Box 1.3 Can Smallholders and Large Farms Coexist? To explore whether, when smallholders already own and cultivate land, there may be a case to replace them by large cultivation, we use representative farm budgets from areas where smallholders and large farms for the same crop exist side by side (see appendix 2, table A2.5).a Three factors are of interest. First, although yields on smallholder farms are lower than or equal to those on large farms, often by a large margin, lower yields do not necessarily translate into lower efficiency. On the contrary, smallholder farms’ costs are lower than or roughly equal (ratio less than 1.1) to those of large farms in two-thirds of the comparisons, suggesting that there is no strong case to replace smallholder with large-scale cultivation on efficiency grounds. Second, and more important, the data clearly indicate that, even though efficiency is comparable, smallholder cultivation has advantages on equity grounds. Smallholders’ income is 2 times to 10 times what they could obtain from wage employment only. This does not imply that there may not be opportunities for productive partnerships between investors and smallholders (in gaining access to technology, for example, as illustrated by the poor performance of some smallholders without such access). Such opportunities would not require the transfer of land but would be based on more traditional contracting and outgrower schemes (Cotula 2010; Vermeulen and Goad 2006). Third, if payments for land are made or if advantageous opportunities exist for nonagricultural employment, small farmers, especially those with limited management skills or access to capital, may increase their welfare by renting their land to an investor. A land rental payment can be computed that, for a given (exogenous) wage rate, would leave a small landowner indifferent between self-cultivation and renting out the land and working for wages on a large farm. In many cases, the land rents to be paid would be large, implying that investors may prefer to engage in contract farming rather than acquire land.
rental fees leave local communities better off than would self-cultivation. The most appropriate arrangement will depend on local contexts (see box 1.4 for an example). If rights are well defined, if land markets function competitively, and if information is accessible to all, land prices should ensure that a mutually satisfying outcome is achieved. In this context, entrepreneurs can earn rents by bringing technology to improve productivity on land that is currently used less intensively (and thus available at fairly low prices). Land rights holders can in theory capture some of this rent through well-informed negotiations. The situations in which this can occur and land can be transferred at an adequate price are described in more detail in box 1.5.
LAND EXPANSION: DRIVERS, UNDERLYING FACTORS, AND KEY EFFECTS
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