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African Development Bank, Working Paper No. 105, April Adeleke Salami, Abdul B. Kamara and Zuzana Brixiova (2010)

This paper investigates trends and opportunities in smallholder farming in Kenya, Ethiopia, Uganda, and Tanzania.

Kenya, Ethiopia, Uganda, and Tanzania are agriculture-based economies.  In all four countries, smallholder farmers produce over 75 percent of agricultural output.  However, that production is held back by low productivity and lack of market, credit, and technology access.  Though many of these countries have announced admirable agricultural stimulus policies, implementation has faltered and donor enthusiasm and agricultural investment have lagged.  However, the authors argue that the global food price spike and the need for domestic production due to the recent financial crisis may reinvigorate the demand for increased agricultural productivity in developing countries. 

Uganda, Kenya, Tanzania, and Ethiopia have achieved high GDP growth rates in recent years, respectively totalling 6.5, 7.0, 7.3, and 11.4 percent in 2008.  However, agriculture’s contribution to this growth has been “mixed.”  The authors note that agriculture’s contribution to poverty reduction is clear.  For instance, the 2008 World Bank World Development Report stated that agriculturally driven GDP growth is approximately four times as effective in poverty reduction than that from other sectors.  Unfortunately, the poverty reduction record in the four countries has been mixed.  The authors report that “there have been positive, though marginal, changes in the poverty profiles of the four studied countries, but not to the level needed to meet the MDG1--Eradicate extreme poverty and hunger” (7). 

However, “changes in poverty levels by employment across sectors indicate that change in poverty status among rural dwellers engaged in agriculture was higher than among rural populations engaged in other vocations” (7).  Rural entrepreneurship and agricultural productivity gains allowing people to move into off-farm employment are important in facilitating poverty reduction as well.  Overall, the authors conclude that “the modest reduction in poverty witnessed in the four East African countries can be attributed to the contributions of the agricultural sector, especially smallholder farming” (8).

To date, agricultural productivity gains in the four countries have been based more on the expansion of cultivated land than technology adoption, with the exception of some improved varieties of maize, beans, and cassava.  The authors note that this “is in marked contrast with other parts of the world, where almost all agricultural growth is the result of yield increases” (12).

East African smallholders have faced several historical constraints, including land tenure, access rights, and land management; credit access; access to input and output markets; infrastructure; extension services; institutional problems; climate change and food security; and more recently the global financial, food, and fuel price crises. 

First, unclear land access rights have led to insecurity, underinvestment, small plots, and a high degree of landlessness. 

Second, smallholders face difficulties in accessing commercial credit due to their lack of collateral and credit history.  In all four countries, commercial banks loaned much more frequently in the manufacturing, trade, and service sectors than in agriculture, therefore “hampering expansion and technology adoption” (14).  Kenyan farmers name lack of capital and credit access as the principal reason for low productivity.  Microfinance lenders have had difficulty in accessing remote rural areas.  The authors suggest that the work of the Equity Bank of Kenya and the Standard Bank Model be popularized.  At the national level, public investment in agriculture remains very low.  At the international level, the proportion of agricultural aid in total aid has been declining. 

Third, smallholders face limited access to input and output markets, and consequently value addition, competition, and supplies.  Fertilizer, pesticide, and improved seed use remain low.  Some crops rot before they can be sold due to the lack of storage facilities.  Part of the barrier to output markets is quality driven, as many smallholders cannot meet the quality standards to connect to international supermarket chains.

Fourth, poor road and rail systems have limited market development. 

Fifth, research and extension services in the four countries are “disintegrated” and “ineffective” (20).  Ethiopia focused on increased input access for smallholders but could not construct the necessary delivery systems.  The quality of Kenya’s extension services actually decreased in the 1990s.

Sixth, national policies have forestalled smallholder productivity gains in many countries.  Ethiopia’s land distribution, collectivization, and price regulation policies have hampered investment.  Kenya’s public debt and high lending rates have similarly dampened investment.  Tanzania and Uganda’s agricultural programs have failed to have any notable effect on smallholders.  Increased institutional support for agriculture, particularly through strengthening the agricultural ministries, is necessary.  The authors argue that “As the experience of successful agricultural reformers shows, the importance of market oriented reforms for sustained productivity improvements in agriculture cannot be overstated” (21).  Taking the example of Vietnam, they write that “The key factor among the Vietnamese market reforms was an institutional change – reform of land property rights, which markedly improved the economic incentives of farmers to use the land efficiently” (21).  Therefore the institutional framework of agricultural development must be strengthened alongside infrastructure, market access, and credit.

Seventh, climate change poses a challenge for smallholders.  The frequency of droughts and floods has increased in East Africa over the past 30 years.  Drought has been particularly severe in Ethiopia. 

Eighth, the recent food price crisis led to increased hunger and inflation in many African countries.  Rising input prices led many farmers to cut back on rather than increase production.  In Kenya, the price of fertilizer doubled.  A supply side response in which smallholders capitalize on increased food prices is theoretically possible but has not yet been observed.

Ninth, fuel prices have been volatile, leading to higher input prices and national policies encouraging biofuels production, which has displaced some food production. 

Tenth, the global financial crisis has highlighted the risks and opportunities for smallholders in regards to engaging with the global economy.  Smallholders largely rode out the recent crisis because they were not directly engaged with international markets.  Whether smallholders should seek to engage with international value chains in light of such volatility is an important and not easily answered question.

Several recent successes in East African agriculture merit review and, potentially, scaling up.  Kenya’s horticultural sector has successfully moved towards export orientation.  This sector brings Kenya significant foreign exchange reserves and over half of profits are generated by smallholders.  Ethiopia might capitalize on this example to improve its fruit and vegetable exports. 

The authors conclude that productivity increases are crucial to smallholder welfare gains and poverty reduction in East Africa.  National reforms addressing the above concerns are necessary to create a policy environment in which those productivity gains can be realized.