.
Derek Byerlee
World Bank
Land Conference,
April 26-27, 2010
Three Basic Premises

Family farms widely accepted as being most
efficient (Lipton 2009, many others)
 Difficulty of labor supervision in spatially dispersed
production
 Flexibility management of land and labor resources
to fit seasons and markets (Allen, 2004)
 Local knowledge advantages the owner-manager
 Family
farms, including smallholders, remain as
main organizational model in both poor and
rich countries
 Owner-operated employing mostly family labor
FAMILY FARMING
CORPORATE MODEL
Land
Land
Familymanagement
Labor
Management
Capital
Labor
Capital
Mean size
(ha)
% < 2 ha
Gini
sub-Saharan Africa
2.4
69
0.49
South Asia
1.4
78
0.54
East Asia
1.0
79
0.50
SE Asia
1.8
57
0.60
WANA
4.9
65
0.70
Central America
10.7
63
0.75
South America
111.7
36
0.90
Europe
32.3
30
0.60
USA
178.4
4
0.78
Source: Eastwood et al., 2009
Farm ownership USA
100%
Trends in USA, 1900s
200
Other
90%
80%
Farm size (ha)
14
180
12
160
70%
Nonfamily
corps
60%
50%
140
10
120
8
100
Family
partners
and corps
Family
ownershi
p
40%
30%
20%
10%
0%
% farms % sales
Gardiner, 2002
80
6
60
4
40
20
Manufacturing wage ($1992/hr)2
0
1900
1920
1940
1960
1980
2000
0
 Strong
growth and employment linkages
 Especially demand for local consumers goods
and services
 Example of green revolution
 Local
community development and better
services in family-farm agrarian structure
 Re-affirmed in World Development
Report, 2008
investment
necessary but not
sufficient
 Market-led
approaches imply
lead role of private
investment
• Including FDI
• Investing in farming vs
the value chain
Flow of FDI in
Agricultural Production
($US M)
6,000
5,000
4,000
3,000
2,000
1,000
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
 Public
Source: WIR, 2009

Indicators of significant concentration
 Latin America—Large regional companies
 Arg: Top 30 companies total 2.4 m ha.
 Brazil: 270 sugar mills with average of 12,600 ha own –managed area
 Mato Grosso, Brazil. Average soybean farm size of 1300 ha, 20% foreign
 RUK: Companies took over state owned farms and
collectives
 Ukraine: Top 40 companies manage 4.5 M ha; Russia: Top 30
companies 6.7 M ha (mostly home grown companies)
 SE Asia: 8 of 25 world’s largest agric production
companies are in palm oil
 Large in land area, capital invested and sales (often ~
$US1billion farm prod)
 Sime Darby (oil palm)—Malaysia, Indonesia and with 600 K ha
+ (220 k planned in Liberia)
 Cosan (sugar-ethanol)—Brazil with 300k+ ha and 300k ha of
contract growers (double with Shell)
 El Tejar (grains)—Argentina/Brazil 600k ha Pampa
 Ivolga (grains)—Russia 650 k+ ha
 Fibria (pulp)—Brazil, 500 k+ ha Eucalyptus
 Sudan (grains)-
(Note operational units usually 5-20 k ha)
1.
2.
3.
4.
Why the renewed emphasis on largescale farm models?
So what? Tradeoffs?
Are there other organizational models to
access capital and technology?
What research to fill major gaps in our
knowledge?
 Subsidies
to capital that promote mech.
 e.g., Brazil until 1990s

Regulations that promote mechanization
 Labor laws that add transactions costs
 Environmental laws that prevent burning cane

Low or zero land prices that encourage
risky investments and speculation
 Large grain farms in Africa, Jatropha
 Forest extraction policies (Indonesia)

‘Plantation crops’—’derived’ economies of
scale through processing
 10 K ha for oil palm, 20 K+ ha for sugarcane-
ethanol, 250 K ha for pulp mill
 (Even higher for second generation biofuels)
 Requirement for processing with 24-48 hrs
 Harvesting must be closely coordinated with mill
capacity
Efficiencies of spatial concentration
 May reduce costs by 20%; Kenyan smallholders, transport
is 35% of costs of sugarcane

High implicit cost of labor
 Migration and settlement programs
 Long term and costly, potential for conflict
 Labor saving via mechanization
 Until machinery rental market develops

Capital costs to open new land
 Processing, establishing perennials, soil
amendments, irrigation, roads
 Technology
for new crops (OP, SC, Soy)

Standards and certification
 Now also for bulk commodities
 Roundtables for sustainable sugarcane, soybean,
palm oil, biofuels…

Innovations that reduce diseconomies
 GMOs, zero tillage
 IT--precision agriculture, satellite ‘supervision’

Ability to innovate, new crops, new
markts
 Professional technical and management skills—
 Specialized
management
companies combine
production factors
• Argentina—”Pools de
Siembra”
 Lease land and
machinery
 Assetts—Human capital
• State of art IT systems
to improve technical
and allocative
efficiencies
 Diversified
portfolio—spatially and by product
 Smooth covariance of risks
 Market
imperfections and transactions costs
 Access to finance in global markets, poorly functioning
financial markets for local farmers
 Bargaining
power in monopsonistic markets
 Argentinean companies 10-20% price discount inputs
 Vertical
integration to overcome poor logistics
 Own rails and ports (Brazil, Ukraine)
 Strong
private R&D capacity
Rice
160
Cost (US$ per ton)
140
120
100
Other
Land and water
Machinery
Labor
Inputs
80
60
40
20
0
Thailand rainfed
Uruguay irrigated
4 ha
340 ha
Commodity
Jobs/1000 ha
Invest $/ha
Invest $
per job
Jatropha, Tanzania
600
$600
$1,000
Oil palm, Indonesia
350
$4,000
$11,400
Sugar-ethanol manual-Braz
700
$14,000
$20,000
Sugar-ethanol mech--Braz
150
$14,400
$96,000
Plantation forestryproduction + proc-Uruguay
20
$7,000
$360,000
Sorghum Sudan—semimechanized
53
$900
$17,000
Wheat-soybean irrig-Zambia
16
$6,000
$375,000
Soy—fully mechanized-Brz
18
$3,600
$200,000
Grains Ukraine fully
mechanized
10
$450
$45,000
Returns to Factors in Three Models of Oil Palm
Production in Sarawak, Malaysia
25,000
20,000
NPV ($US/ha)
Taxes
Hired labor
15,000
Local labor
Investor dividends
10,000
Smallholder dividends
5,000
0
Smallholders
Joint Venture
Source: Cramb and Ferraro, 2010
Estate
2Ratio of Yields and Costs of Smallholders and Large Scale
1
0
Yields
Costs
Ratio of smallholder incomes to only wage
employment
Grains Sudan
Grains Cameroon
Grains Zambia
Grains Nigeria
Rubber Malaysia
Oil palm Cameroon
Oil palm Indonesia indep
Oil palm Indonesia
Sugarcane Zambia
0
2
4
6
8
10
12
Smallholders
Companies
Land
Capital
Labor
Access to markets
and technology
Local skills
Specialized skills
Smallholders
Companies
Land
Capital
Labor
Access to markets
and technology
Local skills
Specialized skills
PRIZES FOR FAILED
MEGAFARMS


1930s--Fordlandia to
produce rubber in Brazil
1940s—British groundnut
scheme in Tanzania
• vs removing export taxes
on smallholders


1980s--Saskatoon on the
savannah—wheat in Africa
1990s--Mega rice project in
Indonesia
UPLAND RICE INVESTOR IN
LIBERIA, 2009?
(Low population density areas, mechanized grain production)
Smallholders
Companies
Land
Capital
Labor
Access to markets
and technology
Local skills
Specialized skills
(Settled areas, horticulture, oilseeds, sugarcane?)
Smallholders
Companies
Land
Capital
Labor
Access to markets
and technology
Local skills
Specialized skills
(Best for perennials and irrigated areas with high upfront investments)
Smallholders
Companies
Land
Capital
Labor
Access to markets
and technology
Local skills
Specialized skills

Outgrower schemes
• Initial subsidies for
participation of
smallholders
• May not involve contracts


Cooperatives and shares
in companies
• Malaysia, Zambia
Independent growers
with public support
• Rubber in SE Asia, Jatropha
Indonesia--Area sown to oil
palm by type of producer
(ha)
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
1980 1985 1990 1995 2000 2005
Private
State Owned
Small Holders
 Growing
land concentration but family farms still
dominate
 Impacts likely to be highly variable
 Specialized Agbiz firms with tech, knowhow vs
institutional investors
 R&D and technology still major issue for sustainable
and profitable investments in food crops in Africa
 Level the playing field for smallholders
 Case for special support for start up costs and public
goods (extension)
 Research
to understand trends and
performance of emerging corporate models
 Operational size, company size
 Role of IT, new tech, new business models
 Rigorous
evaluation of partnership models
+ Piloting of institutional innovations
 Research on impacts—tradeoffs between
growth, equity, social impacts and the
environment

 Best
companies profitable and highly
competitive (rapid growth)
 Grains and oilseeds (LA and RUK)
 Sugarcane (Brazil), Oil palm (Indonesia)
 Sub-Saharan
Africa
 History of failure of large-scale farms
 Some FDI associated with tech transfer
 Plantation crops, biofuels, but not for food crops
Comparative Production Costs, Soybean,
2007-08
Comparative Production Costs, Maize,
2007-09
400
200
350
180
160
300
200
150
100
50
Other
Inputs
Land
Cost (US$/t)
Cost (US$/t)
140
250
120
100
80
60
40
20
0
0
Inputs
Other
Land
FAMILY FARM





Mostly family labor
Mostly own assets (e.g.,
land)
Owner-managed
Focus on production
Flexible
• Degree of
commercialization
• Access to finance
• Little use of specialized
services
NON-FAMILY CORPORATION



Separation of management
and ownership
All hired labor
Variable arrangements on:
• Access to finance
• Specialized services
• Vertical integration
Rubber in Malaysia
100%
80%
60%
Capital
40%
Labor and
management
Land
Estate
Estate
Estate
Smallholder
Smallholder
0%
Estate
20%
1922
1963
1978
1995
1964
"1995"
Source: Barlow, 1997