Livelihoods Diversification and Enterprise Development · Agricultural Intensification and Rural...

LSP Working Paper 4 Livelihoods Diversification and Enterprise Development Sub-Programme

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

Livelihood Support Programme (LSP) An inter-departmental programme for Improving support for enhancing livelihoods of the rural poor.

Livelihoods Diversification and Enterprise Development

An Initial Exploration of Concepts and Issues

Patrizio Warren

December 2002

Livelihoods Diversification and Enterprise Development An Initial Exploration of Concepts and Issues

Patrizio Warren

December 2002

Cover photograph from FAO Photo-library

This paper was prepared under contract with the Food and Agriculture Organization of the United Nations (FAO). The positions and opinions presented are those of the author alone, and are not intended to represent the views of FAO.

Livelihoods diversification and enterprise development

The Livelihood Support Programme The Livelihood Support Programme (LSP) evolved from the belief that FAO could have a greater impact on reducing poverty and food insecurity, if its wealth of talent and experience were integrated into a more flexible and demand-responsive team approach. The LSP works through teams of FAO staff members, who are attracted to specific themes being worked on in a sustainable livelihoods context. These cross-departmental and cross-disciplinary teams act to integrate sustainable livelihoods principles in FAO’s work, at headquarters and in the field. These approaches build on experiences within FAO and other development agencies. The programme is functioning as a testing ground for both team approaches and sustainable livelihoods principles. More information on the LSP is to be found on the last page of this document. Email: [email protected]

The Livelihoods Diversification & Enterprise Development The Livelihoods Diversification and Enterprise Development sub-programme The LDED sub-programme was launched in 2002 with the aim of improving the effectiveness of FAO in addressing the needs and interests of poorer people in livelihood diversification programmes and projects. Specific objectives of the LDED are:

a) to identify and appraise circumstances, inhibiting and enabling factors, and approaches supporting livelihoods diversification and enterprise development; b) to catalyze and facilitate use of innovative practices for supporting livelihoods diversification in a range of circumstances; c) to increase inter-disciplinarity and learning in FAO and partner agencies for supporting livelihoods diversification and enterprise development.

The LDED will add value to FAO’s regular programme and projects by addressing issues which enhance or inhibit livelihoods diversification and enterprise development with a particular focus on addressing obstacles and promoting opportunities for marginalized and vulnerable people. The sub-programme will capitalize on existing FAO strengths, knowledge and methods related to LDED in addition to identifying and addressing gaps in FAO’s regular programmes and project work relating to livelihoods diversification and enterprise development. Email: [email protected]

An initial exploration of concepts and issues

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Table of Contents

Livelihoods Diversification and Enterprise Development 1. Introduction 1 2. Rural Livelihoods Strategies and Diversity 2 3. Agricultural Intensification and Rural Livelihood Diversification 3

3.1 Agricultural Intensification 3 3.2 Rural Livelihoods Diversification 4

4. Household Determinants of Livelihood Diversification Choices 5

4.1 Availability of Key-Assets 5 4.2 Maximization of Return Per Unit of Labour 5 4.3 Risk management 5 4.4 Strengthening the house asset basis 6 4.5 Opportunities 6 4.6 Identity and vision of the future 6 4.7 Gender relationships 6

5. Basic alternatives in rural livelihood diversification 7 6. Rural enterprise and wage-labor compared 9 7. Small enterprise development and sustainable rural livelihoods 10 References 13


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1. Introduction Until the early 90s, mainstream development policies have addressed the improvement of rural livelihoods in two complementary manners. On one hand, incentives and assistance have been made available to increase small farming outputs through Green Revolution technology; on the other hand, following the “industry first” imperative, employment opportunities have been created to transfer rural labor surplus outside small-scale farming. Both policies were rooted in a representation of development as an increase in absolute economic growth made possible by intensification of production, economy of scale and market expansion (Escobar 1995). This approach has resulted only partially successful. Though the prevalence of hunger and poverty in rural areas of most regions (except Africa) has significantly decreased over the last forty years, it is estimated that at the end of the millennium about 800 million rural people were still affected by undernourishment and more than 1.2 billion lived below the international poverty line (Dixon, Gulliver and Gibbon 2001). Moreover, since the late 80s, a growing body of evidence has been produced indicating that unsustainable development has often implied unbearable environmental and social costs for both developed and developing countries. Following these considerations and experiences carried out in previous decades, a major shift in rural development paradigm has taken place during the 90s. Equity and sustainability have been added to economic growth as major focuses of policies and increasing attention has been paid to rural people’s spontaneous adaptation to socio-economic change. By advocating a re-valorization of the contribution that people’s coping behavior can give to sustainable development and by calling policy makers attention to the need for a more equitable distribution of resources and opportunities, the concept of sustainable livelihoods (Chambers and Conway 1991) epitomizes this shift. Indeed, sustainable livelihood security (that includes food security) is nowadays increasingly seen as a promising strategy to address the challenges of the 21st century. Roughly in the same period, the debt crisis and the subsequent structural re-adjustment policies have stopped the flow of governmental subsidies that made it possible for small farmers to take part in the Green Revolution. The “human face” counterpart of such withdrawal of public assistance to small farming has often take the shape of people-oriented local development policies aimed at stimulating participatory, proactive and entrepreneurial behaviors among farmers. Under favorable circumstances, these policies have led to the enhancement rural household capability to identify and exploit market niches for agricultural and non-agricultural commodities and services and amenities that can be efficiently (and sustainably) produced by micro rural enterprises (e.g. Orsini 2000). Moreover, new rural social movements have incorporated small-scale production of “organic”, “green”, or “typical” goods in their strategies to sustain local identity claims (e.g. Désmarais 2002). These trends have contributed in making development professionals increasingly aware of the role that small rural enterprises can play in enhancing rural livelihood security and decreasing some negative externalities of economic growth (environmental impact, urban migration, social and cultural disruption). Recent research has addressed the development of small rural enterprises in the framework of a more comprehensive analysis of the way in which agricultural intensification and off-farm


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diversification have combined each other in orienting rural people adaptive response to short-and long-term environmental, economic-political and socio-cultural change. This approach seems very promising to disentangle some factors involved in making viable and successful the promotion of small rural enterprises as a means to achieve more sustainable rural livelihoods. This paper will summarize and discuss in brief some of the issues arising from this body of research.

2. Rural livelihoods strategies and diversity According to sustainable livelihoods research, diversity (i.e. the exploitation of multiple assets and sources of revenue) is an intrinsic attribute of many rural livelihood strategies1. This assumption is consistent with findings of anthropological studies on the household economy of pre-industrial peasant societies, as well with the concept of “integration” which (along with participatory methods) inspires the farming system approach. Indeed, until the beginning of the development era, the majority of rural population in both developed and developing countries has survived and reproduced by growing a mix of staple and cash crops, keeping some livestock, fishing, and gathering forest products. Subsistence production, aimed at meeting food needs, combined with selling of small surpluses on the local market (including often labor surpluses). The latter was instrumental to access the manufactured goods and other commodities that can not be produced by the household, as well as to pay taxes and ceremonial expenses (Wolf 1966). Following some insights that Russian agronomist A.V. Chayanov developed in 1920s and 1930s (Chayanov 1966), anthropologists tend to agree that such diverse production patterns were instrumental to the attainment of the basic economic goals of pre-industrial rural households: maintenance of consumption standards, creation of conditions for future reproduction and avoidance of drudgery (Sahlins 1972; Scott 1976). Though pockets of people practicing the pre-industrial mode of production may continue to exist in remote areas of the world, this livelihood strategy has entered during the last fifty years into major straits. Well known driving factors of this crisis include: • population growth and the subsequent progressive shrinking of land holdings size and

environmental degradation; • the incorporation of rural areas into national markets and the increased vertical integration

of farmers’ household in national economy;

1 According to DFID’s sustainable livelihoods glossary the term livelihood strategies denotes: “the range and combination of activities and choices that people make in order to achieve their livelihood goals. Livelihood strategies include: how people combine their income generating activities; the way in which they use their assets; which assets they chose to invest in; and how they manage to preserve existing assets and income. Livelihoods are diverse at every level, for example, members of a household may live and work in different places engaging in various activities, either temporarily or permanently. Individuals themselves may rely on a range of different income-generating activities at the same time” (DFID 2001).


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• the subsequent decrease of the relative importance of small farmers as producers of agricultural commodities, due to the expansion of capital intensive agriculture and globalization of the world food market;

• the growing (though somehow erratic) demand for both agricultural and industrial wage

labor; • the massive diffusion of new agricultural technologies and of transport/communication

facilities; • structural readjustment policies which decreases the availability of public support to small-

scale agriculture and often make access to new technologies and information less affordable to small farmers;

• the emergence among rural people of new social needs (education, modern health care,

technological commodities); • the increasing importance of cash transactions in rural household economies that all the

above imply. Under the thrust of this major evolutionary process and following the appeal of modernizing policies aimed at integrating the rural areas in the mainstream of national society and economy, during the on going “development era”, rural people have been urged to progressively re-arrange their traditional livelihood portfolio. Activities no longer economically and socially viable have been replaced with new ones better suiting the context of a more mature market economy. Moreover, “industrial” organizational patterns (such as, contract farming) have been introduced into the rural household economy, giving often birth to hybrid livelihood strategies. 3. Agricultural intensification and rural livelihood diversification Intensification of agricultural production or diversification of income sources have been the two most widespread adaptations of rural people to the crisis of traditional livelihood strategies. These two responses are not mutually exclusive: contemporary rural livelihood strategies can include elements of both or shift from one to the other in different points in time. Notwithstanding it is analytically useful to contrast some of their respective attributes. 3.1 Agricultural intensification Agricultural intensification refers to the use of a greater amount of non-land resources (labor, inputs, etc.) for a given land area, so that a higher output is produced (Hussein and Nelson 1999). It generally focuses on the increased production of crops and agricultural commodities best suiting the agro-ecological conditions of the region and the farm and existing market outlets. Intensification often consists in the replacement of traditional crops or agricultural commodities with new high yield varieties, requiring improved technology. However,


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sometimes intensification takes the shape of an initial diversification move: new varieties and technologies are incorporated in the traditional agricultural commodities mix on an experimental basis. If the experiment proves successful, farmers may decide to invest increasing amount of land, labor and other assets in the cultivation of the new and more remunerative variety. In both cases, agricultural intensification may lead to a decreased diversity of the farm outputs and to some form of farm long-term specialization (Pinghali and Rosegrant 1995). However, agricultural intensification is not always equal to mono-cropping. Indeed, most small-farmers in the world have incorporated intensification technology and know-how to operate (under a variety of arrangements) integrated farming systems, which continue to keep a significant degree of diversity (Dixon and others 2001). Green Revolution success in increasing yields suggests that agricultural intensification in particular in its multi-crop integrated version might be the ideal solution to make small farmers livelihood strategy capable to cope with population growth, market economy, socio-cultural change and modernization of rural society at large. However, intensification can only work when market and societal conditions enable farmers to sell their produce at a price that compensates the increased cost of production deriving from the use of high yielding inputs. Moreover, in the long run, intensification might not always be compatible with the sustainable use of land and other national resources. Environmental degradation and loss of competitiveness resulting from the increase in capital intensive (industrial) agriculture in the world food market are indeed two important drives pushing many small farmers away from agricultural intensification. 3.2 Rural livelihoods diversification Rural livelihoods diversification has generally occurred as a result of an increased importance of off-farm wage labor in household livelihood portfolio or through the development of new forms of on-farm/on-site production of non-conventional marketable commodities. In both cases, diversification ranges from a temporary change of household livelihood portfolio (occasional diversification) to a deliberate attempt to optimize household capacity to take advantage of ever-changing opportunities and cope with unexpected constraints (strategic diversification). As agricultural specialization can start from an initial diversification move, also livelihoods diversification can eventually lead to some form of household specialization. For instance, in particular circumstance migratory wage labor may result so cost/effective to push the household away from conventional on-farm activities. Conversely, the identification of a particular niche commodity (e.g. mushrooms) may lead the household to invest all its labor and other assets in it, disregarding both conventional farming activities and wage labor. However, neither of the above hypothetical examples properly illustrates diversification as a rural livelihood strategy. Rather this consists in maintaining over time a diversified portfolio of activities and in adjusting it according to contingencies in order to maximize return, spread risk, or achieve other household goals (see below). By keeping the capability to operate a heterogeneous set of activities, diversifying households are likely to enjoy higher flexibility and resilience capacity than agricultural dependent rural households. Thus it is not surprising that in the light of the reiterated environmental, economic and political shocks affecting rural


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areas of developing countries diversification has become during the last 30 years increasingly attractive for many rural households2. 4. Household determinants of livelihood diversification choices Livelihood literature (Hussein and Nelson 1999; Ellis 2000) suggests that though exogenous trends and shocks play an important role in pushing rural people towards a diversified livelihood strategy, diversification choices are also firmly rooted in the micro-economic logic of farming households. Different elements should be considered in this connection. 4.1 Availability of key-assets Availability of key-assets (such as savings, land, labor, education and/or access to market or employment opportunities, access to common property natural resources and other public goods) is a an evident requisite in making rural households and individuals more or less capable to diversify (e.g. Dercon and Krishan 1996; Abdulai and Crole Rees 2001). Investment of a proper mix of the above endowments is the starting move of any independent activity. Moreover, labor capability and education determine the capability of finding a job and savings are often needed to migrate. Yet diversification may also develop as a coping response to the loss of capital assets needed for undertaking conventional on-farm production. Decreased availability of arable land, increased producer/consumer ratio, credit delinquency, environmental deterioration can be indeed important drives towards diversification. Economic and political shocks are often a major reason for migrate. 4.2 Maximization of return per unit of labor Maximization of return per unit of labor (Ellis 1993, 2000) is another important element in livelihood diversification choices. This principle foresees that, in any given point in time, a rural household will choose the most cost-effective opportunity to ensure maintenance of its consumption level. This formulation can be elaborated in different ways. For instance, availability of a surplus of household labor (or a high producer/consumer ratio) may influence the household decision to engage in wage labor. Similarly, food availability and food cost volatility on the local market can affect the relative importance attributed to self-consumption production, and promote or prevent the undertaking of wage labor or engagement in income generating enterprises. Seasonality may also lead to a cyclical shift in time allocation from on-farm to off-farm sources of revenue. 4.3 Risk management Risk management is a further factor often invoked to explain diversification behavior (Chambers 1997, Reardon 1992, Bryceson 1996; Ellis 2000; Hussein and Nelson 1999). The basic logic of this argument is that previous experience of crop or market failure can provoke diversification as a means of spreading perceived risk and reducing the impact of total or

2 Reardon and others (1998) estimate that non-farm income sources currently account for 40-45% and 32% of the average African and Asian rural household respectively. Escobal (2001) suggests that the equivalent figures for rural Latin America and rural Peru are 40% and 51% respectively.


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partial failure on household consumption. The argument entails that diversification often requires choosing the second best income-generating alternative: risk-averse farmers perceive the amount of income given up by diversifying income sources as less important than the reduction of the total failure hazard. In this perspective, risk management through diversification complements and counterbalances the above principle of maximization of return per unit of labor. 4.4 Strengthening the household asset basis Strengthening the household asset basis can be an additional important factor in diversification choices. In particular, members of better-off household can undertake innovative activities or engage in highly remunerative wage labor (i.e. migrate abroad) with the specific aim of accumulating savings needed to expand the land holding, offer education opportunities to the young generation, or insure themselves against illness and aging. In addition to that, diversification may also occur as a means to consolidate household natural capital (i.e. to enhance the environmental sustainability of a particular livelihood strategy). 4.5 Opportunities Site-specific opportunities such as local market contingencies, development projects, infrastructure development (e.g. a new road), personal contacts might play an important role in pulling rural household towards livelihood diversification. Examples may include the opening of a market niche for non conventional agricultural commodities, the establishment of tourist resorts, a relative or friend acting as a liaison between the household and an employer in town or abroad, or the development of a cooperative enterprise in the community. These hypothetical examples suggest that the interplay among market dynamics, social capital assets and enabling interventions often play a major role in generating opportunities for livelihood diversification. 4.6 Identity and vision of the future Individual and household identity and vision of the future might also shape diversification decisions. For instance, new on-farm activities can be preferred to migratory wage labor as livelihood diversification strategies, because they are perceived more consistent with maintaining a rural life style. On the opposite “city lights” attraction can be an important factor in pushing youngsters to contribute to household diversification by migrating in town or abroad. 4.7 Gender relationships Gender relationships are also important in shaping diversification process. Social organization and culture can significantly influence the relative access of diverse gender (and age groups) to household’s capital assets (e.g. Ellis 2000; Gladwin and others 2001; Dolan 2002) or constraint/promote their mobility. This might result in a different degree of involvement in diversification activities and/or in an unequal distribution of their benefits between genders (Warren 2001). In some cultures, migratory wage labor or off-farm enterprises are basically men business, that result in transferring to women the whole responsibility for conventional subsistence and cash cropping (the so called “feminization of agriculture”). However, in other cultures, women are often able to play an autonomous role in livelihoods diversification by undertaking on their own small-scale enterprises or migrating to town or abroad. Intermediate situations also exist where women’s engagement in market oriented activities is possible only


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as far it entails a limited investment of household assets and it does not seriously threaten the established sexual division of labor. Participation in innovative enterprises is often advocated as an important means to promote rural women empowerment and more equitable gender relationships within the household. All together, the above considerations suggest that rural livelihoods should be addressed as a complex adaptive process aimed at ensuring an optimal trade-off between satisfying immediate consumption needs, ensuring resilience against shocks and negative trends (e.g. Haugh 2000) and meeting values and expectations. Research has shown that diversifying households often pursue this threefold objective through a continued re-shuffling of their livelihood portfolio according to contingent constraints and opportunities (e.g. Bigsten and Kayzzi-Mugerwa 1995). 5. Basic alternatives in rural livelihood diversification Household and individuals can diversify livelihood portfolios in different ways. Several classifications of activities included in rural livelihood portfolios have been proposed (e.g. Hussein and Nelson 1999; Ellis 2000; Barrett, Reardon and Webb 2002), focusing on different criteria (farm vs. non-farm; on-farm vs. off-farm activities; local vs. migratory; self-employment vs. wage labor). All these classifications are useful to make sense of the nature of the choices entailed by rural livelihoods diversification processes. However, the juxtaposition between diversification through wage labor and diversification through development of self-employment enterprises is the one that better captures the basic socio-economic disjunction between: i) reproducing and strengthening the profile of the (relatively) independent rural

smallholder;

or

ii) assuming (at least partially) the connotations of a “semi-proletarian” rural wage earner (De Janvry 1981).

Additional distinctions between local and migratory wage labor and agricultural and non-agricultural self-employment enterprises are also important to capture the spatial and sectoral dimensions of livelihood diversification. This is reflected in the classification of basic alternatives in rural livelihood strategies presented in Figure 1 below.


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Figure 1 – Basic alternatives in rural diversification strategies

local wage labor

migratory Diversification through… agricultural

self-employment rural enterprises

non agricultural In this classification, wage labor refers to the provision of work force to agricultural or non-agricultural enterprises owned by non-household employers. Though sometimes employment opportunities are available locally (local wage labor), in the majority of cases jobs are spatially distant from the places of residence and entail seasonal or long-term migration (migratory wage labor). If practiced as part of a rural livelihood diversification strategy, both types of wage labor seldom entail a fully “proletarization” of the rural workers. Rather, as pointed out twenty years ago by Alain De Janvry (1981), remittances of temporary or part-time rural wage labor very often complement an insufficient on-farm production in ensuring the satisfaction of household consumption needs. Moreover, in some instances, savings generated through wage labor (and in particular by migratory wage labor) can re-capitalize impoverished farms and create new opportunities for independent enterprise development Rural self-employment enterprises refer to activities undertaken by mobilizing labor plus other household capital assets (savings, land, etc.). Rural agricultural enterprises are often based on innovative on-farm agricultural activities (in the form of independent commercial production or contract farming). On the other hand, rural non-agricultural enterprises focus on activities such as processing of agricultural or forestry commodities, petty-trading, handicraft, home-based piecework manufacturing, or delivery of particular services to the community or to outsiders. Such rural enterprises can develop within a single household or involve a wider social network, based on traditional or innovative forms of inter-household cooperation. The latter arrangement is particularly important to make enterprise development viable for household and individuals lacking the capital assets needed to start a self-employment activity on their own.


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6. Rural enterprises and wage-labor compared. Several differences exist in the way in which self-employment rural enterprises and wage labor (in its local and migratory forms) impact on rural livelihood strategies. Contrasting the two approaches (see Table 1, below) is thus useful to identify some of the specific attributes of rural enterprises as a pathway to livelihood diversification. Table 1 – Differences between wage labor and self-employment enterprises as means for livelihood diversification.

Self-employment enterprises Wage labor Different kinds of capital assets (human, natural, financial, social and physical) are required.

Human capital (labor-force, know how, fitness) is the main capital asset invested.

Localized and exposed to the local vulnerability context.

Highly mobile (migratory) and capable to escape localized negative trends and shocks.

A higher financial risk is taken, in view of a potentially higher (though erratic) return.

A limited financial risk is taken in order to get a steady and safe income flow.

It often requires cooperation among household members.

Tends to be an individual activity.

Tends to reinforce the socio-economic cohesion of the household.

Potential negative impact on household cohesion (in particular if associated with migration).

Generally, it is more consistent with the reproduction of the rural life-style.

Long-term migratory wage-labor can affect rural cultural identities.

First, investment of household capital assets needed to start up an enterprise is qualitatively (not just quantitatively) different from that implied by wage labor. Rural enterprises requires often that a full range of household capital assets (land, money labor, access to infrastructure, social relationships, know how) is mobilized. On the other hand, wage labor is based essentially on the mobilization of individual’s human capital (work force and know how), with other type of assets playing a secondary “supportive” role. Second, self-employment enterprise is highly localized (at home, in the farm or in the community) and therefore highly exposed to the local vulnerability context. On the opposite wage labor is highly mobile. This makes it less prone to local negative contingencies, and, at the same time, capable to fit the lack of economic opportunities widespread in rural areas.


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An additional difference between wage labor and enterprise in rural livelihoods concerns the role of risk. Rural enterprises are potentially more profitable than wage labor, but require that a higher capital risk is taken (e.g. Woldehanna and Oskam 2001). Conversely, wage labor does not need major investments, but ensures only a limited (though steady and safe) income. The comparative advantage of wage labor is likely to increase in “bad times”, while, for the same reason, independent enterprises might represent an attractive alternative in “good times”. This may result in a periodical shift from self-employment enterprises to wage labor (or vice versa). Yet, both forms of diversification may also functionally coexist with some family members “subsidizing” the household’s enterprise(s) through remittances, and household enterprise(s) providing migrants with a buffer against unemployment, illness or aging. The latter consideration suggests that both types of diversification tend to increase the complexity of pre-existing household division of labor, with different individuals contributing to their own and household welfare through different activities according to their skill and preferences. Yet, very often, rural enterprises require that different members of the same household (men, women, and children) contribute to the productive cycle according to their particular skills and aptitudes. On the opposite, wage labor is generally undertaken on an individual basis. A final important difference between rural enterprise and wage labor relates to the dissimilar social and cultural impact of the two choices. Because of their localized nature and their dependence on household cooperation, rural enterprises are less threatening than wage labor for the social organization of the rural household and its cultural identity. On the other hand wage labor, and in particular migratory wage labor, is often associated with some degree of disruption of household cohesion (e.g. Bryceson 1999: 47). Indeed, displacement may lead to the weakening of family ties and cause conflicts between the values and orientations of the rural household and those acquired by migrants while away from home. 7. Small enterprise development and sustainable rural livelihoods From the above it can be concluded that for diversifying rural households the comparative advantage of enterprise development over wage labor essentially consists in its potential contribution to innovate and adapt to a market-dominated environment (the socio-economic structure of the farming household.) Yet rural enterprise development is a form of diversification requiring higher investment and entailing higher risk. Therefore, it is not surprising that temporary wage labor is often the first choice for impoverished farmers in need for diversifying their livelihoods Notwithstanding, small enterprise development has become an increasingly appealing alternative for all the stakeholders involved in rural development. Under the thrust of budgetary constraints, policy-makers and local administrators are prone to consider the development of an economically self-reliant sector of rural micro-entrepreneurs as a possible solution to the never-solved agrarian question3. Inspired by sustainable development and 3 Micro-credit has been the main tool through which micro-enterprise has been promoted so far. However, microcredit has not proved to be a development panacea and its capacity to generate sustainable micro-


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equity concerns, international organizations and NGOs have found that with the increase in the number of household-based petty-enterprises a non-negligible contribution to a more equitable distribution of income and opportunities, as well an improvement in the containment of negative environmental impacts as with most major development interventions. Eventually, social movements resisting the impact of structural readjustment and market liberalization on rural society might see engagement in innovative self-employment initiatives as an alternative to impoverishment and forced migration. Overall, enterprise-based diversification looks attractive because of its alleged capacity to promote more sustainable rural livelihoods. Recent research tends to validate this hypothesis. For instance, experts consulted in the framework of FAO/World Bank global study on “Farming Systems and Poverty” (Dixon, Gulliver and Gibbon 2001) have identified in the development of small-scale, labor-intensive household enterprises focusing on production of new cash crops and other agricultural commodities (categorized by the study under the heading of “on-farm diversification”) the most promising rural poverty reduction strategy for all the eight major farming systems types (and in particular for those featuring a medium or high level of intensity). Moreover, several studies (e.g. Barrett, Bezuneh and Abud 2001; Ellis and Bahiiigwa 2001; Ferreira and Lanjouw 2001; Escobal 2001) indicate that in a variety of regional and local settings farmers capable of combining conventional farming activities with innovative rural enterprises enjoy higher income and safer livelihoods than farmers deriving their income from conventional farming alone or from a combination of conventional farming and wage labor. Notwithstanding, small enterprise development can become a viable pathway towards sustainable livelihoods only if some basic conditions are made available to rural households. These include: • availability of (or access to) a reasonable start-up capital, which depending on the nature

of the enterprise may comprehend natural (land), human (labor, know-how), financial (saving, credit), physical (infrastructure) and social (cooperative networks) assets;

• some degree of protection against shocks and negative trends such as social welfare and

insurance schemes, etc.; • supportive structures and processes including rural enterprise enabling policies, business

development services, credit, transport and communication infrastructures, etc. (e.g. Escobal 2001);

• access to a well developed market capable of providing both a steady supply of inputs,

food and other consumption commodities and an outlet to enterprise outputs;

enterprises is increasingly argued. The philosophy of micro-credit often rests on non-targeted multipurpose credit, with little attention paid to business development services. Micro-credit has also proved sometimes to not be environmentally friendly, because non-assisted beneficiary tend to maximize short-term outputs in order to maintain access to credit. This generates a vicious circle in which increased credit is needed to increase the capacity to purchase the inputs necessary to continue to get credit.


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• access to marketing information, including information on contracting and other vertical integration opportunities;

• resilience against market failure and capacity to change the enterprise according to

changes in demand and market contingencies. As lack of these conditions is also the outstanding immediate cause of extreme rural poverty, it must be acknowledged that diversification through enterprise development is generally more feasible (and interesting) for relatively better off social sectors, than for the “poorest of the poor”. This is indeed a solid finding of livelihood diversification research. (Woldehanna and Oskam 2001; Barret, Bezuneh and Aboud 2001; Rider Smith and others 2001; Abdulai and Crole Rees 2001). Significant external investments in enhancing access to natural resources, credit, education and training, services, and infrastructure and fair market outlets are thus needed to make rural enterprise development a viable and effective component of rural livelihood security and poverty alleviation policies.


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References Abdulai, A. and A. Crole Rees. 2001.”Determinants of income diversification amongst rural households in Southern Mali”. Food Policy, 26: 437-452. Barrett, C.B., T. Reardon and P. Webb. 2001. “Nonfarm income diversification and household livelihood strategies in rural Africa: concepts, dynamics and policy implications”. Food Policy 26: 315 – 331. Barrett, CB. M. Bezuneh and A. Aboud. 2001. “Income diversification, poverty traps and policy shocks in Cote d’Ivoire and Kenya”. Food Policy, 26: 367384. Bigsten. A. and S. Kahizzi-Mugerwa. 1995. “Rural Sector Responses to Economic Crisis in Uganda”. Journal of International Development, 7, 2:181-209. Bryceson, D. 1996. “Deagrarianization and rural employment in sub-Saharan Africa: a sectoral perspective”. World Development 24, 1: 97-111. Bryceson, D. 1999a. “African rural labor income diversification and livelihood approaches. A long-term development perspective”. Review of African Political Economy, 80: 171-89. Bryceson, D. 1999b. Sub-Saharan Africa Betwixt and Between. Rural Livelihood Practices and Policies. ASC Working Paper 43. Leiden Block, S. and P.Webb. 2001. “The dynamics of livelihood diversification in post-famine Ethiopia”. Food Policy 26:333-350. Chambers, Robert and Gordon Conway. 1991. Sustainable Rural Livelihoods: Practical Concepts for the 21st Century. IDS Discussion Paper 296: London: Institute for Development Studies. Chambers, Robert. 1997. Whose Reality Counts: Putting the First Last. London: Intermediate Technology Publications. De Janvry, Alain. 1981. The Agrarian Question and Reformism in Latin America. Baltimore: John Hopkins University Press. Desmarais, Annette-Aurélie. 2002. “The Vía Campesina: Consolidating an International Peasant and Farm Movement.” The Journal of Peasant Studies 29 (2): 91-124. Dercon. S. and P. Krishnan. 1996. “Income portfolios in rural Ethiopia and Tanzania: choices and constraints”. Journal of Development Studies, 32 (6): 850-875. DFID (Department for International Development). 2001. Sustainable Livelihoods Guidance Sheets. Electronic edition .


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Dixon, John, Aidan Gulliver and David Gibbon. 2001. Farming Systems and Poverty. Improving Farmers’ Livelihood in a Changing World. FAO and World Bank: Rome and Washington. Dolan, Catherine. 2002 Gender and Diverse Livelihoods in Uganda. LADDER Working Psper No.10. London: DFID – University of East Anflia. Ellis, Frank. 1993. Peasant Economics: Farm Households and Agrarian Development. Cambridge: Cambridge University Press. Ellis, Frank. 2000. Rural Livelihoods and Diversity in Developing Countries. Oxford: Oxford University Press. Ellis Frank and Godfrey Bahiigwa. 2001. Livelihoods Poverty Reduction in Uganda. LADDER Working Paper No.5. Eastwich: University of East Anglia. Escobal, Javier. 2001. :The determinats of nonfarm income diversification in rural Peru.” World Development, 29, 3: 497-508. Escobar, Arturo. 1995. Encountering Development. The Making and Unmaking of the Third World. Princeton, N.J. : Princeton University Press. Ferreira, Francisco and Peter Lanjouw. 2001. “Rural non farm activities and poverty in the Brazilian North East”. World Development, 29, 3: 509-528 Gladwin, Christina, Anne Thomson, Jennifer Peterson and Andrea Anderson. 2001. “Addressing food security in Africa via multiple livelihood strategies of women farmers”. Food Policy 26: 177-207. Haug, Ruth. 2000. Livelihood Security among Pastoralists in Northern Sudan. Post-hunger Development in a Country at War. NORAGRIC Working Paper 19. Oslo: NORAGRIC (Centre for International Environment and Development Studies of the Agricultural University of Norway). Hussein, Karim and John Nelson. 1999. Sustainable Livelihoods and Diversification. IDS Working Paper 69. London: Institute of Development Studies. Lusigi, Angela. 2000. Understanding Farm Diversification. Unpublished Seminar Paper. Rome: FAO Orsini, Jan B. 2000. Success Case Replication. A Manual for Increasing Farmer Household Income by Mobilizing Successful Farmers and Group to Train Their Peers. Bangkok: ESCAP/FAO Inter-Country Project. Pingali, Prabhu and Mark Rosegrant. 1995. “Agricultural commercialization and diversification: processes and policies”. Food Policy 20, 3: 171-185.


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Reardon, T., C. Delgado and P. Matlon. 1992. “Determinants and effects of income diversification among farm households of Burkina Faso”. The Journal of Development Studies, 28, 2: 264-296. Reardon, T. , K. Stamoulis, K.Cruz, M.E.Balisacan, A Berdegué and B. Banks. 1998. “Rural nonfarm income in developing countries”. In FAO, The State of Food and Agriculture 1998. Rome: FAO. Rider Smith, D., Ann Gordon, Kate Meadows and Karen Zwick. 2001. “Livelihoods diversification in Uganda: patterns and determinants of change across two rural districts”. Food Policy, 26: 421-435. Sahlins, Marshall.1972. Stone Age Economics. Chicago: Aldine. Scott, Francis. 1976. The Moral Economy of the Peasant. Rebellion and Subsistence in South-East Asia. New Haven: Yale University Press. Singh, I., L.Squire and J.Strauss (eds). 1986. Agricultural Household Models. Baltimore: John Hopkins. Warren, Patrizio. 2001. Distance Survey on Gender Impacts of Commercialization. Manuscript. ROME: FAO, AGSP. Wattenbach, Horst. 2001. Diversification for Small Farm Development. Manuscript Rome: FAO. Woldenhanna, T. and A.Oskam. 2001. “Income diversification and entry barriers: evidence from the Tigary region of Northern Ethiopia”. Food Policy, 26: 351-365. Wolf, Eric. 1966. Peasants. Englewood Cliffs, N.J.: Prentice-Hall..


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Further information about the LSP The Livelihood Support Programme (LSP) works through the following sub-programmes: Improving people’s access to natural resources Access of the poor to natural assets is essential for sustainable poverty reduction. The livelihoods of rural people with limited or no access to natural resources are vulnerable because they have difficulty in obtaining food, accumulating assets, and recuperating after shocks or misfortunes. Participation, Policy and Local Governance Local people, especially the poor, often have weak or indirect influence on policies that affect their livelihoods. Policies developed at the central level are often not responsive to local needs and may not enable access of the rural poor to needed assets and services. Livelihoods diversification and enterprise development Diversification can assist households to insulate themselves from environmental and economic shocks, trends and seasonality – in effect, to be less vulnerable. Livelihoods diversification is complex, and strategies can include enterprise development. Natural resource conflict management Resource conflicts are often about access to and control over natural assets that are fundamental to the livelihoods of many poor people. Therefore, the shocks caused by these conflicts can increase the vulnerability of the poor. Institutional learning The institutional learning sub-programme has been set up to ensure that lessons learned from cross-departmental, cross-sectoral team work, and the application of sustainable livelihoods approaches, are identified, analysed and evaluated for feedback into the programme. Capacity building The capacity building sub-programme functions as a service-provider to the overall programme, by building a training programme that responds to the emerging needs and priorities identified through the work of the other sub-programmes. People-centred approaches in different cultural contexts A critical review and comparison of different recent development approaches used in different development contexts is being conducted, drawing on experience at the strategic and field levels in different sectors and regions. Mainstreaming sustainable livelihoods approaches in the field FAO designs resource management projects worth more than US$1.5 billion per year. Since smallholder agriculture continues to be the main livelihood source for most of the world’s poor, if some of these projects could be improved, the potential impact could be substantial. Sustainable Livelihoods Referral and Response Facility A Referral and Response Facility has been established to respond to the increasing number of requests from within FAO for assistance on integrating sustainable livelihood and people-centred approaches into both new and existing programmes and activities.

For further information on the Livelihood Support Programme, contact the programme coordinator:

Email: [email protected]

Livelihood Support Programme (LSP) Email: [email protected]

LSP WORKING PAPERS to June 2004

Baumann P., (July 2002) Improving Access to Natural Resources for the Rural Poor: A critical analysis of central concepts and emerging trends from a sustainable livelihoods perspective. FAO, LSP WP 1, Access to Natural Resources Sub-Programme.

Cotula L., (August 2002) Improving Access to Natural Resources for the Rural Poor: The experience of FAO and of other key organisations from a sustainable livelihoods perspective. FAO, LSP WP 2, Access to Natural Resources Sub-Programme.

Karl M., (August 2002) Participatory Policy Reform from a Sustainable Livelihoods Perspective: Review of concepts and practical experiences. FAO, LSP WP 3, Participation, Policy and Local Governance Sub-Programme. Also available in Spanish and French.

Warren P., (December 2002) Livelihoods Diversification and Enterprise Development: An initial exploration of Concepts and Issues. FAO, LSP WP 4, Livelihoods Diversification and Enterprise Development Sub-Programme.

Cleary D., with contributions from Pari Baumann, Marta Bruno, Ximena Flores and Patrizio Warren (September 2003) People-Centred Approaches: A brief literature review and comparison of types. FAO, LSP WP 5, People-Centered Approaches in Different Cultural Contexts Sub-Programme. Also available in Spanish and French.

Seshia S. with Scoones I., Environment Group, Institute of Development Studies, University of Sussex, UK (November 2003) Understanding Access to Seeds and Plant Genetic Resources. What Can a Livelihoods Perspective Offer? FAO, LSP WP 6, Access to Natural Resources Sub-Programme.

Biggs S. D., and Messerschmidt D., (December 2003) The Culture of Access to Mountain Natural Resources: Policy, Processes and Practices. FAO, LSP WP 7, Access to Natural Resources Sub-Programme.

Evrard O., (Janvier 2004) La mise en oeuvre de la réforme foncière au Laos : Impacts sociaux et effets sur les conditions de vie en milieu rural (with summary in English). FAO, LSP WP 8, Access to Natural Resources Sub-Programme.

Ellis F., Allison E., Overseas Development Group, University of Anglia, UK ( January 2004) Livelihood Diversification and Natural Resource Access. FAO, LSP WP 9, Access to Natural Resources Sub-Programme, Livelihood Diversification and Enterprise Development Sub-Programme.

Hodgson S., (March 2004) Land and Water – the rights interface. FAO, LSP WP 10, Access to Natural Resources Sub-Programme.

Mitchell R. and Hanstad T., Rural Development Institue (RDI), USA, (March 2004) Small homegarden plots and sustainable livelihoods for the poor. FAO LSP WP 11, Access to Natural Resources Sub-Programme.

Hanstad T., Nielsen R., Brown J., Rural Development Institute (RDI), USA, (May 2004) Land and Livelihoods: Making land rights real for India’s rural poor. FAO LSP WP 12, Access to Natural Resources Sub-Programme.

Fisher R.J., Schmidt K., Steenhof B. and Akenshaev N., (May 2004) Poverty and forestry : A case study of Kyrgyzstan with reference to other countries in West and Central Asia. FAO LSP WP 13, Access to Natural Resources Sub-Programme.

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