GRADE, SEPIA and Universidad del Pacifico Lima, April 24th 2006

1. Rural Non Farm Employment –
getting the jobs done
Joachim von Braun
Director General
International Food Policy Research Institute
GRADE, SEPIA and Universidad del Pacifico
Lima, April 24th 2006

2. Overview
1. Definition and conceptual issues
2. Dimensions and change
3. On linkages (of various types)
4. 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 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

4. Unemployment rates
by 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 (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

9. Overview
1. Definition and conceptual issues
2. Dimensions and change
3. On Linkages (of various types)
4. Policy considerations

10. 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

11. Big Picture on global employment
2005 – 2020 (Billions)
Farm ESI-Rural ESI-Urban Total
Areas Areas
2005 0.9 0.6 1.5 3.0
2020 0.6 1.0 1.9 3.5
Change - 0.3 +0.4 +0.4 +0.5
2005-2020
Source: author’s 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 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?
Number of farms
Farm Size (ha) % of all 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

16. Non farm share of rural income
Region Average Share
Latin America 40
Africa 42
East and South Africa 45
West Africa 36
Asia 32
East Asia 35
South Asia 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
1. Definition and conceptual issues
2. Dimensions and change
3. On Linkages (of various types)
4. 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 67.0
Caribbean
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
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
Large retailers Fragmentation in
and Processors Consolidation of retail & farming
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: Farmers pyramid
Retailers/ processors
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
1. Definition and conceptual issues
2. Dimensions and change
3. On Linkages (of various types)
4. 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
RESOURCES
PROGRAMS
Household
• Capital Income
• Program choices and Risk
• Labor Insurance
• (Food-) cash • Implementation choices
Wages
Assets
• Organizations
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