The Economics of Farm Households from University of New England

Frank Ellis' Definition of Peasants

Frank Ellis identifies six conditions that define a peasant household:

1. Primary livelihood from agriculture
2. Family labour usage
3. Partial market integration and self-sufficiency
4. Participation in imperfect market
5. Community membership
6. Dominated by non-peasant society

The Price-Band Model

Two key assumptions:

1. Land endowments determine labour supply responses: Landless farmers (A1) to large family farms (A6).
2. Labour supply responds to the market wage rate: w - TCs and w + TCh.

D6(A6) Household labor supply (on, off) W1 D5(A5) Hire in -w + TCh D4(A4) TC in hiring = TCh Shadow wage D1(A1) D3(A3) On Self-sufficient On Off w paid in selling w - TCs Labor demand for farm (on, in), according to farm size (A) Labor (on, off, in) w paid in hiring On Market wage =₩ D2(A2) TC in selling = TCs

Net Buyers, Net Sellers, and Peasant Household Classes

Social class Family labor use Farm size (assets) Farm labor demand Off- farm On- farm Hire in and supervise Landless worker <A1 <D1 ++ 0 0 Sub-family farm A1 to A3 D1 to D3 + + 0 Pure family farm A3 to A5 D3 to D5 0 + 0 Small commercial farm A5 to A6 D5 to D6 0 + + Large commercial farm > A6 >D6 0 +

Farm Household Behaviour Models

Types of farm households:

1. Consumer-worker household: A landless household, supplying labour in the market.
2. Pure producer: A farmer who only uses hired labour.
3. Pure family farmers: Self-sufficient in labour use.
4. Sub-family farmers: A small land endowment, allocating surplus farm labour to the labour market
5. Small commercial farmers: A large land endowment, hiring labour to cover the deficit in family labour.

Labour Supply Response to a Rise in the Market Wage

Hired farm labor LIN Leisure Tz 7 1 Total farm labor T Household time 7 TF On-farm work Ls Work Tw Off-farm work A rise in the market wage raises the opportunity cost of leisure, prompting farm households to reallocate family labour towards off-farm work to maximise income.

Survival of Family Farms

Family farms have the advantage of low labour costs. They face limited access to financial services, high transaction costs, biased public services, and structural changes in food value chains. " They are victims of displaced distortions: Selling low and buying high Working for others at peak labour-demand time

Market Failures

Credit Market Failures

Credit market fails for farm households facing liquidity problems. Potential solutions include: Affordable credit options for farm households. Agricultural cooperatives or farmer associations to enhance farmers' bargaining power and improve access to credit by pooling resources and risks.

Insurance Market Failures

Insurance market fails because of high correlated risk in agricultural production. Potential solution include: Enhancing index-based insurance schemes with targeted subsidies or public-private partnerships. Increasing farmer education.

Economies of Scale for Farm Households

Farm households lack economies of scale in production and marketing. Large-scale farms benefit from the indivisibility of machinery, which reduces per-unit costs, and integrated value chains and supermarket contracts that favour large volumes of high-quality product deliveries. Farm households can form cooperatives to pool resources, enabling them to achieve economies of scales. These cooperatives can secure better terms and prices for their members by delivering the volume and quality that large buyers, such as supermarkets, require.

Risk Management

Risk management refers to actions with the objective of reducing income risks for a given expected exposure to shocks:

1. Income strategies: crop diversification, plant less risky traditional seeds, use a portfolio of activities to diversify sources of income
2. Precautionary savings
3. Choice of contracts
4. Formal insurance contracts
5. Mutual insurance

Risk Coping

Risk coping refers to actions that reduce consumption risks for given income realisations:

1. Postpone non-essential consumption
2. Dissave and borrow
3. Reallocate labour toward off-farm work
4. Take children out of school and send them to work
5. Rely on public social safety nets

Intra-Household Allocation of Resources and Gender Roles

How household makes decisions can have large consequences on outcomes such as the following: The allocation of land between food crops (typically prioritised by the women) versus cash crops (prioritised by the man). The allocation of fertiliser between the family plot under the authority of the man and the woman's own plot in West Africa. The allocation of cash transfers between investment (typically preferred by the man) and expenditures on children's health, nutrition and education. The allocation of food among household members, most critically in periods of drought and food storage, with implications for health and capacity to work. Giving mothers control over the transfer helps empower them and strengthen their bargaining position in the household, with favourable outcomes for child welfare.