The Rural Non-farm Economy
The nonfarm economy includes all economic activities other than production of primary agricultural commodities. Nonfarm, thus, includes mining, manufacturing, utilities, construction, commerce, transport and a full gamut of financial, personal and government services. Agroprocessing – the transformation of raw agricultural products by milling, packaging, bulking or transporting – forms a key component of the rural nonfarm economy. A broad definition of rural regions as encompassing both dispersed rural settlements as well as the functionally linked rural towns where many agroprocessing and ancillary nonfarm service and commercial activities congregate to service surrounding agricultural settlements. Size:
Policy interest in the rural nonfarm economy arises in large part because of its increasing importance as a source of income and employment across the developing world. Evidence from a wide array of rural household surveys suggests that nonfarm income accounts for about 35 percent of rural income in Africa and roughly 50 percent in Asia and Latin America. Standing roughly 20 percent higher than rural nonfarm employment shares, these income shares confirm the economic importance of part-time and seasonal nonfarm activities. Rural residents across the developing world earn a large share of their income—35–50 percent—from nonfarm activities. Agricultural households count on nonfarm earnings to diversify risk, moderate seasonal income swings, and finance agricultural input purchases, whereas landless and near-landless households everywhere depend heavily on nonfarm income for their survival. Over time, the rural nonfarm economy has grown rapidly, contributing significantly to both employment and rural income growth. Income data, which include earnings from seasonal and part-time activity, offer a more complete picture of the scale of the RNFE. Rural nonfarm employment holds special importance for women. Women account for about one-quarter of the total full time RNFE workforce in most parts of the developing world. Given their frequently heavy household obligations and more limited mobility, women also participate in part-time RNFE activity, particularly in household-based manufacturing and service activities. Composition: The rural nonfarm economy includes a highly heterogeneous collection of trading, agroprocessing, manufacturing, commercial and service activities. Even within the same country, strong differences emerge regionally, as a result of differing natural resource endowments, labor supply, location, infrastructural investments and culture. The scale of individual rural nonfarm businesses varies enormously, from part-time self-employment in household-based cottage industries to large-scale agroprocessing and warehouseing facilities operated by large multinational firms. Often highly seasonal, rural nonfarm activity fluctuates with the availability of agricultural raw materials and in rhythm with household labor and financial flows between farm and nonfarm activities Remittances account for a large share of rural income in some locations. In the mining economies of Southern Africa, remittances may account for as much as half of all rural household income. They likewise form an important part of household income diversification and risk reduction strategies. In most rural settings, however, local business and wage income account for a majority of nonfarm earnings, while remittances and transfers typically account for 15% to 20% of non-agricultural rural income and 5% to 10% of total rural income. Equity Implications: The extreme heterogeneity of rural nonfarm activity results in widely varying productivity and profitability. Returns vary substantially, normally as a function of differing physical and human capital requirements. Women dominate many of the low-return cottage industries, while the poor dominate other low-return activities, such as small-scale trading and unskilled wage labor...
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