Land market integration, structural change, and smallholder farming in Zambia

Abstract

As developing economies grow, structural transformation affects not only sector shares of labor, value added, and consumption, but also intrasector marketing channels. One of the most dramatic examples of this transformation is in the evolution of food marketing channels in countries such as Zambia. Reardon's supermarket revolution research shows how supermarkets enter and transform food marketing channels in historically short periods of time compared to the earlier experience of developed nations. This study employs a dynamic general equilibrium model to examine the effect of this structural transformation story on smallholder farmers in Zambia. Two policy experiments are carried out against the baseline case.In the first experiment, the bifurcation of Zambia's agricultural land markets prevents smallholder farmers from participating in modern food marketing channels. High transaction costs in terms of time and financial resources make conversion of customary land into commercial land title prohibitively expensive for smallholder farmers. The simulated conversion of land title, without changing ownership, instigates a reallocation of capital and labor resources in the modeled economy that benefits smallholders in their roles as producers and household owners of factors of production. With the increase in commercial land area, labor becomes scarce and farm production becomes more capital intensive, thus increasing labor productivity and smallholder household income. This analysis highlights the importance of integrating land markets and giving smallholders an effective increase in the range of their resource allocation decisions.In the second experiment, constraints to smallholder participation in modern food marketing channels are relaxed in order to understand the effects on not only smallholder farmers, but also on Zambia's factor and output markets. Participation in modern marketing channels allows smallholders to supply not only greater downstream value-added processors, but also the world wholesale market. The results show that policies to open modern channels to smallholders benefit smallholders as households and producers.