Two-thirds of the extreme poor live in rural areas and the livelihoods of two to three billion rural people, often the most food insecure and vulnerable, still depend primarily on small farms. Out of 570 million farms in the world, 475 million farms have less than 2 ha.

Small farms not only contribute to feeding the households that operate them but also make two broader contributions:

• They are important to the overall food security of LMICs. Farms less than 5 ha are responsible for 53 percent of the global production of food calories for human consumption and farms under 2 ha globally produce 30–34 percent of the food supply;
• They contribute to the sustainability of agrifood systems by maintaining the genetic diversity of crops and livestock and supporting ecosystem services (e.g. more crop diversity, more edges).

Small farms can be categorized in three groups:

• Commercial small farmers who run their farms as businesses and tend to specialised in the farming of high-value products;
• Small farmers in transition often depend heavily on rural non-farm employment (RNFE) while also maintaining small plots for home food consumption plus some semi-commercialized food or non-food products. Their number is expected to remain large over the next decade;
• Subsistence-oriented small farmers are marginalized for a variety of reasons, and their number is expected to fall with economic transformation.

RNFE is an important income source for rural small farm households and on average occupies more of their working time than farming in many African and Asian LMICs.

Innovations for the Future of Small Farms

Small farmers’ adoption of new technologies and the cultivation of higher-value products requires that they have the proper profit incentives and market access. The combination of growing urban markets, expanding road connections, and the development of wholesale markets provides favourable conditions for the spontaneous formation of clusters of wholesalers, cold storages, processors, and logistics enterprises that provide crucial services that enable small farmers to access urban markets. The relations of supply chain firms with small farmers should expand over the next decade.

Though still in its infancy in LMICs, e-commerce is emerging rapidly –as witnessed during covid-19 pandemic- thanks to the diffusion of Internet access, mobile phones, and computers. Small farmers linked to e-commerce may be better able to compete in more proximate niche markets.

Some particularly interesting market-institution and technological innovations in agricultural services markets –mobile out-source services- appear to be helping small farmers (e.g. mechanization services, extension services, agricultural operations). Many of these services have replaced labour-intensive farming activities with machines or specialized techniques, helping small farmers who lack the cash to invest in machines, the skills to use machines and other techniques, or simply the time to spend farming because of non-farm employment.

New institutional innovations can also benefit small farmers through contributions to sustainable land stewardship. With payments for ecosystem services, the private or public sector pays land stewards (farmers) to protect watersheds, sequester carbon through tree planting, or conserve biodiversity. This is likely to become more widespread in the coming decades. Technology and training for smallholders to access and interpret satellite data, monitor their lands, and fulfil reporting requirements are needed if they are to benefit from a growing demand for ecosystem services.

Policies for Inclusive Small Farm Transformation through Innovation

To enhance small commercial and transitional farmers’ competitiveness to pursue these market opportunities, government policies and public investments in the following areas are important:

• Increase investments in infrastructure, in particular rural roads and internet access;
• Promote education and training programs for rural youth;
• Facilitate cooperatives and farmer groups that can collectively pursue emerging opportunities in urban markets and modern farm technology;
• Support SMEs upstream and down-stream from farms by reducing unnecessary regulations and informal restrictions that often discourage SME development;

The following actions are promising for governments to actively promote agriculture–RNFE synergies for rural development and agrifood system transformation:

• Pursue policies that have broad effects across economic activities in rural areas and do not limit interventions to farming alone;
• Develop an enabling environment —including basic infrastructure, property rights, and legal systems with enforcement mechanisms— favourable to rural businesses that encourage and facilitate inclusive RNFE;
• Identify engines of regional growth through consultation with the private sector and farmers, and conduct supply chain diagnostics for prioritization of strategic interventions;

Additional policy recommendations:

• Support new technologies that reduce risk and are attractive to small farmers;
• Ensure that agricultural interventions to support sustainable farming practices are economically viable for farmers and provide direct economic benefits;
• Scale up productive social protection programs for subsistence farmers in hinterland areas who face barriers in ac-cessing markets and other economic opportunities.