Rural Non Farm Employment –

getting the jobs done

Joachim von BraunDirector General

International Food Policy Research Institute

GRADE, SEPIA and Universidad del Pacifico

Lima, April 24th 2006

Overview

1. Definition and conceptual issues

2. Dimensions and change

3. On linkages (of various types)

4. Policy considerations

―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 women’s equal access to labor

markets, sustainable employment and adequate

labor protection‖

Davos 2006 World Economic Forum:

• Employment is one of the top themes

Unemployment rates

by region, 1995-2004 (%)

Source: Tarantino 2003

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 ?

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)

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

General Characteristics of RNFE (Cont’d)

• 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

Overview

1. Definition and conceptual issues

2. Dimensions and change

3. On Linkages (of various types)

4. Policy considerations

Big picture on population and employment

2005 – 2020 (Shares)

Population Employment

Urban Rural Agriculture Services Industry Rural serv.

& ind.

2005 49 % 51% 32% 44% 24% 19%

2020 56% 44% 16% 57% 27% 28%

Source: author’s calculations based on Tarantino 2005, UN World Population Prospects and ILO Labor

Statistics Database

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: author’s calculations based on Tarantino 2005, UN World Population Prospects and ILO

Labor Statistics Database

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

Facts about Rural Non Farm Employment in Latin

America

Rural Non Farm Employment in Latin America

Early 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

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

How many farms in the world?

Farm Size (ha) % of all farmsNumber of farms

(millions)

< 2 85 387.24

2 - 10 12 54.05

10 - 100 2.7 12.51

> 100 0.5 2.28

Total 100 456.07

Source: Von Braun 2003, derived from national data and FAO World Agricultural Census, various

years

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

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

Overview

1. Definition and conceptual issues

2. Dimensions and change

3. On Linkages (of various types)

4. Policy considerations

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]

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

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

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?

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

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

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

The dynamics of linkages: Between farms and food industries

Large retailers

and Processors

Shrinking

bottom

Consolidation of retail &

processing – FDI influence

(China: 40% retail growth

after FDI entry in 1992)

Fragmentation in

farming

Expanding

bottom:

Increasing share

of small holders

Forward pyramid:

Retailers/ processors

Emerging mutual

need for linkages

Farmers pyramid

Source: Gulati 2005

3. Services and industry – linkages

• Finance and credit

• Insurance services in rural areas (facilitating

more risky employment)

• Infrastructure (transport, communications)

4. Human capital conditioned employment

linkages

• Nutrition

• Health

• Education (and, for instance, child labor)

Overview

1. Definition and conceptual issues

2. Dimensions and change

3. On Linkages (of various types)

4. Policy considerations

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 ?

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

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

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

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

Employment for poverty reduction: Linkages and

program concerns

Source: Adapted from von Braun 1995

RESOURCES

• Capital

• Labor

• (Food-) cash

Wages

• Organizations

EMPLOYMENT

PROGRAMS

• Program choices

• Implementation choices

Employment

Assets

HouseholdIncome

and RiskInsurance

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)

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 ?

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