INTERNATIONAL/ AGRICULTURE/ GOVERNANCE
- GS-3: Transport and marketing of agricultural produce and issues and related constraints;
- GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- GS-2: Policies and politics of developed and developing countries
Lessons from Kenya’s agri experiment
Context: In the debate on new farm laws, emotions are running high with concerns that small farmers are being pitted against large agri-businesses.
Why earlier government negotiations have failed: Click here
What is the long term solution advocated by experts: Click here
Shortcomings in the debates
- Predictability Factor: The new laws contain mostly untried policies and it is difficult to gauge what might happen when they are implemented
- International Models: Surprisingly, little of the discussion has drawn on lessons learned from countries that have implemented large-scale policies to encourage agri-businesses.
- Lack of data: Since the advent of market-oriented policies in the 1980s and 1990s, many governments in developing economies moved away from controlling agricultural markets to encouraging participation by private-sector firms. Evaluation of those policies have been difficult because of a lack of data on farmer-buyer relationships and the complexity of quantifying the many clauses that go into farm policies.
Recent research at the London School of Economics (LSE) overcomes these hurdles by examining a decade of high-quality farmer-buyer data from Kenya during a period when it introduced radical farm laws to encourage agri-businesses.
- Much in the same way as India is doing now, the Kenyan government introduced new laws with the expectation that the rise of such businesses would transform smallholder agriculture for the better.
- Over 20 pieces of legislation were repealed to encourage agri-business participation in crop markets that made up over 70% of small farm incomes.
- It had its expected impact on the rise of agri-businesses. Their (Private players) overall market share as buyers of farm produce almost doubled, reaching 38% by 2010.
Was Kenya’s experiment without any flaws?
Within the crops that were “liberalised”, the story was not as straightforward.
- Long run experience was bitter: Soon after the policy was implemented, small farmers became more likely to sell these crops to agri-businesses, especially in areas that were more reliant on these crops due to agro-ecological conditions. But, five years on, many had stopped selling to these businesses.
- Farm incomes from these crops had fallen. Farmers who were reliant on agri-businesses saw their incomes fall by an average 6%. They sold household assets to maintain their day-to-day consumption
Why agri-businesses in Kenya didn’t yield expected results in long run?
- Initial Gain of market share at expense of others: Kenyan farmers expected to see productivity gains from selling to agri-businesses, which initially gained market share at the expense of other buyers. The ease of doing business increased in buying and marketing. However, in the long run, the productivity didn’t see much increase and consequently farmers’ incomes also fell.
- Agri-businesses needed more Profits: As agri-businesses moved into these new activities, greater investment outlays and hence greater profitability was needed to finance them. This impacted the payments made to small farmers and thus their incomes.
- Fewer Buyers over time: Farmers began facing bigger agri-businesses which, on average, saw their profit margins rise by 5%. While some farmers were able to leave their agri-business relationships, many were facing bigger and fewer buyers in crop markets.
- Key lesson learnt by Kenyan government: In its revised agricultural strategy in 2010, Kenyan policymakers reflected on how small farmers can suffer when ease of doing business is prioritised in markets where there is “no critical mass and enough capacity for the private sector to grow”.
- The Kenyan experience illustrates what can go wrong with large-scale untried policies and what provisions need to be in place to avoid hardship.
- Of course, this is not to say India will have the same experience. India is certainly in a better economic position in terms of per capita income, about a third higher than Kenya.
- But there are many common problems in smallholder agriculture, such as low productivity, investments and market access, which keep farm incomes low across India.