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October 2018, No. 89


Special Report

 

Developing Small Farmer
Households Capabilities

Mohammad Ali Farzin,
Development Economist

Iran has immense development capacity, material wealth and natural resources, but is facing a serious economic development challenge that is constraining this huge potential. Iran’s main working challenge is actually economic – that is, a chronic stagflation environment in conjunct with the economic misuse of resources (including the human and natural resource base). This adversely affects both social capital and natural capital. To overcome, a policy resolution is required and a change in approach, along with focused programmes to support targeted groups. In other words, a need to change the way we do things and the things we invest in, and focus on balance and sustainability – rather than pushing for excess (1).

There are many places to start such a solution process. Given the unemployment problem, that is mixed up with poverty, and generally as agricultural GDP growth is more effective at reducing poverty (and raising poor people’s employment) than national GDP growth, one could start with the agricultural and rural sector. One good and cost effective solution leading to such outcomes would be focusing on the small farmers and poor households in the rural sector. As the conditions are right for this in Iran (i.e. large base of small farmers) this could lead to real cost-effective results. It can also lead to good value chains in the processing of food, so as to ensure high employment multipliers, and subsequent good economic growth – if focused on, organised and supported appropriately. Leading to both inclusive growth and sustainable development outcomes in the rural sector: prompting sustainable wealth generation from poverty reduction.  

Overcoming the Economic Challenge

Stagflation has been around for a couple of decades and has now become a big problem, working itself through into serious unemployment and underemployment, and hence a lower than potential consumption and demand for ordinary people (dampening economic growth), as well as into an excessive imbalance between asset values and income flows (that pushes investment towards rentier type initiatives). The result of these two is a distortion and imbalance between savings and investment, a classic economic problem leading to non-sustainability in all dimensions including: distortions in the benefits of investment outcomes, weak income “trickle-down” effects, and large income inequality (2). Raising not only the probability that interactions between new investments will not have positive outcomes (3) but also diminishing returns on investment (and so making any future new investment less useful, therefore reducing level of economic growth and shortening its duration).

What are the reasons for this? Many. Including the current general approach to economic development policy: that is, the prevailing economic “sole-growth” policy approach and focus. This approach prompts wealth generation and, along with large oil earnings, can easily finance large scale approaches and high technology - for higher growth rates. Iran has always targeted  achieving 8% GDP growth per annum. This approach is very good for society as long as wealth growth rates do not create circumstances of wealth concentration and income is distributed well, and proceeds are invested back into the system appropriately - so as to ensure demand is sustained for domestic production and balance follows. However, once excessive capital intensity and high overhead costs (of assets) relative to income flows are generated in such a process, and if along with sustained high levels of interest rates and rentier type costs, then the problem starts over-shadowing the ongoing benefits and with contradictory effects.

That is, if such a policy approach is constantly undertaken, and without compensating programmes, essentially the outcome forces excessive rises in capital cost for each new employment generated. Economists would then say that the market compensates and more labour intensive approaches are undertaken – and there are “safety nets” to compensate. We haven’t seen such results in Iran. In the very late 1980’s – when the economic “sole-growth” policy approach was first implemented - one job created in industry was circa 70 million Rials; it is now estimated at around 2500 million Rials. This is not due to inflation alone- but the form of investment that is undertaken to achieve high growth rates. The conventional economic “sole-growth” policy approach is at root of the significant national problem, as it hasn’t work well to ensure the required “trickle-down” from large scale wealth generation to ordinary people’s pockets and domestic demand in order to ensure the balance.  

Solution Opportunity

So what is the solution? As always, and generally, and if the conditions can be made right, one has to invert any problem to find its solution. In Iran the solution would then require focusing on the opposite: that is, small-scale, low overhead cost and low rentier approaches and techniques. Along with functional programmes (instead of passive “safety nets”) that support bottom-up and community based approaches to micro and small scale enterprise development. So as to reverse the process and enable the money income flow to then “trickle-up”.

More formally, one needs to fully adopt an economic “inclusive-growth” policy approach and focus. It would be the right solution for Iran’s stagflation rooted socio-economic and development problem (4).

Such approaches and complementary focused programmes to the prevailing sole-growth approach have been undertaken in many countries and with great success. For example, the Indian INREGA experience; especially Thailand’s OTOP which has been truly innovative; Brazil’s interesting BOLSA VERDE; and South Africa’s Working for Water programme. The multi-faceted gains of such programmes have been significant. One could even dare say that such focused programmes can potentially raise national GDP growth by at least 1% - as initiatives in these countries have shown.

Iran needs to implement similar programmes. The opportunity does exist. Iran is a semi-arid country and facing growing water shortage; with a population forecast to rise from current 80 to 100 million by 2040. So Iran’s food production will need to increase significantly, by at least 25%. One opportunity to start with is the small farmer: who is well placed to help in the challenge of both food security and water production, and raising economic growth sustainably. Of Iran’s 81 million population, about 23 million people live in rural areas (about 5.8 million households). Of these small farmer households (SFH) make up about 15 million persons or so in the rural sector (or 2.5 million households that have some form of landholding). That is, 18% of Iran’s population. This should be the focus of opportunistic programme development. The focus on SFH would be useful for also reversing the current capital intensive growth process (and serious development challenge it creates).

Who are the SFH? A wide range of producers may be described as small holder, family farmers, peasant farmer, and khoshneshin. A main definition is that in developing contexts SFH are characterised by a limited access to resources – whether financial, material, technological, human capital, institutional or infrastructural. They also lack capability to be multi-functional and/or to access multiple dimensions of needs. This focuses primarily on SFH who rely more on their own household labour, who have limited land holdings and whom derive income primarily from the land (or from off season labour) through their own effort.

The programme targeted SFH (in Iran) are those who generally own less than 5 hectares of land, but with more emphasis and support for those who own less than 2 hectares; those who face food insecurity and/or are living on less than half the minimum wage (in Iran currently circa 10,000,000 Rials/month); have the potential to increase their own yields, and have reputation for good practice adoption and hard work; belong to or are willing to join a membership-based informal group or formal cooperative; who are located in areas where other agricultural and development agencies are present in order to ensure synergy and multiplier action.

A number of steps need be taken in order to enable SFH potential (and overcome constraints). There is a cost involved: for programming: in institutional changes; complementary mechanisms; sourcing budgets; establishing partnerships; etc. First, the programming must be multi-dimensional - all seen and programmed together: water development, rural development, economic growth and the natural resources base need to be linked (integrated) fully together. At the moment there are programme disconnects – in between and at different institutional levels. Iran’s current economic growth approach (especially the sole-growth approach in particular), need to be linked up more in planning terms with natural resources specifics and initial local conditions, in order to ensure linkages between results/targets, solution paths and initial resources – so as to help both mitigate the sustainability (stagflation) issues and to prompt growth (5).

Second, the rural development constraints and challenges must be met fully and squarely, in order to actually alleviate problems. There can be no roodarvassi, as the Persians say. As indicated, Iran has many such challenges, including rising capital costs of employment generation, underemployment (working poor), unemployment, relative income poverty and income inequality, lower than potential growth rates for SFH outputs and activities (their income growth rates are possibly no higher than 2%-3% per annum), fundamental relative economic price issues (the rentier intermediary gain between agricultural production and retail sales is large), rural sector institutional structures and top-down superstructure due to centralized interventions, appropriate inter-sector integration (e.g. water supply), as well as continued capital (intensive) investment that generate little employment (and prompt imbalanced growth). 

Third, the SFH themselves are now facing low incomes and increasingly smaller parcels of land (due to legal, inheritance and cost-benefit issues): a problem that needs to be resolved sustainably, fairly and efficiently, and cannot be done by a market price (sole-growth) approach alone. The scale and reliability at which SFH produce, and the structural issues involved - such as access to land, to credit, to roads and transport, to rural extension and technical assistance programmes, etc - limit SFH ability to participate in the national market and economy in an ideal manner.

However, and although Iran’s SFH remain weak and are subject to exogenous impacts and shock, they have, nevertheless, proven to be very resilient.   

Policy Change

There is, therefore, both a potential and need for a programme based approach: one that enables for both integration and coordination between agricultural production interventions and social protection programmes for the SFH in the rural sector; to enable a minimum level of income security for SFH households (supporting long-term income generation and reducing poverty); and, at the same time enabling SFH to produce more and earn more. It is now generally, and internationally, believed that such a general approach will also raise average national income (GDP) growth significantly. Given current rural constraints to production and income, and SFH dependency due to lack of capacities and integrated institutional support, many country’s governments have now expanded their own programmes to even procure raw and processed food and also handicrafts and other output from SFH as a way to combine the national development goals of raising general income and wealth, reducing poverty and inequality, and also expanding domestic food production. The Thailand OTOP is a prime example and has already been indicated (6).

Significant progress in raising food security, through more physical output, has also occurred over the past decades in Iran. However, in order to ensure the sustainable (self-sufficient and resilient) contribution of the agricultural sector to the Iranian economy, the rural/agriculture sector needs to itself become more resiliently productive. That is, also conjointly safeguarding the natural resource base (especially in an environment of adverse climate change) and the human resource base in the rural sector.

As part of its new strategies, policies and development plans the Iranian Government is attempting to increasingly focus on rural and agricultural sector support to small-scale family farmers so as to enhance their agricultural productivity systems and improve their rural livelihoods. Iran’s 6th Plan (2017-2021), founded on three main pillars of resilient economy, advancing science and technology and promoting cultural excellence and stability establishes a basis for this. Under these, there are four priority areas including water and environment, food safety and production of strategic commodities, enabling the poor and disadvantaged and knowledge-based economy and society. The new resilient economy approach in Iran and the push for rural employment generation, with significant credit allocations, are opportunities in this regard and, subject to being appropriately undertaken and institutionalised, may enable the right programme mechanisms for supporting SFH and their subsequent contribution to national GDP growth.

International standards (e.g. the United Nations F.A.O. global goals, and also the S.D.G.’s) also highlight reduction of rural poverty and enabling more inclusive and efficient agricultural and food systems at local, national and international levels: initiatives to directly address the challenges of SFH are on a community-based orientation and with rural organizations and institutions strengthened; along with facilitated collective action of the rural poor and their improved access to and control over rural services, finance, knowledge, technologies, rural infrastructure, markets and natural resources.  

Some Figures

Although agricultural yields, output and product variety are still far from potential, with room for improvement, Iran has experienced continued rising agricultural sector output (7). Over the long term, sector added value has been rising at circa 5% on average per annum. The 2016 total rural GDP (value added) at current prices was estimated to be circa 1000 Trillion Rials: with 70% of this from specific agricultural income (farming, herding, fishing, etc).  The farming/crop sector is the main value added contributor in agriculture; the livestock sector comes second. Both probably make up two thirds of total rural income. Economic productivity (value added) per the 5 million or so rural workers (including 4.2 million farmers) and 1 million or non-agricultural, stood at circa 200 million Rials/capita. Rural income per capita (all rural population) was of course less, at circa 44 million Rials.

Total physical output rose from 7 million tons in late 1950’s to current circa 30 million tons or so (or a 5.4% rate of physical growth per annum): in the same period wheat production rose from 2.7 million tons to current 12 million tons; livestock numbers from 30 million head to current 82 million (a 2.8% rate of physical growth per annum). This agricultural output and rural income generation is supported by natural, human and man-made resources: 17 million hectares of potential arable (cultivable) land, 405 billion cubic meters per annum of potentially available water, 5 to 6 million people (mainly SFH and labour), 14 million hectares of forest and 28 million hectares of rangeland. Including the market, technological and infrastructure institutions on top of it.

However, there are many constraints to sustainable and inclusive growth. A main challenge is agricultural sector structure and its impact on SFH productivity: the current land ownership and production trends are increasingly marginalizing the SFH, limiting their potential agricultural output and reducing general welfare gains of higher food output possibilities for them. Of the circa 3.5 million farmer owner holdings in the 2000-2010 period, about 1.2 million holdings were under 1 hectare, and 1.3 million holdings were between 1 hectare and 5 hectare. A total of 2.5 million SFH, with less than 5 hectares of land – owning about 3.5 million hectares out of a total of about 17 million hectares of cultivable land in Iran. This structure limits efficiency and scale of activity of SFH: not only a potential loss and opportunity cost of possible additional 1 % contribution to GDP growth, but also an inability of SFH families (15 million people) to easily procure consumption goods and assets (and remaining in the poverty trap).

The above indicate the larger constraints on the SFH. However, and again, the relatively good physical supply response of farmers over the years, especially the large SFH base, in difficult conditions has also proven robust and resilient in the face constraints and complexity. 

New Approach and Programme

The challenges mentioned above constrain development in agricultural added value, physical output growth and rural potential, and especially in development of SFH with its vast potential for gain. Matters and constraints to be foreseen and alleviated. In order to sustainably improve agricultural output and rural income, a change in approach and technique would be helpful. From a focus on large scale, capital intensive and hard tech/infrastructure, to less of all three. Methods that can ensure employment and well-being for all, and at the same time restore the natural/human resource base through the new investment/employment actually generated. Employment that is based more on micro and small social enterprise, and through community-based actions that can ensure both value added growth and ecological restoration at the same time. That is, possibly, through green jobs and more labour intensive type integrated natural resources management (INRM) approaches that can also provide alternative livelihoods. Much global experience exists in this regard (the experiences of South Africa and Brazil were indicated).

Programme based and focused interventions for developing SFH capability to function are an effective way of ensuring this: so that they can continue farming in a sustainable and resilient manner and continue restoring the ecological system at the same time – in the process developing their social capital (8). An inclusive rural development programme type approach is one solution, and focused on SFH capability development through strengthened institutions and support mechanisms, and towards four outcomes:  

i) support to combined socio-economic capacity development to ensure that SFH value added growth rates double (and treble) from the current low rates, and their poverty is halved - preferably through micro, social enterprise and SME development;

ii) support through various mobilization, procurement and protection mechanisms;

iii) ecological restoration activities through integrated natural resources management (INRM) undertaken by the SFH themselves; and,

iv) incorporation of technology and knowledge improvement in the rural sector for developing local, endogenous capacities of inter-sector and integrated solutions (by the local communities).  

When such a programme for achieving the four outcomes is undertaken simultaneously, through bottom-up approaches, it will raise the functional capability of Iran’s 2.5 million SFH; and will also be a response to the prime joint need for both increasing Iran’s food production and keeping the Iranian ecology safe.

As mentioned above, Iran’s policy focus and inherent (natural) growth process increasingly moves the country into larger-scale agriculture and agro-industry. It is, therefore, even more crucial that such a combined productivity, support and protection policy approach for SFH is fully established - to also compensate for the wealth concentration and to ensure overall demand in the economy.  Despite large farms (above 10 hectares) dominating food production in Iran, and producing more than two thirds of the cereals, livestock and fruit, the small farms of less than 10 hectares of land also produce a third of Iran’s food, and have the advantage of having more diverse and nutritious food production. They also cover more poorer populations, who are less capable and more in need (e.g. the SFH) and so ought to be supported and protected.

Such a programme based proposal requires linkages between SFH functionality, and institutional frameworks and the market interventions required to support SFH capability development, mobilization, incentive provision, micro-enterprise development and institutional demand-based policies (so as to make markets). The main pathways through which institutional demand (i.e. procurement and guaranteed purchases – as OTOP) promotes inclusive rural development include:

  •  Developing coping strategies and resilience for SFH: as stable incomes of SFH would prevent them making decisions that undermine their own capability and welfare.

  •  Ensuring domestic food security: by targeting vulnerable groups through food assistance programmes; ensuring micro producers receiving minimum guaranteed remunerative prices; allowing domestic market growth through purchase of food from local markets; increased demand for food generates productivity gains - strengthening local and regional food systems.

  •  SFH households invest more: more secure livelihood allow SFH households to purchase inputs and machinery, which leads to increased productivity; able to buy assets (land and livestock) and move to more profitable economic activities.

  •  Provide safety net that secure minimum income and entry into a secure market.

  •  Promote local development: increased demand for food can promote local development through spillover effects; increasing employment opportunities and wages.

The product categories for procurement support in Iran could include: food (raw, preserved and processed; including beverages); herbal products (non-medicine; or raw basis for medicine); carpets and rugs; fabric and clothing; wood handicrafts: decoration, gifts, souvenier’s. The product characteristics must have local comparative and relative advantage – to overcome market constraints; reflect local identity and values (culture, way of life, knowledge, etc.); use mainly materials from the region, area or locality – to ensure intermediate goods prompt multipliers; be socially useful and result in no damage or loss; environmental friendly; and chosen to represent the community identity.

In this approach, the prevailing institutional approach to rural extension (targeting average and model farmers) also needs to change. It does not fully support SFH development. Cooperative and Public-Private-People-Partnership type approaches, and especially resilient and inclusive rural development programmes through extension and education services should replace; as would local problem solving and adaptive research capacity at the local research institutional level. These require improved education, extension and input provision services for SFH (adjusting to service SFH in a more focused and programmed manner); raise investments in soil fertility (fertilizer and seeds for subsistence crops) and improved small-scale water control and management; focusing on rural women’s needs; improving storage and processing for higher value added production; improving SFH access to livestock; supporting SFH micro enterprise; and establishment of functional cooperative systems and networks that divide up tasks (rather than all doing the same thing).

A number of main action components would then be required to meet the above four main outcomes, including.  

  •  Institutional programmes - towards sustainable development planning frameworks;

  •  Micro and social enterprise, as well as SME development support, for SFH through establishment of business growth center (incubator) processes and market oriented capacity development, as well as guaranteed procurement techniques;

  •  Prompting SFH production, value chain and monetary flow increases in any specific region (a synergetic multiplier approach) – possibly at District level;

  •  Institutional demand as a time-bound coordinated guaranteed procurement from SFH, primarily through local goods/food procurement, for regional distribution;

  •  Social protection of SFH - to ensure their minimum well being (for health, education and basic needs), and capability development, through various means, programmes, funds and transfers;

  •  Ecological restoration through SFH mobilization for “green zone” activities especially through tree planting and rainwater harvesting;

  •  Ensuring institutional entities that provide technology and knowledge support directly to SFH – for example ITC for incubation and growth centers in localities.

Activities for these implementation components include: assessing SFH conditions to identify constraints, opportunities and potentials for scaling up support and improving livelihoods; review rural development policies and national development plans, in terms of support to SFH; identify opportunities and formulate strategies and actions; assess production and diversification opportunities; assess alternative livelihood opportunities; improve SFH good agricultural practices, post-harvest, marketing and business management; develop small enterprise and social enterprises; establish informal group organizations at local level; establish farmer-market-finance linkages; establish farm field and business school methodology and capacity; establish cooperatives made up of SFH; support institutional capacities; appraise existing services and pluralistic advisory services to identify needs, gaps and constraints. 

Overall Indicators and Benefits

Given Iran’s potentially vast resource base an inclusive growth and sustainable development policy approach in the rural sector focused on SFH, through an integrated inclusive rural development programme, and perhaps under the auspicies of the Resilient Economy approach, could then contribute to the following indicators:  

  •  Increasing employment levels and rates, from initial baseline, in the chosen areas/sites;

  •  Increased number of cost-effective projects that are being generated by the local communities and SFH groups in the area/site (with positive joint outcomes);

  •  Improved coverage of rural population through more equitable practices, opportunities, choices, capacity building and income distribution;

  •  Rising standards of living for the majority and rising out of poverty for the most vulnerable SFH – with a reduced number of households in poverty;

  •  Increased natural resource and environmental conservation through better practices and activities consistent with natural resource carrying capacity;

  •  Increased integrated and networked activities based on rural SFH community organizations and group action;

  •  Rising trend in number of rural SFH community organizations and cooperatives established (PPP).

The benefits of this are clear: an increased demand for rural produced non-food and food, goods and services; higher local sustainable productivity; social capital formation; local economic growth; agricultural growth; rural development; increases in wages and incomes; new marketing channels; reduction in risk and income uncertainty – especially for SFH; improved access to training, credit and technology; and lower food prices. 

Once implemented, the outcome effects would include:

i) raising average 5% agricultural GDP growth per annum to perhaps circa 7%;

ii) raising SFH income growth from current low levels to 5% per annum and more;

iii) raising income level of SHF beneficiaries and improving income distribution in rural areas, so reducing the national Gini from current circa above .4 down to around .3;

iv) contributing an additional 1% to national GDP growth;

v) ensuring more ecological resources restoration (by local communities and SFH themselves) and raising forest, woodland and bush from current 14 million hectares to hopefully above 16 million hectares; and

vi) increasing water availability to agriculture from current 93 billion cubic meters to above 100 through rainwater harvesting methods and tree planting.  

Therefore, once the SFH are targeted and supported, such an approach would achieve the above and also could help stabilize the rural sector and prevent migration from it to urban areas.   


(Endnotes)

1. Part of a series on small farmer households potential for contributing to national economic growth; in forthcoming editions of Iran International. These are derived from previous work by this author including: consultancy Working Paper on integrated inclusive rural development programming for a United Nations Agency; previous Development Briefs for the UN in Iran while managing poverty-environment linked programmes; some articles in previous issues of Iran International (Full Employment …; Green GDP….; Community-based Rainwater Harvesting and Tree Planting ….); more recently A Complementary Sustainable Growth Programme to Conventional Sole Economic Growth Oriented Policy in Iran (Mimeo).

2. For example, see the “structural macro-economics” works of Lance Taylor on this for the theoretical aspects.

3. The classic example is ecological damage and human migration due to excessive capital intensive investment in a closed waterbasin.

4. This author has previously written of the “inclusive growth” approach in a number of articles in Iran International.

5. A Complementary Sustainable Growth Programme to Conventional Sole Economic Growth Oriented Policy in Iran (Mimeo) by this author indicates how to establish this linkage.

6. It is estimated  that during a fifteen year implementation period the OTOP produced nearly $100 billion of value added (GDP) alone for its SFH and rural people – and obviously much more in monetary flows.

7. From various Statistical Centre of Iran - Yearbook.

8. In Iran the Carbon Sequestration project pilot initiative undertaken in South Khorassan is a good example.

 

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