# **5. Alternative rural development strategies based on larger farms**

The potential for agriculture to grow through expansion, together with dissatisfaction over the uneven pace of yield gains among African smallholders, has given rise to an active debate about smallholderfocused rural development strategies (Lipton, 2006; Hazell et al., 2010; Wiggins, Kirsten, and Llabi, 2010; Collier and Dercon, 2014). Critics argue that small farms forego economies of scale associated with skills, technology, finance, capital, and face dis-economies in terms of trading, marketing and storage, disadvantages that will become more pronounced as a larger share of the population moves to cities and as rural labor wages converge toward the higher levels found in other sectors (Maxwell and Slater, 2003; Collier and Dercon, 2014). Consequently, they argue, policies should rely more on larger commercial farms to generate productivity gains, while relying on accelerating growth in other sectors to reduce poverty among the rural poor.

The notion that agricultural policies should not neglect larger farms is not controversial. In particular, government efforts to protect tenure security, property rights and land markets (for rentals and sales) are expected to benefit smallholders currently, and set the stage for an emerging class of medium-sized commercial farms (Jayne, Chamberlin, and Headey, 2014). However, it seems unlikely that shifting budgetary resources away from smallholder farms to support large-farm programs will help this generation of rural poor, or boost global food supplies any time soon.

Farm census data show there are relatively few large farms in Sub-Saharan Africa, and there is little to suggest that market forces are driving widespread consolidation (Masters et al., 2013). In addition, there are good conceptual reasons to suggest a smallholder structure is well suited for most places in SubSaharan Africa, where land, labor, risk and credit markets are imperfect (Binswanger and Rosenzweig, 1981; Feder, 1985).

There are several reasons why Africa’s farm structure is based on small farms, but most development economists see two aspects of labor markets as fundamental. The first has to do with supervision and incentives. To start, the incentives to farm diligently and to manage soil and other natural resources are greater for family members than for hired labor. In addition, reliable hired labor can be costly to find and to supervise, which lowers the value of hired labor relative to the value of family labor (Yotopoulos and Lau, 1973; Kumar, 1979). For this reason, most farms in the world are family operated – about 75 percent of all farms according to Lowder, Skoet, and Raney (forthcoming). In itself, family ownership is not tied to scale; however, when the transition of labor markets is in its early stages, labor costs are lower in agriculture than in other sectors, which tilts profitable technology choices away from mechanization and toward labor-intensive technologies. Poor access to credit reinforces this tilt since farmers can improve their farms through “sweat-equity”, for example, by leveling fields or building fences, with little or no credit. Taken together, this means that the best suited technologies are associated with small farms managed and worked primarily by household members. Therefore, the most productive farms will be small in most places in Sub-Saharan Africa. Poorly functioning land markets also work to help keep farms small, because they keep the risks and costs of renting or purchasing land unnecessarily high (Lipton, 2009; Deininger, Hilhort, and Songwe, 2014).

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