Rural Non Farm Employment

1
Rural Non Farm Employment getting the jobs done

• Joachim von Braun
• Director General
• International Food Policy Research Institute
• Grupo de Análisis para el Desarrollo (GRADE) y
  Seminario Permanente de Investigación Agrícola
  (SEPIA)
• Lima, April 24th 2006

2
Overview

• Definition and conceptual issues
• Dimensions and change
• On linkages (of various types)
• Policy considerations

3
Creating Employment high on the global policy
agenda 2005/6

• The 2005 World Summit
• Strong support for fair globalization and
  resolve to make the goals of full and productive
  employment and decent work for all
• Promoting womens equal access to labor markets,
  sustainable employment and adequate labor
  protection
• Davos 2006 World Economic Forum
• Employment is one of the top themes

4
Unemployment ratesby region, 1995-2004 ()
Source Tarantino 2003
5
But where, for whom, how to create employment?

• Urban ? Rural ?
• City? Town? Village?
• Women ? Men? Youth? Children?
• Services? Industries? Agriculture?
• Private ? Public actions ?
• Skills ? Education?
• Finance ? Credit ?
• Innovation ? Technology? Infrastructure ?

6
Definition of rural non farm employment

• Rural Non-Farm Employment (RNFE)?
• Defining by exclusion? Non-farm
• Mixing sectors and spatial geography Rural
• Its not a sector, but a segment of the economy
• Operationally not helpful
• Alternative employment in services and
  industries in rural areas (ESIRA)

7
General Characteristics of RNFE

• Surveys suggest RNFE accounts for approx. 25 of
  full time rural employment in developing
  countries (global estimate 19)
• RNFE is a diverse set of activities, services are
  2-3 times more important than manufacturing
• RNF income share has increased over time
• Source Haggblade, Hazell and Reardon 2005

8
General Characteristics of RNFE (Contd)

• Although most RNFE firms are small, large firms
  dominate many activities and often have strong
  market-chain links to small firms
• Much RNFE clusters in small towns and market
  centers to access markets and capture economies
  of scale and agglomeration
• Much RNFE outputs are non-tradable and are
  consumed within their producing regions.
• Source Haggblade, Hazell and Reardon 2005

9
Overview

• Definition and conceptual issues
• Dimensions and change
• On Linkages (of various types)
• Policy considerations

10
Big picture on population and employment 2005
2020 (Shares)
Population Population Employment Employment Employment Employment
Urban Rural Agriculture Services Industry Rural serv. ind.
2005 49 51 32 44 24 19

2020 56 44 16 57 27 28

Source authors calculations based on Tarantino
2005, UN World Population Prospects and ILO Labor
Statistics Database
11
Big Picture on global employment 2005 2020
(Billions)
Farm ESI-Rural Areas ESI-Urban Areas Total
2005 0.9 0.6 1.5 3.0
2020 0.6 1.0 1.9 3.5
Change 2005-2020 - 0.3 0.4 0.4 0.5
Source authors calculations based on Tarantino
2005, UN World Population Prospects and ILO Labor
Statistics Database
12
Facts about Rural Non Farm Employment in Latin
America

• Evidence from Latin America shows that
• The great majority of RNF income in LAC is earned
  in the service sector and in wage employment.
• The share and level of RNF income rises with
  household incomes.
• The share of RNF income drops as landholdings
  increase.
• Landless tend to earn considerable non farm
  income and rely strongly on it.
• Sources Reardon, Berdegué and Escobar 2001,
  Dirven 2004 and IDB/FAO/ECLAC/RIMISP 2004

13
Rural Non Farm Employment in Latin America
Early 1990s Early 1990s Late 1990s Late 1990s
Men Women Men Women
Bolivia 18 16
Brazil 26 47 24 30
Chile 19 67 26 65
Colombia 31 71 33 78
Costa Rica 48 87 57 88
El Salvador 33 81
Honduras 19 88 21 84
Mexico 35 69 45 67
Panama 25 86 46 93
Dominican Republic 55 92
Venezuela 34 78 35 87
Source Reardon, Berdegué and Escobar 2001
14
Labor allocation of Peruvian rural households
1985-86 1997
Self-employment 90.4 90.5
Agricultural activities 75.8 64.7
Non Agricultural activities 14.6 25.8

Wage employment 9.6 9.5
Agricultural activities 4.3 4.8
Non Agricultural activities 4.3 4.7
Source Escobal 2001
15
How many farms in the world?
Farm Size (ha) of all farms Number of farms (millions)
lt 2 85 387.24
2 - 10 12 54.05
10 - 100 2.7 12.51
gt 100 0.5 2.28
Total 100 456.07
Source Von Braun 2003, derived from national
data and FAO World Agricultural Census, various
years
16
Non farm share of rural income
Region Average Share
Latin America 40
Africa East and South Africa West Africa 42 45 36
Asia East Asia South Asia 32 35 29
Source Reardon et al. 1998
17
Rural Non Farm Income in Latin America
Share of RNFI in rural incomes (mid and late 1990s)
Weighted average 40
Peru 50
Brazil 39
Chile 41
Colombia 50
Costa Rica 59
Ecuador 41
El Salvador 38
Haiti 68
Honduras 22
Mexico 55
Nicaragua 42
Panama 50
Source Reardon, Berdegué and Escobar 2001,
Dirven 2004
18
Overview

• Definition and conceptual issues
• Dimensions and change
• On Linkages (of various types)
• Policy considerations

19
1. Agricultural growth linkages powerful but
changing

• Agriculture linkages
• Production linkages - forward (outputs)
• Production linkages - backward (factor markets
  and inputs)
• Consumption linkages household items,
  transportation, services most powerful ones

20
Regional income multipliers from agricultural
growth typical magnitudes

• Asia 1.6 1.9
• (each additional 1 of income generated in
  agriculture leads to another .6 to .9 of income
  in the local RNFE)
• Africa 1.3 - 1.5
• Latin America 1.4 1.6
• Source Haggblade, Hazell and Reardon 2005

21
Agricultural growth multipliers

• Consumption linkages dominate typically account
  for 70 - 80 of the total multiplier
• Rural services and commerce account for the
  majority of rural nonfarm linkages
• Why are multipliers weaker in Africa?
• low use of purchased inputs
• more poorly developed rural towns and
  agro-industry
• higher transport costs

22
2. Challenging linkages to agro-processing and
retail industry

• Shrinking farms
• Growing food processors
• Even more growing retailers
• Rural-to-urban job exports?
• Rural industrialization?
• Rural urbanization?

23
Farm Size by World Regions
World Region Average Farm Size (ha)
Africa 1.6
Asia 1.6
Latin America and Caribbean 67.0
Europe 27.0
North America 121.0
Source Calculated from FAO World Agricultural
Census, various years
24
Consolidation in retail and processing
Shrinking share of the bottom

• Expanding share of supermarkets and processing
  firms in food markets of developing countries

Supermarkets share of retail Supermarkets share of retail Supermarkets share of retail Supermarkets share of retail
Past Present Growth Rate
China 0.18 (1994) 11.2 (2001) 30-40
India (organized) 0.7 (1999) 3.2 (2005 projected) 24-49 (2003-8 projected)
Argentina 35 (1990) 57 (2000) 15-27 (1994-9)
Indonesia 16.7 (1999) 21.1 (2002) 11
Guatemala 15 (1994) 35 (2000)
Source China Hu et al 2005, India Chengappa
2005, Euromonitor 2004, Argentina Gutnam 2002,
Indonesia GAIN Report 2003, Guatemala Reardon
et al 2002
25
The dynamics of linkages Between farms and food
industries
Fragmentation in farming
Consolidation of retail processing FDI
influence (China 40 retail growth after FDI
entry in 1992)
Emerging mutual need for linkages
Shrinking bottom
Expanding bottom Increasing share of small
holders
Forward pyramid Retailers/ processors
Farmers pyramid
Source Gulati 2005
26
3. Services and industry linkages

• Finance and credit
• Insurance services in rural areas (facilitating
  more risky employment)
• Infrastructure (transport, communications)

27
4. Human capital conditioned employment linkages

• Nutrition
• Health
• Education (and, for instance, child labor)

28
Overview

• Definition and conceptual issues
• Dimensions and change
• On Linkages (of various types)
• Policy considerations

29
What policy makers want

• Policy makers - facing elections - want to
  create jobs
• Pro-poor growth is not enough for policy
  makers, if it does not include broad based job
  creation
• pro-jobs growth ?
• A challenge for sound development policy !
• May be a threat to market oriented policies ?

30
The range of actions for rural employment

1. Broad based market oriented (growth) policies
2. Investments in public goods for rural employment
   facilitation
3. Labor market regulations
4. Public employment (works) programs

31
High Diversity of policies strategies to
create employment to be expected

• Approaches will be determined by
• Structural realities (assets income levels)
• Political power of labor (urban, rural)
• Knowledge base for policy formulation and
  implementation
• Market functioning
• Initial conditions

32
What where? (1) Strategies in remote areas

• Emphasis on small scale agriculture that will
  fuel the diversification of the rural economy.
• Investments in
• Roads
• Electricity and telecommunications at local
  levels
• Education and health
• Activation of financial and land markets

33
What where? (2) Strategies in agriculturally
prosperous areas

• Rural enterprises often involve overlapping
  institutional activities
• Sub-contracting
• Sub-sectoral promotion
• Clustering
• Scope for Public Private Partnerships

34
Employment for poverty reduction Linkages and
program concerns
Employment

• EMPLOYMENT PROGRAMS
• Program choices
• Implementation choices

• RESOURCES
• Capital
• Labor
• (Food-) cash
• Wages
• Organizations

Household Income and Risk Insurance
Assets
Source Adapted from von Braun 1995
35
Re-run of Public Employment Programs a
comeback?

• Not to be re-invented, but to be adapted
• Decentralization of gov. in the past 20 years can
  help better implementation now
• Role of community versus households in targeting
  (Africa)
• In need of innovations in program design (e.g
  combinations with conditional transfer programs?)
• Scope for experimentation and scaling up (the
  Chinese experience may matter for others)

36
Conclusions so where, for whom, how to
create employment?

1. Urban ? Rural ?
2. City? Town? Village?
3. Women ? Men? Youth? Children?
4. Services? Industries? Agriculture?
5. Private- ? Public actions ?
6. Skills ? Education?
7. Finance ? Credit ?
8. Innovation ? Technology? Infrastructure ?

37
Ways forward to expand non-farm rural employment

1. Strategies but not general prescriptions
2. New approaches for (public-private) partnerships
3. Rural-urban linkages (ICT, infrastructure)
4. Strengthened local government
5. RNFE policy is knowledge intensive, filling the
   knowledge gaps requires multi-sector, spatial,
   and institutional data frameworks
6. Sound research on RNFE ESIRA