Modern Agricultural Value Chains and the Future of Smallholder Farming Systems

• Agricultural Economics Workshop
• Departmental Seminar
• Development Workshop

Date and Location

Thursday, January 23, 2020, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Smallholder farms continue to play a prominent role in many developing countries. A substantial debate has emerged regarding the future role of smallholder farms as a means to lift rural households out of poverty and contribute to food security as part of modern agricultural value chains. This paper compares household income and total food output under smallholder production versus a hypothetical setting wherein households cease engaging as farm owner-operators, but supply land and labor inputs to consolidated commercial farms. Our calibrated model quantifies the advantages in accessing working capital and output marketing that can plausibly accrue to large-scale farming operations and that can offset any labor efficiency decrement compared to smallholder farms. Results show that smallholders can earn more from renting out land and labor into competitive factor markets for a wide range of plausible market conditions based on the empirical literature. The higher the price premium commanded by and less the loss in labor efficiency on large farms, and the tighter the credit constraints on smallholders, the greater is the income advantage from supplying inputs to large farms compared to operating small farms. An output advantage also accrues to large farms under similar conditions.