Growth Role of Smallholder Farmers in Ethiopia

There seems to be a consensus that Ethiopia’s decade-long economic growth is largely the result of government investment in public infrastructure and the growth of the country’s labour force. Indeed, government investment in the physical and institutional infrastructure created jobs and growth in the service sector. According to World Bank data, of the 11Pct annual growth rate registered during this period, the service sector contributed 5.5Pct, while agriculture and industry contributed 3.6Pct and 1.9Pct, respectively.In tandem with state-driven growth and large government investments, a recent study by the International Food Policy Research Institute (IFPRI) says “Ethiopia’s agricultural sector has recorded remarkable rapid growth in the last decade.” Smallholder farmers are considered the drivers of this growth, since they dominate the sector with 94Pct of total cultivated land in the country.
But I argue that small farms cannot save themselves and at the same time be the engine of agricultural growth under conditions of population pressure and globalisation. They do not have the capacity to absorb the required capital for growth.
This means small farms contribute to agricultural development when they dissolve themselves into a market-based employment economy. The support for small farms should be designed after the functional and market needs of manufacturing industrial expansion in rural towns – not the other way around.
In order to do this, rural towns should undergo some form of industrialisation. This should be followed by efforts to dissolve smallholder agriculture into large-scale schemes through land privatisation and green revolution led by the state, private sector and cooperatives. It is the use of unsound theoretical arguments and wrong approaches in assessing the performance of agricultural growth that justify continued support for smallholder agriculture in Ethiopia.
Interpreting the determinants of agricultural growth in Ethiopia is important. However, before proceeding to that it’s important to describe Ethiopian farmers’ group behaviour from the perspective of farm management. In developed countries, the physical management strategies of farmers (such as how to till the soil and choosing crops) is related to concepts of marketing, financial management and new innovations.
The pattern of tying together land, labour, cattle, machines, activities and networks is done in a goal-oriented and coherent way related to balancing farm debt and turnover. Balancing investment decisions and activities are constant elements preoccupying the lives of farmers in developed nations. New investments must pay off and even if banks provide opportunities for development, loans with unbalanced interventions threaten their business.
Smallholder farmers in developing countries do not focus on high volume and high turnover to pay back their investments. They are demographic units of reproduction and not business firms or investment units like farmers in developed countries. Usually their daily activities are not based on weighing investment against costs. The main concern lies in ensuring household food supplies and cash needs and these objectives are met through increasing food crop production using different livelihood strategies.
Even though local smallholder farmers cultivate grain and produce crops, much like farmers in developed nations, they are far from entrepreneurial. Often, they function like consumption units (mainly child-rich households) left with no surplus for the market. Firm theory does not apply to them and it is not reasonable to expect agricultural growth from this model.
When I evaluated the analysis of the World Bank, International Food and Policy Research Institute (IFPRI), what grew was the number of smallholder farmers as producing and consumption units – not production volumes, modern techniques, nor investment. The quality of growth output is determined by the quality of the input.
The growth accounting model just processes what it is given: smallholders in, smallholders out.
Recent IFPRI data shows that 31Pct of agricultural yield growth came from labour use, 13Pct from land increases, 11Pct from use of improved seeds, 8Pct from the use of fertiliser, 8Pct from returns to scale, 3Pct from rural roads and 22Pct from technical change (total factor productivity) related to farmers’ better management.
Technology growth and efficiency are regarded as two of the biggest sub-sections of total factor productivity. In my opinion, this figure, which accounts for 22Pct of Ethiopia’s agricultural growth, is not the result of technical efficiency; rather, it is a result of allocative efficiency.
By definition technical efficiency represents the capacity and willingness of an economic unit to produce the maximum attainable output from a given set of inputs and technology. Scale economy and labour specialisation are prerequisites for technical efficiency. What we have in rural Ethiopia is fragmented land holding and diversification of labour activities. My view is that the growth in total factor productivity in the agriculture sector shows diversification and transformation without technological changes.
Sector analysis demonstrates the importance of labour and land in the output growth recorded in the last decade. According to the studies, cultivated land increased by 27Pct, while the number of smallholders increased by 39Pct. An increase in the number of smallholder agriculture results in fragmented land holdings. According to the Ethiopia Central Statistical Agency Agricultural Sample Surveys (2014/2015), there are around 15.6 million agricultural households all over the country owning less than 1.1 hectares per holder. This figure suggests the need for concentration of land ownership, one source of economies of scale that help farmers toward the goal of increasing income.
Under conditions of fragmented holdings, low household saving capacity and an absence of a division of labour and specialisation in rural areas, small farmers’ productivity growth is not the result of economies of scale in production, research and development. It is related to their hard work, labour and management skills to improve efficiency under the pressures and threats of diminished per capita income, caused by a higher household dependency rate and density ratios (i.e., caused by a rapidly growing population).
In conditions where labour is abundant relative to land, small farmers’ application of more labour to land than is optimally necessary to raise output leads to low agricultural labour productivity, hence small farms have a limited growth role.
In other words, increasing labour on a fixed amount of land eventually leads to decreasing levels of output per unit of input. Under such conditions, households either intensify agriculture or migrate to larger towns. While migration increases the speed of urbanisation, intensive agriculture eventually leads to a reduction in labour productivity unless complemented by increased capital intensity and technological advancements. To change the scale of output production in rural areas and to diffuse technology (increase growth rate), it is necessary to centralise production system and consolidate resources.
At a time when the labour force growth is characterised by youth, a fertility rate of 5.5 children per woman and households with higher consumption requirements, small farms do not positively respond to policy instruments and investment options related to commercialisation, trade, price incentives, and technological adaptation.
There is low adoption of new technologies as a result of a high household dependency ratio and a high-density ratio (household multiplication). Even if there is good will, the government, the private sector and the households do not have the required capacity to provide or meet the agricultural input demands at the required speed. This is why Ethiopia’s agricultural model needs to shift in order to better align itself with the needs of an ever-growing market.