In many rural areas in LDCs, there may be potential to raise agricultural income by expanding the area of cultivated land. This could be achieved by easing seasonal labour constraints, or by improving or extending agricultural infrastructure such as irrigation and drainage systems. In general, however, efforts aimed at generating higher quality and greater quantities of agricultural outputs must include measures that:
• Lead to higher yields per hectare;
• Help raise labour productivity in farming and livestock breeding;
• Reduce post-harvest losses;
• Foster the diversification of production and promote a shift towards higher-value crops;
• Strengthen linkages with processors; and
• Encourage more commercialized farming.
2.1 Increasing yields and labour productivity
Higher productivity in farming requires improvements in agricultural practices, better access to essential inputs such as fertilizers, pesticides and high-quality seeds, and the use of advanced farming techniques and equipment, taking into account local circumstances, and climate and soil conditions (LDCR 2015: ch.2).
Increased literacy and numeracy, vocational skills, financial literacy and business skills are the building blocks of rural structural transformation. Policy measures to develop
such skills must begin with strengthening rural primary school education for children, and offering access to rural adult education, especially for women. Public support is also required for training in agricultural production and storage techniques for small-scale farmers. Moreover, public policy has a role to play in agricultural upgrading by providing adequate funding for agricultural research and development (R&D), and strengthening agricultural extension services (LDCR 2015: ch.2 and ch.5). A cost-efficient way of organizing agricultural research can be the creation of (sub)regional centres of excellence, such as agro-ecological zones or the identification of strategic food commodities. Such centres should pay special attention to farm-level production technologies, as well as post-harvest technologies (LDCR 2009: ch.3; LDCR 2015:
ch.5; DTIS Ethiopia).
Many skills acquired and developed over generations in rural agricultural and artisanal activities merit preservation. However, these skills must be further refined. They should be complemented by the necessary skills for upgrading agricultural production through the use of modern farming techniques and equipment. This is likely to support the social acceptance and environmental sustainability of structural change, as well as agricultural upgrading and rural diversification.
Post-harvest losses, quality deterioration and the contamination of agricultural produce can be reduced with better transport and storage facilities, especially for small-scale farms. More efficient collection and marketing systems, including the development of appropriate standards for the collection and classification of agricultural output quality can further support agricultural upgrading. Improvements in these areas require policy support in the form of infrastructure, awareness-building and regulation.
In most countries, governments can help raise agricultural incomes by organizational and financial support for the acquisition of essential inputs. Better access to and lower costs of inputs such as high-quality seeds, fertilizers or pesticides can go a long way to increase agricultural productivity (LDCR 2015: ch.5). Greater use of locally appropriate inputs to increase agricultural productivity and environmental sustainability can be fostered through extension services, input subsidy schemes, and the organization of collective purchases. These may be especially beneficial for women and other disadvantaged producers (LDCR 2015: ch.4 and ch.5). Public provision of annual in-kind microgrants of productive inputs may be necessary for the poorest farmers in remote areas. These grants could be phased out over an extended period of time as the needs of poor, rural farmers evolve (LDCR 2015: ch.5).
2.2 Diversification, crop upgrading and international certification
New opportunities for increasing farm incomes will arise as domestic demand shifts towards higher value crops as poverty is reduced and non-farm rural activities expand.
Efforts to support the diversification of farming products can also benefit from rapidly increasing demand in export markets for products based on environmentally-friendly and organic agriculture. Therefore, facilitating the flow of market information to farmers and helping them to secure internationally recognized certifications for agricultural produce could provide significant mutual benefits for farmers and the environment. Efforts should be directed to both public certifications, in line with World Trade Organization (WTO) Sanitary and Phytosanitary Standards (SPS) and Technical Barriers to Trade (TBT) agreements, and private certifications of organic and sustainable production and compliance with fair-trade standards. Capacity building for producers and government facilitation of certification processes can be important measures in this context (LDCR 2015: ch.3 and ch.5; DTIS Ethiopia).
2.3 Strengthening cross-sectoral linkages and commercialisation
Linkages between agriculture and other sectors are important for farmers, as well as producers in other economic activities, especially when industrial strategy builds on the domestic processing of agricultural raw materials. A consistent and reliable supply of agricultural inputs is a decisive factor for the efficiency and competitiveness of processing firms. In this regard, the provision of advisory services to farmers to strengthen their business administration and organizational skills may be helpful for both rural producers and industrial processors. These advisory services can generate higher demand for farmers and stabilize and improve input supplies for processors (DTIS Ethiopia).
Effective linkages that benefit both farmers and domestic processors of agricultural products can be supported by the establishment of Rural Transformation Centres (RTCs) in combination with industrial parks (UNIDO 2014). Farmers can be encouraged to sell their outputs at such centres, and these centres can, in turn, provide inputs such as fertilizers, seeds, or animal feed and medication in exchange. This could contribute to a less fragmented and better organized, agricultural supply demand-driven and quality-oriented.
To strengthen downstream linkages, farmers must be made more aware of the critical importance of reliable supplies and better-quality products. They should also be notified of the advantages of long-term commercial arrangements with actors in downstream sectors, such as agro-processing, textiles and leather fabrication or tourism and hospitality services (DTIS Ethiopia). Governments should develop and implement a coherent, medium-term strategy to accelerate the commercialization of a large part of
agricultural production, and raise the quality of outputs, and ensure compliance with internationally recognized product standards. As part of such a strategy, enhanced agricultural extension services should include training in business administration.
In many cases, the commercialization of agriculture may be facilitated by larger farm units, which offer important economies of scale. These may find expression not so much in higher physical yields per unit of land or per worker, but in better access to essential inputs at lower costs. Larger operating units also facilitate adequate storage, quality assurance, marketing, and access to finance (LDCR 2015: ch.5; DTIS Ethiopia).
However, exclusive reliance on large-scale agricultural production may not be effective for poverty eradication in the rural areas of LDCs, as its impact on employment creation (outside of peak agricultural seasons) is generally limited, and agricultural wages tend to be low.32 Therefore, sufficient land should remain available for small-scale agricultural producers to provide all households with incomes above the poverty line. Extension services should be organized in such a way that they also benefit small, family and women farmers (LDCR 2015: ch.4 and ch.5). In order to achieve both economic and social objectives in rural areas, it is necessary to establish socially acceptable balance between commercialized farming in large production units, and small-scale and family farms. The interest in maintaining the social benefits of small-scale production, while overcoming the market disadvantages faced by small producers highlights the key role for producers’ associations and cooperatives (LDCR 2015: ch.5).
To further develop the commercial potential of farming and livestock breeding, and to strengthen vertical integration within domestic value chains, governments may consider promoting contract farming, which enables agricultural producers to enter into legally binding agreements with processors. However, the feasibility of contract farming depends on the willingness or interest of agricultural producers in LDCs to enter into contractual obligations with processors. Moreover, these contracts should be subject to institutional monitoring to avoid situations in which buyers misuse their negotiating position and often stronger bargaining power at the expense of producers (LDCR 2015:
ch.3 and ch.4; DTIS Ethiopia).