. 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