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close this bookBriefs for Food, Agriculture, and the Environment - 2020 Vision : Brief 1 - 64 (IFPRI)
View the document(introduction...)
View the document2020 BRIEF 1 - AUGUST 1994: ECONOMIC GROWTH AND DEVELOPMENT
View the document2020 BRIEF 2 - AUGUST 1994: WORLD SUPPLY AND DEMAND PROJECTIONS FOR CEREALS, 2020
View the document2020 BRIEF 3 - AUGUST 1994: WORLD PRODUCTION OF CEREALS, 1966-90
View the document2020 BRIEF 4 - AUGUST 1994: SUSTAINABLE FARMING: A POLITICAL GEOGRAPHY
View the document2020 BRIEF 5 - OCTOBER 1994: WORLD POPULATION PROJECTIONS, 2020
View the document2020 BRIEF 6 - OCTOBER 1994: MALNUTRITION AND FOOD INSECURITY PROJECTIONS, 2020
View the document2020 BRIEF 7 - OCTOBER 1994: AGRICULTURAL GROWTH AS A KEY TO POVERTY ALLEVIATION
View the document2020 BRIEF 8 - OCTOBER 1994: CONSERVATION AND ENHANCEMENT OF NATURAL RESOURCES
View the document2020 BRIEF 9 - FEBRUARY 1995: THE ROLE OF AGRICULTURE IN SAVING THE RAIN FOREST
View the document2020 BRIEF 10 - FEBRUARY 1995: A TIME OF PLENTY, A WORLD OF NEED: THE ROLE OF FOOD AID IN 2020
View the document2020 BRIEF 11 - FEBRUARY 1995: MANAGING AGRICULTURAL INTENSIFICATION
View the document2020 BRIEF 12 - FEBRUARY 1995: TRADE LIBERALIZATION AND REGIONAL INTEGRATION: IMPLICATIONS FOR 2020
View the document2020 BRIEF 13 - APRIL 1995: THE POTENTIAL OF TECHNOLOGY TO MEET WORLD FOOD NEEDS IN 2020
View the document2020 BRIEF 14 - APRIL 1995: AN ECOREGIONAL PERSPECTIVE ON MALNUTRITION
View the document2020 BRIEF 15 - APRIL 1995: AGRICULTURAL GROWTH IS THE KEY TO POVERTY ALLEVIATION IN LOW-INCOME DEVELOPING COUNTRIES
View the document2020 BRIEF 16 - APRIL 1995: DECLINING ASSISTANCE TO DEVELOPING-COUNTRY AGRICULTURE: CHANGE OF PARADIGM?
View the document2020 BRIEF 17 - MAY 1995: GENERATING FOOD SECURITY IN THE YEAR 2020: WOMEN AS PRODUCERS, GATEKEEPERS, AND SHOCK ABSORBERS
View the document2020 BRIEF 18 - MAY 1995: BIOPHYSICAL LIMITS TO GLOBAL FOOD PRODUCTION
View the document2020 BRIEF 19 - MAY 1995: CAUSES OF HUNGER
View the document2020 BRIEF 20 - MAY 1995: CHINA AND THE FUTURE GLOBAL FOOD SITUATION
View the document2020 BRIEF 21 - JUNE 1995: DEALING WITH WATER SCARCITY IN THE NEXT CENTURY
View the document2020 BRIEF 22 - JUNE 1995: THE RIGHT TO FOOD: WIDELY ACKNOWLEDGED AND POORLY PROTECTED
View the document2020 BRIEF 23 - JUNE 1995: CEREALS PROSPECTS IN INDIA TO 2020: IMPLICATIONS FOR POLICY
View the document2020 BRIEF 24 - JUNE 1995: REVAMPING AGRICULTURAL R&D
View the document2020 BRIEF 25 - AUGUST 1995: MORE THAN FOOD IS NEEDED TO ACHIEVE GOOD NUTRITION BY 2020
View the document2020 BRIEF 26 - AUGUST 1995: PERSPECTIVES ON EUROPEAN AGRICULTURE IN 2020
View the document2020 BRIEF 27 - AUGUST 1995: NONDEGRADING LAND USE STRATEGIES FOR TROPICAL HILLSIDES
View the document2020 BRIEF 28 - AUGUST 1995: EMPLOYMENT PROGRAMS FOR FOOD SECURITY IN SUB-SAHARAN AFRICA
View the document2020 BRIEF 29 - AUGUST 1995: POVERTY, FOOD SECURITY, AND THE ENVIRONMENT
View the document2020 BRIEF 30 - JANUARY 1996: RISING FOOD PRICES AND FALLING GRAIN STOCKS: SHORT-RUN BLIPS OR NEW TRENDS?
View the document2020 BRIEF 31 - APRIL 1996: MIDDLE EAST WATER CONFLICTS AND DIRECTIONS FOR CONFLICT RESOLUTION
View the document2020 BRIEF 32 - APRIL 1996: THE TRANSITION IN THE CONTRIBUTION OF LIVING AQUATIC RESOURCES TO FOOD SECURITY
View the document2020 BRIEF 33 - JUNE 1996: MANAGING RESOURCES FOR SUSTAINABLE AGRICULTURE IN SOUTH ASIA
View the document2020 BRIEF 34 - JUNE 1996: IMPLEMENTING THE URUGUAY ROUND: INCREASED FOOD PRICE STABILITY BY 2020?
View the document2020 BRIEF 35 - JULY 1996: SOCIOPOLITICAL EFFECTS OF NEW BIOTECHNOLOGIES IN DEVELOPING COUNTRIES
View the document2020 BRIEF 36 - OCTOBER 1996: RUSSIA'S FOOD ECONOMY IN TRANSITION: WHAT DO REFORMS MEAN FOR THE LONG-TERM OUTLOOK?
View the document2020 BRIEF 37 - OCTOBER 1996: UNCOMMON OPPORTUNITIES FOR ACHIEVING SUSTAINABLE FOOD AND NUTRITION SECURITY - An Agenda for Science and Public Policy
View the document2020 BRIEF 38 - OCTOBER 1996: WORLD TRENDS IN FERTILIZER USE AND PROJECTIONS TO 2020
View the document2020 BRIEF 39 - OCTOBER 1996: REDUCING POVERTY AND PROTECTING THE ENVIRONMENT: THE OVERLOOKED POTENTIAL OF LESS-FAVORED LANDS
View the document2020 BRIEF 40 - OCTOBER 1996: POLICIES TO PROMOTE ENVIRONMENTALLY SUSTAINABLE FERTILIZER USE AND SUPPLY TO 2020
View the document2020 BRIEF 41 - DECEMBER 1996: STRUCTURAL CHANGES IN THE DEMAND FOR FOOD IN ASIA
View the document2020 BRIEF 42 - MARCH 1997: AFRICA'S CHANGING AGRICULTURAL DEVELOPMENT STRATEGIES
View the document2020 BRIEF 43 - JUNE 1997: THE POTENTIAL IMPACT OF AIDS ON POPULATION AND ECONOMIC GROWTH RATES
View the document2020 BRIEF 44 - JUNE 1997: LAND DEGRADATION IN THE DEVELOPING WORLD: ISSUES AND POLICY OPTIONS FOR 2020
View the document2020 BRIEF 45 - JUNE 1997: AGRICULTURE, TECHNOLOGICAL CHANGE, AND THE ENVIRONMENT IN LATIN AMERICA: A 2020 PERSPECTIVE
View the document2020 BRIEF 46 - JUNE 1997: AGRICULTURE, TRADE, AND REGIONALISM IN SOUTH ASIA
View the document2020 BRIEF 47 - AUGUST 1997: THE NONFARM SECTOR AND RURAL DEVELOPMENT: REVIEW OF ISSUES AND EVIDENCE
View the document2020 BRIEF 48 - FEBRUARY 1998: CHALLENGES TO THE 2020 VISION FOR LATIN AMERICA: FOOD AND AGRICULTURE SINCE 1970
View the document2020 BRIEF 49 - APRIL 1998: NUTRITION SECURITY IN URBAN AREAS OF LATIN AMERICA
View the document2020 BRIEF 50 - JUNE 1998: FOOD FROM PEACE: BREAKING THE LINKS BETWEEN CONFLICT AND HUNGER
View the document2020 BRIEF 51 - JULY 1998: TECHNOLOGICAL OPPORTUNITIES FOR SUSTAINING WHEAT PRODUCTIVITY GROWTH TOWARD 2020
View the document2020 BRIEF 52 - SEPTEMBER 1998: PEST MANAGEMENT AND FOOD PRODUCTION: LOOKING TO THE FUTURE
View the document2020 BRIEF 53 - OCTOBER 1998: POPULATION GROWTH AND POLICY OPTIONS IN THE DEVELOPING WORLD
View the document2020 BRIEF 54 - OCTOBER 1998: FOSTERING GLOBAL WELL-BEING: A NEW PARADIGM TO REVITALIZE AGRICULTURAL AND RURAL DEVELOPMENT
View the document2020 BRIEF 55 - OCTOBER 1998: THE POTENTIAL OF AGROECOLOGY TO COMBAT HUNGER IN THE DEVELOPING WORLD
View the document2020 RESUMEN No. 56 - OCTUBRE DE 1998: AYUDA A LA AGRICULTURA EN LOS PAÍSES EN DESARROLLO: INVERSIONES EN LA REDUCCIÓN DE LA POBREZA Y NUEVAS OPORTUNIDADES DE EXPORTACIÓN
View the document2020 BRIEF 57 - OCTOBER 1998: ECONOMIC CRISIS IN ASIA: A FUTURE OF DIMINISHING GROWTH AND INCREASING POVERTY?
View the document2020 BRIEF 58 - FEBRUARY 1999: SOIL DEGRADATION: A THREAT TO DEVELOPING-COUNTRY FOOD SECURITY BY 20207
View the document2020 BRIEF 59 - MARCH 1999: AGRICULTURAL GROWTH, POVERTY ALLEVIATION, AND ENVIRONMENTAL SUSTAINABILITY: HAVING IT ALL
View the document2020 BRIEF 60 - MAY 1999: CRITICAL CHOICES FOR CHINA'S AGRICULTURAL POLICY
View the document2020 BRIEF 61 - MAY 1999: LIVESTOCK TO 2020: THE NEXT FOOD REVOLUTION
View the document2020 BRIEF 62 - OCTOBER 1999: NUTRIENT DEPLETION IN THE AGRICULTURAL SOILS OF AFRICA
View the document2020 BRIEF 63 - NOVEMBER 1999: PROSPECTS FOR INDIA'S CEREAL SUPPLY AND DEMAND TO 2020
View the document2020 BRIEF 64 - FEBRUARY 2000: OVERCOMING CHILD MALNUTRITION IN DEVELOPING COUNTRIES: PAST ACHIEVEMENTS AND FUTURE CHOICES
View the document2020 BRIEF 65 - MARCH 2000: COMBINING INTERNAL AND EXTERNAL INPUTS FOR SUSTAINABLE INTENSIFICATION

2020 BRIEF 47 - AUGUST 1997: THE NONFARM SECTOR AND RURAL DEVELOPMENT: REVIEW OF ISSUES AND EVIDENCE

Nurul Islam

Nurul Islam is a research fellow emeritus in the director general's office at the International Food Policy Research Institute.

In most developing countries, the rural labor force is growing rapidly, but employment opportunities are not keeping pace. As land available for expansion of agriculture becomes increasingly scarce, nonfarm employment must expand if deepening rural poverty is to be avoided. Policymakers and analysts alike look to the nonfarm sector to increase rural employment, contribute to economic growth, improve income distribution, and alleviate poverty. Expanding opportunities in rural areas outside of agriculture also may help stem the migration of rural dwellers to the cities and slow the spread of urban congestion and pollution. At any feasible pace of growth of large-scale industrialization, urban industries are unlikely to absorb the rapidly increasing labor force. Therefore, it is up to the more labor-intensive rural nonfarm sector to absorb excess labor, promote economic growth, and diversify income sources.

To make good policy decisions, policymakers need firm information about the nonfarm rural sector. The definition of rural varies from one region to another, as does the definition of rural nonfarm activities. The rural nonfarm sector usually includes manufacturing, trade, construction, transportation, communications, and services; some data sources also include income earned by rural family members who commute to jobs in nearby cities and remittances from family members who live and work in cities within the country and abroad.

The percentage of rural workers employed in the nonfarm sector averages 20-50 percent but varies from one country to another. During 1970-90 in Asia the share of nonfarm employment in rural employment ranged from a high of 67 percent in Taiwan to a low of 20 percent in China; in Africa, the largest share was 60 percent and the smallest 5 percent. In general, the richer the household and the larger the landholding, the smaller the share of nonagricultural income and employment in the household's total employment and income.

DEMAND AND SUPPLY: THE PUSH-PULL FACTOR

Demand for the goods and services produced by the rural non-farm sector is derived from several sources: farm households' demand for consumer goods, their demand for inputs and implements to use in agricultural production, and the urban sector's demand for consumer goods and processed agricultural goods. The response of the nonfarm sector to the demand for its goods and services depends on the availability of labor, access to capital or credit, availability of infrastructure, and access to technology, including production technology and marketing techniques.

As incomes rise in the farming sector, farm households demand more goods from the nonfarm sector. Small- and medium-sized farm households, on average, devote a higher share of their budgets to nonfarm consumption goods than larger farms do. As agricultural production increases, it generates demand for inputs such as seed, water, and fertilizer and for farm implements produced by the nonfarm sector. The need to process food and agricultural raw materials also stimulates rural nonfarm activities.

Increased employment in the nonfarm sector can be associated with either a stagnant or a progressive agriculture sector: Sometimes nonfarm employment is a way out of unproductive agriculture rather than a response to an expansion of agriculture. For example, many workers in semi-arid zones of western India, where off-farm employment opportunities are limited, have migrated elsewhere or commute to urban areas to work. In this case, workers are being pushed into the nonfarm sector, not pulled by dynamic rural nonfarm opportunities.

The rural nonfarm sector, especially rural industry, not only interacts with agriculture but also has strong ties to the urban sector. While some rural, small-scale industries compete with urban industries, others have a complementary relationship: they produce components for the products of the urban industries or assemble or finish their products. At the same time, urban areas may also provide a market for the products of rural industries.

But household industries - often carried out with part-time family labor - tend to decline when they compete with better organized, small-scale industries in local towns or large-scale urban industries that enjoy the advantages of economies of scale and agglomeration. In other words, when several enterprises of the same type locate close together, they may benefit from an exchange of technical information and from lower costs of inputs to production. Studies have shown that enterprises in small towns tend to grow faster than those in outlying areas. One way that governments can encourage the development of agglomerations of nonfarm enterprises outside of megacities is by providing infrastructure to industrial areas.

THE ROLES OF INFRASTRUCTURE, EDUCATION, AND CREDIT

Infrastructure development, higher levels of education, and increased access to credit are all factors that contribute to the growth of the rural nonfarm sector. The expansion of roads, transport, and communications infrastructure leads to specialization and division of labor by rural households. It promotes the development of a trade, marketing, and distribution network, including subcontracting arrangements linking farm and nonfarm sectors to local towns or big cities. When rural enterprises can readily obtain materials and market their products outside of local areas, labor costs become the dominant factor in their location.

The expansion of transport and communication facilities linking the rural sector with the cities may also have a negative impact on the rural nonfarm sector. As rural areas become more accessible, competition from cheaper urban or imported products and changes in rural consumption patterns may also result. On balance, however, the net effect of improved infrastructure is beneficial because it stimulates the growth of an efficient and competitive rural sector.

Education - primary and secondary - promotes the growth of the rural nonfarm sector. Literacy enhances the productivity of the workforce and makes it easier to master skills provided through on-the-job training. Secondary education stimulates entrepreneurial capacity. In developing countries, an entrepreneur with an elementary education can expect to earn an income 41 percent higher than one with no education at all.

In spite of new sources of credit, such as credit programs and cooperatives often sponsored by nongovernment organizations (NGOs), the nonfarm sector is still experiencing credit constraints. For example, in Bangladesh, 72 percent of households engaged in manufacturing, 59 percent of households engaged in trade and services, and 54 percent engaged in transport reported that they suffered from credit constraints at current costs of credit.

THE ROLE OF GOVERNMENT

If local government institutions have decisionmaking powers and adequate financial resources, they can help promote the growth and vitality of the rural nonfarm sector. In some East Asian countries, local governments have supplied seed capital and managerial expertise, thus shouldering the initial risks of new ventures. Once established, these ventures become small, private enterprises.

Economywide policies such as trade, exchange rate, and general regulatory policies and sector-specific policies such as credit or technical assistance can stimulate the nonfarm sector. In a regime of state control or regulation of imported inputs or foreign exchange and licensing of enterprises, large-scale urban enterprises with easier access to urban-based decision-making authorities have an advantage over small, rural enterprises. Deregulation reduces this advantage. Import liberalization is also likely to improve the relative position of small-scale enterprises since the large-scale industries are more likely to be adversely affected by import-competing products. Layoffs of workers or a fall in their wages resulting from the privatization and deregulation of large public enterprises may stimulate the small-scale enterprises to absorb the lower-priced labor or encourage redundant public-sector employees to start small rural industries.

In the past, technical assistance to the nonfarm sector for training in management, accounting, and marketing has largely been generic: retail trade, services, and industrial enterprises all received the same kind of assistance. Instead, assistance should be customized to meet the needs of a particular enterprise or a group of enterprises providing the same or similar products. For example, public-sector assistance can be linked to government procurement of products and supplies (in many countries, the government accounts for a large portion of market demand).

REMAINING POLICY QUESTIONS

A number of questions must be addressed regarding the evolving nature and future role of the nonfarm sector in developing countries. For example, more empirical analysis is needed on the relative roles and future prospects of nonfarm activities. More evidence is needed on the extent to which employment in the nonfarm sector is the result of a push from stagnant agriculture, rather than a pull from the nonfarm sector. Again, to what extent is the distribution of gains from agricultural growth among farms related to the strength of the intersectoral linkages between the farm and the rural nonfarm sector? How can a decentralized pattern of large-scale industrialization that can stimulate rural economic activities best be promoted? Is the location of small and medium industries in proximity to large urban centers essential for rapid growth in subcontractual arrangements? What institutional arrangements are necessary to enforce contracts between subcontracting enterprises and contractors? How important is public policy for provision of credit to the nonfarm sector? What are the best ways to provide effective technical assistance? How successful are tax incentives and industrial estates in encouraging rural industry? To what extent and under what circumstances does local government help promote the rural nonfarm sector? What role should NGOs play? Answers to all of these questions must be found if the rural nonfarm sector is to fulfill its promise by 2020.