The Impact of Growth in Small Commercial Farm Productivity on Rural Poverty Reduction

Abstract

Summary Our core thesis is that in both low- and middle-income countries, rapid growth in agricultural production and income among small commercial farmers is the dominant means of reducing rural poverty. This effect is generated from increased expenditures from smaller commercial farmers on the poor, labor-intensive, non-tradable, rural non-farm sector, thereby increasing incomes for the rural non-farm population and reducing poverty levels. We illustrate the relationship between small commercial farmers, rural non-farm households, large commercial farmers, and urban households in three contrasting situations. First, we analyze Punjab, Pakistan, a middle-income province with a large urban sector, dominance of small commercial farms in the local economy and significant land area managed by large commercial farms. Second, we analyze Sindh, Pakistan, a middle-income province with a large urban population and dominated in rural areas by large feudal holdings, but with a significant small commercial farm component. Third, we analyze data from Ethiopia, a low-income country with a relatively small urban sector and dominated by small commercial farms. In the two middle-income provinces of Pakistan, the role that agriculture plays in income determination is much less than the urban sector, but it maintains a dominant role in rural poverty determination. In Ethiopia, the low-income country, agricultural growth is a dominant variable both in income growth and poverty reduction—accounting for 73% of employment growth in the fast agricultural growth case. Large-scale commercial farms show little impact of agricultural growth on poverty reduction as compared to areas dominated by small commercial farms, partly because of their small proportion of total agricultural output, and partly due to weak consumption based multipliers.