At what level is market participation by smallholder farmers considered commercial farming?

Farmers shelling groundnuts_ Credit Linvell Chirwa

There is consensus in literature that smallholder agriculture commercialisation occurs when farmers produce more output per unit of land and labour by using improved technologies, such as improved seed and inorganic fertiliser; produce greater surpluses; and, increase their market participation, which results in higher incomes and living standards.

Therefore, to qualify as a smallholder commercial farmer, the following features are key:

  • An ability to invest in an enterprise such as maize, beans, groundnuts, tomatoes, potatoes, and onions;
  • Capacity to procure improved farm inputs, and an ability to use modern methods to increase the volume of output produced per unit of land and labour;
  • Ability to meet own food consumption needs, as well as produce a surplus to sell in order to achieve higher incomes and living standards.

In Malawi, smallholder farmers can be classified into three groups, based on how land, labour and capital are combined within different households, production units and their associated farming systems:

  1. Semi-subsistence farmers – these farmers are unable to produce a market surplus because they use recycled seed with no inorganic fertiliser. Their production is not able to meet household food needs throughout the year. These farmers mostly grow maize every season and supply agricultural labour to other farmers, which is their main income source. They have adequate access to land and may rent some of it to other farmers. Most of these farmers can be considered for humanitarian response or safety net programs. However, this category of farmers may evolve into self-sustaining subsistence farmers if targeted with input subsidies, which may increase their access to productivity-enhancing technologies in the longer term as demonstrated by recent evidence in Malawi.
  2. – these farmers have limited access to both input and output markets, which does not allow them to produce a market surplus. They have adequate access to land and may rent out part of it to other farmers. These farmers can meet their food needs from own production, however, the need for cash to purchase groceries, clothes and farm inputs forces some farmers into selling part of their output. Usually, they sell their output in small quantities as needs arise to small-scale traders who penetrate the remote rural areas, in order to smooth out consumption of necessities. This kind of selling is referred to as ‘distressed selling’ or ‘distressed commercialisation’. Those that sell part of their produce may be food insecure and may be required to engage in wage labour and petty trade in order to sustain their food consumption. If the capacity of these farmers is built in areas – not limited to organising them into farmers’ clubs or linking them to financial institutions and input revolving funds – some of these farmers may evolve into emerging commercialised farmers.
  3. – these farmers have adequate access to modern farm inputs and produce a market surplus. They can hire in agricultural labour and rent additional land to increase their scale of operation. They produce enough to meet food needs and have diversified to high-value crops or off-farm income-generating activities. Usually, they sell their output in bulk and some of them may secure contracts with big buyers. These farmers can respond to price signals and decide when to sell their output or to store it in order to get a higher price. Some farmers may belong to farmer associations and their agricultural production is self-sustaining. Most of these farmers have accumulated productive assets, send their children to school, are food secure, and have an improved standard of life. These farmers need institutional support to create economies of scale, increase access to services and markets, and promote forms of economic co-operation to facilitate access to value chains.

Livelihood trajectories and agricultural commercialisation

Part of APRA’s work, including in Malawi, is to analyse the livelihood trajectories of smallholder farmers that are ‘stepping out’, ‘stepping up’, ‘hanging in’ and ‘dropping out’ of agriculture, within the lens of scale of production and extent of marketed surplus. According to APRA, farmers that are ‘stepping up’ are those that may move to more medium-scale operation, investing in more land, employing labour and deploying capital. Farmers that are ‘stepping out’ are those that may diversify and become engaged in market-based operations along the value chain, including processing, transport, bulking and wholesale. Farmers that are ‘hanging in’ are those that are simply surviving in agriculture, whereas farmers that are ‘dropping out’ are those that are moving out of agriculture to other employment and livelihood options in urban areas.

APRA’s Malawi team recently implemented a quantitative tracker study based on a survey that was conducted in 2006/07, which focused on the Farm Input Subsidy Programme. In this tracker study, households from the original survey, including any off-shoot households established in the last 10 years were revisited in 2018/19.

From our data, we have found an interesting mix of farmers that match the three categories of farmers above. The main task for the team was to classify the households into the four APRA’s livelihood trajectories in order to better understand the different pathways smallholder farmers commercialise their subsistence farming in Malawi. A comparison of farmer’s engagement with output markets between 2006/07 (baseline data) and 2018/19 (current data), shows that there are some farmers who have never engaged with markets, who may be classified as semi-subsistence farmers. These farmers are more likely to ‘hang in’ or ‘drop out’ of agriculture, ceteris paribus.

Furthermore, the data reveals that some farmers who were selling their produce in 2006/07 are still selling their agricultural produce in 2018/19. These farmers may be classified as semi-commercial or potential commercial farmers based on their activity levels and are more likely to be ‘stepping up’ or ‘stepping out’ of agriculture, ceteris paribus.

Our data also shows several farmers that were selling their produce in 2006/07 but stopped in 2018/19. However, it is unknown at this stage if it can be determined whether those have stopped selling part of their produce are either distressed subsistence farmers, emerging commercialised farmers or both. In order to classify these latter households into one of the livelihood trajectories, APRA Malawi team will do a more thorough analysis to determine whether these farmers have moved out of agriculture to pursue other livelihood options or if their livelihoods have simply deteriorated over the years.  

In summary, understanding smallholder farmers’ rural transformation process is important to accurately analysing their livelihood trajectories over time. During the analysis, it would be wrong to simply focus on one indicator such as market participation, given that some subsistence farmers may sell part of their produce out of distress, which does not mean that they are commercial farmers. Therefore, market participation by smallholder farmers in input and output markets is considered commercial farming when all key features of agricultural commercialisation process are met.  

Written by: Stevier Kaiyatsa

Photo credit: Linvell Chirwa