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SMALL IS NOT NECESSARILY BAD

Tim Hanstad is executive director of the Rural Development Institute and Partha Majumder is the RDI’s West Bengal representative

The West Bengal draft agro-industrial policy may be based on flawed assumptions resulting in distortions in some of its key components. These may endanger whatever successes West Bengal has achieved in the agricultural and rural sectors in recent decades.

Lately, the state government has shown its willingness to walk the extra mile to attract investments in the farming sector. While earlier, the state government was considering contract farming, more recent policy discussions seem to centre around the role of cooperatives — including production cooperatives (or group farming) — to increase investment and growth in the farming sector.

It is important here to distinguish between agricultural service cooperatives and agricultural production cooperatives. Service cooperatives involve independent farmers who cooperate to purchase inputs, and process or market their products. Agricultural production cooperatives, on the other hand, involve independent farmers who pool in their land to create larger farms. Agricultural service cooperatives have a long record of success throughout the world, while agricultural production cooperatives have not had such a successful record.

The assumption behind policy prescriptions which emphasize production cooperatives or group farming is that a small farm size and fragmentation (resulting partly from land reforms) are major constraints for increasing investment and agricultural growth in West Bengal. Many politicians, journalists, and even agricultural experts in India are quick to agree to this assumption. But, is it correct'

For if it is not, then prescriptive policies based on the assumption are likely to be misguided. The assumption that small farms have a lower productivity than large farms demands a closer look.

The fact is that larger farm size does not result in higher agricultural production. The economies of scale that exist in industrial production rarely work in the case of agriculture, despite widespread assumptions to the contrary. A recent comprehensive international study concludes that there is no single example of the economies of scale for farm sizes exceeding what one family can comfortably manage.

Moreover, apart from the issues of scale, agricultural production cooperatives have proven to be vastly inferior to family farms. Numerous empirical studies from India, and elsewhere around the world, show that small farms are more productive per acre than large ones, that agricultural output (per unit of farmland or per unit of capital invested) tends to decrease as farm size increases, and that family farms are more efficient and superior than agricultural production cooperatives. Study after study has shown this.

Yet, the flawed perception that small and fragmented farms are a “problem” persists as does the related assumption regarding the economies of scale of agricultural production . The assertion that India’s (or West Bengal’s) agricultural problems stem from the small size of its farms is being constantly repeated in the media, in politicians’ speeches, and even in the reports of “expert” consultants.

Such misguided perceptions and assumptions about “non-viable” small farms led to the promotion of agricultural production cooperatives in the Soviet Union in the Thirties, in China in the Fifties, and in Vietnam in the Seventies. All of these had negative and even disastrous results — both for the small farmers and the agricultural sector as a whole.

China is a case in point. Country-wide statistics confirm that India’s agricultural problems are not due to small farm sizes. The average farm in India, while small, is about three times larger than that in China. Yet China’s grain yields per acre is more than double India’s. In fact, China’s grain yields used to about the same as India’s before 1980 when China started breaking up its huge communal farms into very small family farms.

That transition led to a period of extremely rapid agricultural and rural growth in China (similarly rapid agricultural growth occurred in the Eighties in Vietnam after it shifted from large agricultural production cooperatives to small family farms). Ironically, growth was fuelled not by increased farm size, but by decreasing farm sizes and giving all rural households owner-like rights to small plots of land.

How does one explain that in West Bengal, agricultural growth took off in the Eighties when land reform efforts were accelerating the demographic trend of declining farm sizes' From 1980 to 1999, the average annual growth rate of foodgrain production for all major Indian states was 2.5 per cent. The corresponding growth rate for West Bengal was 4.2 per cent — higher than all other states. West Bengal’s increases in yields per acre have been equally impressive — second only to Haryana over the same period, Total factor productivity growth for agricultural production was more rapid in West Bengal than in any other major Indian state from 1970 to 1994.

West Bengal’s successful land reforms programme clearly contributed to these positive results, leading to both equity and productivity gains, as well as declining farm sizes. It did so by increasing access to land for the land-poor and labour-rich households, prompting them to increase labour and other investments in land. Apart from the overwhelming empirical evidence from elsewhere, all this should cause policymakers in West Bengal to question whether small farm sizes are indeed a “problem”.

The average farm will eventually and naturally become bigger in West Bengal, as they have in more developed economies, as farm labour is attracted out of the agricultural sector into the expanding non-agricultural sectors. This will be a long-term process that can be facilitated by reducing transaction costs and other constraints in land sale markets.

Meanwhile, the government can improve agricultural growth and the livelihood of millions of West Bengal farm households by supporting small-farm agriculture through increased extension, marketing, and other support, including facilitating the growth of private farmer cooperatives in marketing and services (but not in production).

Moreover, the West Bengal government should continue to support the implementation of land reforms, particularly efforts to provide small house- and-garden plots to the remaining rural landless. Land reform programmes should not be viewed as a “problem” or be redirected to promote production cooperatives.

West Bengal’s agro-industrial policy is still in the drafting stage, so there is still the time and opportunity to develop policy prescriptions based on tested assumptions. Let us hope that the decision-makers will take a closer loot at any untested assumptions and related prescriptions concerning farm size.

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