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The overall objective of this project was to identify options
for developing countries to improve social, health and environmental
outcomes in their livestock sectors, while avoiding artificially
(and often inadvertently) promoting the ramping up of the
scale of livestock operations through inappropriate policies
or failure to act when economically justifiable opportunities
for improvement are available. The urgency of the topic derives
from the fact that livestock is one of the few commodities
that smallholder farmers produce that is growing rapidly in
demand, and if they cannot compete in this area, the overall
prospects for them in farming are bleak.
The project Livestock Industrialization, Trade and
Social-Health-Environment Impacts in Developing Countries
concentrated on the forces that are driving the trends in
scaling-up of livestock production in four study countries
(India, The Philippines, Brazil and Thailand), based on in-depth
household surveys and analysis. Implications were assessed
for impacts on social, health and environmental outcomes that
affect the welfare of poor people and farm animals kept in
developing countries.
 While
many people, including many engaged in the livestock sector,
think that technology alone is the source of economies of
scale in production, and that this is what drives small producers
out of business, it is quickly apparent that the truth varies
greatly over commodities. The assertion that new livestock
production technology is what displaces smallholders in developing
countries is an over-simplification even in cases where the
most productive technologies are not divisible below certain
minimum scales. Other important factors that impact on scaling-up
are organizational in nature, and are typically manifested
as "transaction cost barriers" to smallholder participation
in markets.
Still other forces promoting scaling-up are non-scale-neutral
policy distortions, such as subsidies or externalities that
benefit large and small producers differently. Low-cost government
credit to larger scale producers under the guise of regional
development schemes, or the dumping of large amounts of waste
into watercourses by larger farms unable to absorb more manure
on their fields (presumably unlike smallholders) are possible
examples of market distortions that would promote scaling-up.
The key point is that the correct set of policies to prevent
the premature exit of smallholders from the market place will
differ greatly depending on which sort of explanation one
adopts, and if all three classes are operating simultaneously.
The project examined the determinants of scaling-up and assessed:
- The extent to which this displacement is due to policy
distortions such as scale-variant subsidies per unit of
output;
- The role of differences across farms in the capture of
environmental externalities;
- The extent to which this displacement is due to changing
product requirements in the marketplace (i.e. animal health,
food safety, quality, etc.), as reflected in price premia
paid to larger-scale or more vertically- integrated producers;
- The role of higher transaction costs facing smallholders
in reducing their competitiveness;
- The potential to keep small-scale farms competitive within
a competitive market economy framework through institutional
innovation;
- The implications for poverty reduction and environmental
strategies.
The first finding from all the country studies confirmed that
livestock production is in fact concentrating rapidly, as suggested
by previous studies, in the sense that more and more animals
are being kept per square kilometer. This is primarily a matter
of concentration around capital cities and other major demand
centers with the exception of Brazil, where concentration is
around the region supplying inputs. The Philippines study, in
particular, showed that concentration can involve more and more
animals on more and more smallholder farms, in addition to the
creation of new large, intensive farms. An important issue investigated
was whether a given number of animals kept by many smallholders
potentially pollute more or less than the same size herd kept
by one large farmer and whether they spend more or less per
unit of output as a large-scale producer to mitigate the effect
of pollution on the environment.
 The
country case studies also substantiated that scaling-up is in
fact occurring. Smallholder output continues to grow at high
rates in certain cases, such as dairy in India and swine in
the Philippines. However, evidence reviewed suggests that large-scale
enterprises are growing even more rapidly, taking market share
away from smallholders. This is particularly relevant to Thailand
and Brazil, where there are relatively small numbers of small-scale
producers left in the broiler business. The question then is
whether large-scale livestock production will out-compete smallholder
producers everywhere, and eventually provoke their exit from
the sector. The study adopted two approaches to that issue.
First, the country studies assessed available time series data
from national sources to look at the impact of ongoing concentration
and scaling-up of livestock production on social, equity, health
and environment outcomes. Second, field surveys were conducted
on cross-sections of farms of different sizes and degrees of
vertical integration, to address the issues more formally.
Main findings of the study include that (i) small producers
can generate relatively high profits per unit of output (as
long as their labour cost is not factored in and as long as
they do not rely on external labour), (ii) considering profit
efficiency, middle scale market-oriented smallholdings are already
efficient, (iii) the efficiency then rises in very large operations,
probably more because of reduced transaction costs (vertical
integration) than because of technical returns to scale (constant),
and (iv) the organisation of small producers (e.g. contract
farming in monogastric species production and cooperatives in
the dairy sector) is a promising way to reduce transaction costs
and therefore improve market access, although policies to ensure
the fairness of these organizations are required.
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