Externalities and Free Rider issue in small farmland
Most of the farmland in South East Asia is small in size.
“While the sector overall appears to have undergone significant structural adjustment,
farm sizes in Southeast Asia remain relatively small, and may remain so over the medium
term (FAO, 2015). “
Small farmland linked each other with unclear boundary . The numerous small farmland is hard to organize and may easily generate the externalities in the farming. Some externalities is negative and harmful to the environment.
“The prevalence of small farms in the 1930s limited private solutions for controlling the downwind externalities associated with wind erosion. Drifting sand from unprotected fields damaged neighboring farms. Small farmers cultivated more of their land and were less likely to invest in erosion control than larger farmers. “
Supporting the small farmland farmer can help to stop the negative externalities. In the contrast, it may generate the positive externalities. To most of the people, positive externalities is not a problem. However, it will produce an issue call “Free Rider Problem” that make a failure in the market. It can discourage the farmers to invest in smart farm technology.
“The free rider problem is an issue in economics. It is considered an example of a market failure. That is, it is an inefficient distribution of goods or services that occurs when some individuals are allowed to consume more than their fair share of the shared resource or pay less than their fair share of the costs.”
To solve this problem, the government’s involvement and organization is the best. Or a system that providing good tracking and tracing of an agricultural product to guarantee the smart small farmland farmer can earn most of the benefit is another way to easy the free rider problem. Block Chain technology can help to define something from public to private.
“If you convert a public good into private, then you could force everyone to pay to use it. For example, by erecting a toll on the public bridge, you would force everyone who crosses it to pay for the construction cost.”
The financial support for the small farmland farmers is still weak in South East Asia. Most of the small farmland farmer need to spend most of their money in buying the seed and fertilizer in advanced. The climate change makes the chance of poor harvest going higher and higher. Those reasons push the farmers tend to grow the crop in quick and sell it in low price so that they can earn their money back as soon as possible.
“Agriculture in South Asia and Southeast Asia is dominated by small farms, many of which operate at subsistence levels and are exposed to inefficient, government-run marketing schemes and local markets dominated by intermediaries.”
Although now many countries have already instituted policies to provide financial services to family farms with various forms of subsidies, compare with the large number of small farmland in South East Asia, the support is still limited.
The smart technology can help to grow organic and fairtrade products and the products can sell in a better price, however, the markets for this kind of products is far from the rural area. The markets may be in the big cities or even oversea. Then to transport the products to the market need a higher cost and more time. Now many countries has already developed the facilities not only in transportation but also communication and power to link up the farmers and markets. It is a good chance for the small farmland farmers to sell their products in a better market and in a better price.
“In other words, while the wealthier farmers capture the benefits of existing facilities better than the poorer farmers, the marginal benefit from an improvement of market facilities is substantially greater for small (poorer) farmers.”
Although the facilities is going better and better, an intermediate organization is still needed to connect the farmers and the markets in a more advanced way.
“However, smallholders need support for intermediation and internalization to be able to integrate into the supply chains (Gaiha and Thapa, 2007; Lipton, 2006; Swinnen 2006). Intermediation can take different forms involving the cooperation of public and private agencies. “
“Supply chains organized by private off-takers and companies that purchase and process agricultural produce as buyers for national and global markets have been increasingly identified as an interesting alternative to farmers as effective intermediary mechanisms. “
The e-commerce platform can be a new intermediate system. The platform not only can line up the farmers with the faraway market, but also settle the payment even in cross-border trade. If the platform supports block chain and smart contract, it can also provide some kind of financial support and insurance service to the farmers. This platform can encourage the small farmland farmers to invest not only money, but also time in utilizing the smart technology.