netherlands.

22 
 INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
A member of the CGIAR Consortium  |  A world free of hunger and malnutrition
2033 K Street, NW, Washington, DC 20006-1002 USA  |  T. +1.202.862.5600  |  F. +1.202.467.4439  |  Skype: IFPRIhomeoffice  |  [email protected] | www.ifpri.org
Copyright © 2013 International Food Policy Research Institute. All rights reserved. For permission to republish, contact [email protected]. ISBN: 978-0-89629-558-2