India alone has over 350 million people living below the poverty line. In India, as elsewhere in developing countries, most of the poor live in rural areas and depend on agriculture for their livelihoods (World Bank, 2002). In general, poor rural households are characterized by small farms, low levels of education, lack of liquidity, modest use of agricultural inputs, low opportunity cost of labor, and limited access to markets. Agricultural development will need to be part of any development solution to both poverty and environmental sustainability, both because of its direct impact on incomes, but also because of indirect effects in rural areas on demand for local items produced by the poor.
Because high-value agricultural commodities are the only part of developing country agriculture growing faster than 1 percent per capita per annum (meat and fish demand have grown at about 3.7 percent per annum per capita over the last 20 years), there is in an average sense not much future for smallholder agriculture if smallholders cannot participate in livestock and fishery activities.
Furthermore, small farmers often have some cost advantages in producing high-value meat, egg, and milk commodities relative to large-scale producers (Delgado and Minot, 2003):
Small farmers have a lower opportunity cost of labor, implying that the implicit wage rate for family labor is generally below the prevailing wage rate for agricultural labor in low-income countries.
The family labor used by small farmers is more motivated and requires less monitoring than hired labor used by large-scale farms, so that small farms are better able to apply careful husbandry and respond to problems in the field.
Small farms usually grow a mix of crops, livestock and fish (depending on location) and a dispersed pattern of production impede the transmission of animal or crop-specific pests and diseases compared to large-scale production.
Small livestock producers may face lower waste-disposal costs (or generate lower environmental costs) if production is dispersed enough to allow natural absorption.
On the other hand, rising market share in developing countries for larger-scale producers of pork, eggs, and poultry meat (Delgado and Narrod, 2002) suggest that other factors may be prevailing in determining who in developing countries is able to capture the fast expanding market:
Small farmers may not have the technical skills needed to produce these commodities. Even if they are familiar with producing chickens or vegetables for home consumption, the production techniques may be different for commercial production.
Lack of credit or liquidity makes it difficult to purchase specialized agricultural inputs or to make investments needed to produce these commodities.
Small farmers are less able to bear the risk associated with producing highly perishable commodities. Not only do perishable commodities experience greater price fluctuations and risk of spoilage, but also once the commodity is ready for sale, perishability puts the farmer in a weak bargaining position relative to the buyer.
Small farmers frequently do not have access to information about market demand needed to make production decisions. The problem is not just lack of price information, but also lack of information about the relationship between price and product characteristics such as color, size, shape, texture, fat content, freshness and so on.
Buyers may not have access to information about the quality of output from specific smallholder farms, which makes them less willing to purchase from any smallholders at any given price level, compared to buying from a well-identified large-scale provider.
Larger farms may be more able to secure policy subsidies such as subsidized credit or better infrastructure, as compared to smallholders.
Larger farms may be relatively more able to get away with creating negative externalities through pollution than smallholders.
All of these issues are empirical in nature, generally not comprehensively investigated to date, require different policy responses depending on which forces are more important in driving scaling-up, and are important in promoting poverty reduction and environmental sustainability.
