Smallholder Farmers: Sufferers in Nepal

It is no wonder when I say agriculture is the prime occupation of the country. The government statistics speak that more than 65 percent of the population is directly involved in agriculture and more than 80 percent of the population is dependent on the agriculture directly and indirectly. But, with this level of dependence comes a bigger tragedy which is the least contribution to the Gross Domestic Product (GDP) of the country which remains around 35 percent. Why does that happen? The major reasons that have been repeated several times are the segregated lands, greater dependence on natural rainfall, lack of use of any technology, lack of knowledge about modern farming techniques, etc. one reason which is very least discussed is the Smallholder farmers who carry out their farming at smaller level and seem very reluctant to switch to the commercial production of crops.

There are several definitions for the smallholder farmers. One of the reports of United Nations Development Program (UNDP) defines smallholder farmers as farmers who own less than half hectare of land. Similarly, a report of International Fund for Agricultural Development (IFAD) says that small farms are the family farms which have been defined in several ways. And it says that the most common measure for the small farms is the farm size: many sources define small farms as those with less than 2 hectares of crop land (IFAD, 2009). Many papers also define the small farms depending on the household members for most of the labour or those with a subsistence orientation, where the primary aim of the farm is to produce the bulk of the household’s consumption of the staple foods (Hazell et al., 2007). The World Bank’s Rural Development Strategy defines smallholders as those with a low asset base, operating less than 2 hectares of cropland (World Bank, 2003). An FAO study defines smallholders as farmers with limited resource endowments, relative toother farmers in the sector (Dixon et al 2003).

It is estimated that about 87 per cent of the world’s 500 million small farms (less than 2 ha) are in Asia and the Pacific region (IFPRI, 2007). China and India alone account for 193 million and 93 million small farms, respectively. Three other Asian countries with a large number of small farms are Indonesia (17 million), Bangladesh (17 million) and Vietnam (10million).

Agriculture in Asia is characterized by smallholders cultivating small plots of land. The average size of operational holdings (actual area cultivated) is only 0.5 hectares in Bangladesh, 0.8 hectares in Nepal and Sri Lanka, 1.4 hectares in India and 3.0 hectares in Pakistan. About 81 per cent of farms in India have land holdings of less than 2 hectares, whereas their share in total cultivated area is about 44 per cent (NCEUS, 2008). In Nepal 93 per cent of operational holdings are operated by small farmers (<2hectares) covering 69 per cent of the cultivated area. In Bangladesh, small farms account for 96 per cent of operational holdings with a share of 69 per cent of cultivated area. Pakistan is an exception, with a relatively high concentration of large landholdings. Fifty eight per cent of farms in Pakistan are of less than 2 hectares but they operate only 16 per cent of the farm area. In contrast, farms of more than 10 hectares occupy 37 per cent of total farm area (IFAD, 2009).

The average food price inflation has been more than 15 percent in the country since almost a decade which has not only added up more difficulty in the livelihood of the smallholder farmers’ families only but also the overall population of the country. The food price inflation has led to the food price crisis, thus increasing the vulnerability of the smallholder farming households from both the directions- production and consumption. To tackle the situation, policies are required to improve the understanding and confidence of the smallholder farmers provided that the policy is not religiously, culturally, ethically or professionally biased. There are several researches and activities carried out to influence the commercial farming among the smallholder farmers but very least researches have been done to portray the picture about the acceptability and compatibility of the farmers regarding the commercial production of farm products.

Even if the smallholder farming units are considered for now, the results can be differentiated. There are few mechanisms which can be worked on to improve bulk production among the smallholder farmers. They are as follows:

• ·         Train them to make coordinated decision-making: The groups can be created among themselves to facilitate the production and marketing channelization.
• ·         Train, enable and encourage them to trust the market: Only less than 20 percent of the smallholder farmers believe that their production will have the market share whereas more than 95 percent of them prefer to grow and consume their own production. They should be trained and educated that the market will be able to provide them more benefit than their own consumption.
• ·         Train them on Proper Planning: Planning and strategizing the activities are always important to deliver the best possible outputs and derive the optimized profits. Similarly, the farmers should be educated on what is the current local market demand, what is the current willingness to pay of the consumers in the local market and then what would be their total input cost for the production.
• ·         Starting storage practices in line with the commercial approach: the big challenge that the farmers, consumers are facing now is the low (unfair) price in the season for the products and very high (unfair) price in off-season. If it is the smallholders concerned, compilations of the small productions can make a bulk amount of output and then the pricing can also be easier.
• ·         Standardizing the quality management: Many times, smallholder farmers are aware that the lack of quality in their products can lead to the low price of their products, but still do not try to manage and maintain quality of the products as they believe that it would save some of their costs which ultimately incur more loss to them. 

Besides the above mentioned strategies for the inclusion of the smallholder farmers in the commercial production of the crops or bringing them in line with the commercial farming techniques, there is a framework that Food and Agricultural Organization (FAO) has come up. We will see how there are alternatives possible and how a commodity exchange can play a vital role in the same.

A Commercial Farming Model

Source: Understanding Smallholder Farmer Attitudes to Commercialization, FAO (2014)

The above figure provides the five sections to elaborate the commercial farming model. As per the model, the farmers should be accessible to all the required price information which will enable them to carry out Cost-Benefit Analysis (CBA) for the crop production they do. And if they find that their cost would be higher than the benefit, they would then choose to implement the effective production strategies that would increase their production to make the CBA favorable for themselves and not the intermediaries or buyers. After that, the farmers should also be equipped with responsible credit industry which will enable them to fulfill their short-term liquidity risk. Collateral-free credit strategies would be one basic function whereas segregation of food stocks from the selling stocks would enable them to implement a fair price mechanism. Quality and trading standards is another factor that needs to be looked into in the framework of commercial model. With this attribute, the farmers will be able to meet the standards for the products which not only assure their prices but also the quality standards that will lead to export of the products. The model clearly intensifies the roles of Agribusiness service providers with which they will be able to sell their products to the preferred customers. Storage facilities can be justified and the return maximization can be focused to. Because its all about the returns that is associated with the farming, the farmers have to be convinced to believe that their returns are higher than the costs which will only create welfare for them.

The reluctance to the acceptance of commercial farming from subsistence or smallholder farming comes with the lack of knowledge about the benefits from the same and the in-depth irrationality of choices among them. And the reluctance is to be targeted first than the commercial farming strategic model.

Note: This article is published in the September edition of the SAFE Newsletter.