Research shows that rural populations across Africa, Asia and Latin America rely on rural non-farm economies (RNFE) for between 30 percent and 50 percent of their income. These activities are evidently economically important, but they are also extremely complex and difficult to measure, making it hard to determine suitable policies.

Research by the Natural Resources Institute, UK, looks at emerging RNFE issues. The RNFE refers to all income-generating activities in rural areas that are not primary agricultural production (meaning activities other than growing crops, fishing or forestry). They may take place on farms, despite being described as ‘non-farm’ activities. Factors affecting the development of the RNFE exist on three levels:

• Household level factors include assets of household members (finance, education and experience) and social capital (such as social networks and information sharing).
• Group level factors are valuable local natural resources, the quality of local governments, local infrastructure, links to towns and trade.
• Socio-cultural factors include ethnicity, gender, religion and caste, which often influence power relations and, consequently, people’s ability to access certain income-generating activities.

There is greater diversification of income-generating activities in areas where people are both producers and consumers, but tend to have low incomes. Traditionally, researchers have regarded diversification as a result of poverty and poor economic development. The theory is that people diversify from agriculture because they make insufficient money from farming. However, diversification can be seen in another way: a positive response to demand. These two perspectives are called ‘distress-push’ and ‘demand-pull’.

Distress-push diversification occurs in a poor economic climate where a household has to diversify to meet basic needs. It involves the poorest sections of society and involves waged employment rather than business development. Since more households will be poor than wealthy, this type of diversification is a sign of a decline in the national economy.

Demand-pull diversification occurs where demand is created by markets growing and becoming more accessible. It requires investment, so wealthier members of society benefit most. This form of diversification is a signal of growth in the national economy and often increases inequality between rich people and poor people, although it does not necessarily increase poverty levels.

The most important questions for policy makers are whether the RNFE contributes to poverty alleviation and, if so, how to encourage it. There are fundamental issues for ensuring that the RNFE benefits poor people:

• Waged labour has a more positive impact on poverty than small enterprise development and should be encouraged where it does not exploit poor people (such as through very low wages).
• Property rights must be examined for their fairness so that the least powerful social groups can benefit.
• Policy makers must not ignore major trends and demographic issues such as HIV/AIDS.
• Migration for waged labour can form an important part of the RNFE but government must support this by measures such as financial support for when migration is unsuccessful.
• Government support, such as welfare and pensions, is of great importance to the success of the RNFE. Governments can also have a major impact by locating services such as schools and hospitals in rural areas; these bring jobs and money into an economy.

Source(s):
‘The development of the rural non-farm economy in developing countries and transition economies - key emerging and conceptual issues’, Natural Resources Institute, 2004 Full document.

Funded by: Department for International Development

id21 Research Highlight: 11 April 2005

Further Information:
Enterprise, Trade and Finance Group
Natural Resources Institute
University of Greenwich
Central Avenue
Chatham Maritime
Kent, ME4 4TB
UK

Tel: +44 (0) 1634 883199
Fax: +44 (0) 1634 883706
Contact the contributor: J.Davis@gre.ac.uk

Natural Resources Institute, UK

Other related links:
'Encouraging non-farm activities for poverty reduction in Georgia, Armenia and Romania'

'Winners and losers as Indian villages enter the wider economy'

The Rural Non-Farm Economy (RNFE) project

World Bank - Agriculture and rural development

PASS Livelihoods