Agricultural diversification
Encyclopedia
In the agricultural context, diversification can be regarded as the re-allocation of some of a farm's productive resources, such as land, capital
, farm equipment
and paid labour, into new activities. These can be new crops or livestock products, value-adding
activities, provision of services to other farmers and, particularly in richer countries, non-farming activities such as restaurants and shops. Factors leading to decisions to diversify are many, but include; reducing risk, responding to changing consumer demands or changing government policy, responding to external shocks and, more recently, as a consequence of climate change
.
(DEFRA) defines diversification as “the entrepreneurial use of farm resources for a non-agricultural purpose for commercial gain”. Using this definition DEFRA found that 56% of UK farms had diversified in 2003. The great majority of diversification activities simply involved the renting out of farm buildings for non-farming use, but 9% of farms had become involved with processing or retailing, 3% with provision of tourist accommodation or catering, and 7% with sport or recreational activities . Others adopt a broader definition, which may include development of new marketing opportunities .
In developing countries such as India, which has been one of the leaders in promoting diversification, the concept is applied both to individual farmers and to different regions, with government programmes being aimed at promoting widespread diversification. The concept in India is seen as referring to the “shift from the regional dominance of one crop to regional production of a number of crops ...... (which takes into account)..... the economic returns from different value-added crops... with complementary marketing opportunities”.
Financial capital
Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....
, farm equipment
Farm equipment
Agricultural machinery is any kind of machinery used on a farm to help with farming. The best-known example of this kind is the tractor.-Soil cultivation:*Cultivator*Cultipacker*Chisel plow*Mulch tiller*Harrow**Spike harrow**Drag harrow...
and paid labour, into new activities. These can be new crops or livestock products, value-adding
Value added
In economics, the difference between the sale price and the production cost of a product is the value added per unit. Summing value added per unit over all units sold is total value added. Total value added is equivalent to Revenue less Outside Purchases...
activities, provision of services to other farmers and, particularly in richer countries, non-farming activities such as restaurants and shops. Factors leading to decisions to diversify are many, but include; reducing risk, responding to changing consumer demands or changing government policy, responding to external shocks and, more recently, as a consequence of climate change
Climate change
Climate change is a significant and lasting change in the statistical distribution of weather patterns over periods ranging from decades to millions of years. It may be a change in average weather conditions or the distribution of events around that average...
.
Definitions of diversification
While most definitions of diversification in developing countries work on the assumption that diversification primarily involves a substitution of one crop or other agricultural product for another, or an increase in the number of enterprises, or activities, carried out by a particular farm, the definition used in developed countries sometimes relates more to the development of activities on the farm that do not involve agricultural production. For example, one section of the British Department for Environment, Food and Rural AffairsDepartment for Environment, Food and Rural Affairs
The Department for Environment, Food and Rural Affairs is the government department responsible for environmental protection, food production and standards, agriculture, fisheries and rural communities in the United Kingdom...
(DEFRA) defines diversification as “the entrepreneurial use of farm resources for a non-agricultural purpose for commercial gain”. Using this definition DEFRA found that 56% of UK farms had diversified in 2003. The great majority of diversification activities simply involved the renting out of farm buildings for non-farming use, but 9% of farms had become involved with processing or retailing, 3% with provision of tourist accommodation or catering, and 7% with sport or recreational activities . Others adopt a broader definition, which may include development of new marketing opportunities .
In developing countries such as India, which has been one of the leaders in promoting diversification, the concept is applied both to individual farmers and to different regions, with government programmes being aimed at promoting widespread diversification. The concept in India is seen as referring to the “shift from the regional dominance of one crop to regional production of a number of crops ...... (which takes into account)..... the economic returns from different value-added crops... with complementary marketing opportunities”.
The “Drivers” of Diversification
Diversification can be a response to both opportunities and threats:Opportunities
- Changing consumer demand. As consumers in developing countries become richer, food consumption patterns change noticeably. People move away from a diet based on staples to one with a greater content of animal products (meat, eggs and dairy) and fruits and vegetables. In turn, more dynamic farmers are able to diversify to meet these needs.
- Changing demographics. Rapid urbanization in developing countries has an impact on consumption patterns. Moreover, a smaller number of farmers, in percentage terms at least, has to supply a larger number of consumers. While this may not imply diversification it does require adaptation to new farming techniques to meet the higher level of demand.
- Export potential. Developing country farmers have had considerable success by diversifying into crops that can meet export market demand. While concern about food milesFood milesFood miles is a term which refers to the distance food is transported from the time of its production until it reaches the consumer. Food miles are one factor used when assessing the environmental impact of food, including the impact on global warming....
, as well as the cost of complying with supermarketSupermarketA supermarket, a form of grocery store, is a self-service store offering a wide variety of food and household merchandise, organized into departments...
certificationCertificationCertification refers to the confirmation of certain characteristics of an object, person, or organization. This confirmation is often, but not always, provided by some form of external review, education, assessment, or audit...
requirements such as for GlobalGAP may jeopardize this success in the long run, there remains much potential to diversify to meet export markets. - Adding value. The pattern witnessed in the West, and now becoming widespread in developing countries, is for consumers to devote less and less time to food preparation. They increasingly require ready-prepared meals and labour-saving packaging, such as pre-cut salads. This provides the opportunity for farmers to diversify into value addition, particularly in countries where supermarkets play a major role in retailingRetailingRetail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Retailing may include subordinated services, such as delivery. Purchasers may be...
. - Changing marketing opportunities. The changing of government policies that control the way in which farmers can link to markets can open up new diversification possibilities. For example, in India policy changes to remove the monopoly of state “regulated markets” to handle all transactions made it possible for farmers to establish direct contractsContract farmingContract farming is agricultural production carried out according to an agreement between a buyer and farmers, which establishes conditions for the production and marketing of a farm product or products. Typically, the farmer agrees to provide established quantities of a specific agricultural...
with buyers for new products . - Improving nutrition. Diversifying from the monocultureMonocultureMonoculture is the agricultural practice of producing or growing one single crop over a wide area. It is also known as a way of farming practice of growing large stands of a single species. It is widely used in modern industrial agriculture and its implementation has allowed for large harvests from...
of traditional staplesStaple foodA staple food is one that is eaten regularly and in such quantities that it constitutes a dominant portion of a diet, and that supplies a high proportion of energy and nutrient needs. Most people live on a diet based on one or more staples...
can have important nutritional benefits for farmers in developing countries.
Threats
- Urbanization. This is both an opportunity and a threat, in that the expansion of cities places pressure on land resources and puts up the value of the land. If farmers are to remain on the land they need to generate greater income from that land than they could by growing basic staples. This fact, and the proximity of markets, explains why farmers close to urban areas tend to diversify into high-value crops.
- Risk. Farmers face risk from bad weather and from fluctuating prices. Diversification is a logical response to both. For example, some crops are more drought resistant than others, but may offer poorer economic returns. A diversified portfolio of products should ensure that farmers don’t suffer complete ruin when the weather is bad. Similarly, diversification can manage price risk, on the assumption that not all products will suffer low prices at the same time. In fact, farmers often do the opposite of diversification by planting products that have a high price in one year, only to see the price collapse in the next, as explained by the cobweb theory.
- External threats. Farmers who are dependent on exports run the risk that conditions will change in their markets, not because of a change in consumer demand but because of policy changes. A classic example is the CaribbeanCaribbeanThe Caribbean is a crescent-shaped group of islands more than 2,000 miles long separating the Gulf of Mexico and the Caribbean Sea, to the west and south, from the Atlantic Ocean, to the east and north...
banana industry, which collapsed as a result of the removal of quotaImport quotaAn import quota is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time....
protection on EU markets, necessitating diversification by the region’s farmers. - Domestic policy threats. Agricultural production is sometimes undertaken as a consequence of government subsidies, rather than because it is inherently profitable. The reduction or removal of those subsidies, whether direct or indirect, can have a major impact on farmers and provide a significant incentive for diversification or, in some cases, for returning to production of crops grown prior to the introduction of subsidies.
- Climate change. The type of crop that can be grown is affected by changes in temperatures and the length of the growing season. Climate change could also modify the availability of water for production. Farmers in several countries, including Canada, India, Kenya, Mozambique and Sri Lanka have already initiated diversification as a response to climate change. Government policy in Kenya to promote crop diversification has included the removal of subsidies for some crops, encouraging land-use zoning and introducing differential land tax systems.