In a new report, FAO is calling for more nuanced policy-making to boost smallholder farm output, requiring better knowledge of individual farm households and the constraints they face, to be able to target investments and policy support where they are needed to ensure that they can sell surpluses from their harvests.
"Smallholder farmers need to be better integrated into markets in order to reduce hunger and poverty," said David Hallam, Director of FAO's Trade and Markets Division.
"Only with greater market integration and more inclusive value chains will they adopt the new technologies required to achieve productivity growth.
No one-size-fits-all solution
"Policy interventions that aim at encouraging greater levels of smallholder production for sale in markets need to take better account of the heterogeneity of smallholder households.
Encouraging semi-subsistence producers to participate more in local markets and supporting more commercialized producers to better access sophisticated value chains raise different issues with respect to both their ability and willingness to increase production for sale. There is therefore no ‘one size fits all' solution to encourage greater market participation," Hallam said.
First and foremost, Hallam underlined, is the need for better links to buyers. Farmers will not expend more time, money and energy in producing more, if any surplus they produce will likely go to waste because there is no storage, no transport or, possibly, no market within a reasonable distance, he explained. The risk that any money spent to produce more will be lost is too great a risk for poor farmers to run.
In addition, smallholder farmers are usually the ones investing their own money, with little access to credit or insurance should something arise, such as unfavourable weather conditions.
"Just as smallholders are a heterogeneous group, the markets in which they participate are also diverse in terms of their size, geographic location, connectivity to other markets, power relations between market players, and institutional setting," the report states.
This combination of complex factors means that approaches to smallholder farmers' participation in markets have to be suitably nuanced.
Closing the yield gap
"Small-scale agriculture is the main source of food in the developing world, producing up to 80 percent of the food consumed in many developing countries, notably in sub-Saharan Africa and Asia," the report states. "Smallholders and small family farms are therefore central to an inclusive development process and their contribution is crucial to food security," it adds.
Yet, in sub-Saharan Africa, the yield gap between farmers' yields and potential yields is estimated at 76 percent, meaning farmers produce less than one quarter of what they could. In Central America and the Caribbean, the yield gap is 65 percent, meaning smallholders produce less than a third of their potential yield. In developing countries, the yield gap is often higher than 50 percent.
High food prices
High food prices are seen by many policy-makers as an opportunity for smallholders to produce more and earn more income. But experience shows that, often, smallholders have failed to respond as expected.
"High levels of price, production risks and uncertainty, and limited access to tools to manage them deter investment in more productive new technologies that would enable smallholders to produce surpluses for sale in markets. Inadequate infrastructure, high costs of storage and transportation, and non-competitive markets also militate against production of a marketable surplus," Hallam said.
"Given these constraints, it is not surprising that the supply response of many small producers to recent high food prices has been muted."
Beyond an enabling environment
According to the report, the public sector, together with international development partners, should have a strong role as moderator among different public, private and civil society actors, promoting what is in the best interests of the smallholder agricultural sector while encouraging development of markets.
Given the limitations of the public sector in many developing countries and reductions in foreign development aid, foreign direct investment (FDI) is also seen as a potential source of funding.
This sort of investment can take many forms -- not just controversial land acquisitions -- and should ensure sustainable and equitable use of land while strengthening food security for indigenous populations, FAO emphasizes.
FAO's work on Smallholder Market Integration
Principles for Responsible Agricultural Investment that Respects Rights, Livelihoods and Resources