Analysis of Rural Non-Farm Diversification among Farming Households In Doma Area of Nasarawa State, Nigeria

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1 PAT 2009; 5(1): ISSN: Online copy available at Publication of Faculty of Agriculture, Nasarawa State University, Keffi Analysis of Rural Non-Farm Diversification among Farming Households In Doma Area of Nasarawa State, Nigeria Ibrahim, H.I and Onuk, G.E Department of Agricultural Economics and Extension Nasarawa State University, Keffi Shabu-Lafia Campus Abstract Employment in non-farm activities is essential for diversification of the sources of income of households in rural areas. This study was therefore designed to; identify the types of non-farm diversification activities, determine the reasons for non-farm diversification, identify the determinants and constraints of non-farm diversification in Doma area of Nasarawa state, Nigeria. Data was collected from 100 randomly selected farming households. Data analysis was done using simple descriptive statistics and OLS regression model. Non farm diversification activities in the study area are in the form of wage employment and self employment. The major reasons for non farm diversification include; generation of additional income or maintaining standard of living, investment in personal development or education of household members, reduction of risk and creation of employment opportunities. The variables in the regression model explained up to 62% variation in the number of non-farm activities. The major determinants of non-farm diversification are access to credit, level of household income, total household farm size and household dependency ratio. The constraints to nonfarm diversification include high financial risks, high competition and lack of skills and knowledge. The study recommends that policies and programmes to raise the income of the rural households should focus on increasing households assess to credit and capacity building. Keywords: Non-farm, Diversification, Rural households, Doma, Nasarawa State Introduction A non-farm activity refers to any economic activity other than the production of primary agricultural commodities. Non-farm or non agricultural production, thus includes mining, manufacturing, construction, commerce, transport, financial and personal services. Rural households in many different contexts have been found to diversify their income sources allowing them to spread risk and smoothen consumption. (Chibnik, 1994; Ellis, 1998; Reardon et al., 1992; Valdivia et al., 1996). This is often necessary in agriculture based peasant economies because of risk such as variability in

2 PAT 2009; 5(1): ISSN: ; Ibrahim, H.I. and Onuk, G.E; Analysis of Rural Non-Farm Diversification.50 soil quality, households and crop diseases, price shock, unpredictable rainfall and other weather related events. According to the portfolio theory of diversification, households trade-off the relative high mean profitability of one activity to reduce risk and maximize utility. Employment in non-farm activities is essential for diversification of the sources of farm household s livelihood. It enables households to modernize their production by giving them an opportunity to apply the necessary inputs and reduces their food shortage during periods of unexpected crop failure (FAO, 1999). Non-farm employment has also been gaining prominence in the debate on rural development since the end of the 1990s (Start, 2001; Lanjouw and Shariff, 2002). The belief that rural areas of the world are completely agrarian is also fast becoming obsolete. However, non-farm diversification can be an important stimulant for the economic growth of such areas. This study therefore was designed to identify the types of non-farm diversification activities, determine the reason for non-farm diversification, and to identify the determinants and constraints of non-farm diversification in Doma area of Nasarawa State. Methodology The study was carried out in Doma area of Nasarawa State, Nigeria. Doma is located between latitude N and longitude E. The average rainfall is between mm. it covers approximately 287sqm. The annual temperature range is between C. The area has a population of 98,803 and is located within the southern guinea ecological zone, which is within the middle belt zone of Nigeria. The major crops grown in the area include; cassava, melon, maize, yam, benniseed, guinea corn, millet, pepper, tomatoes etc. A two-stage sampling technique was used for the study. The first stage involved the random selection of one village from each of the 5 districts in the study area. In the second stage 20 households were selected from each of the 5 villages, therefore, a total of 100 respondents were selected for the study. Primary data were used for the study and were collected with the aid of a structured questionnaire which was administered to the sampled households. Data were analyzed using Simple Descriptive Statistics and Ordinary Least Square (OLS) Regression Analysis. The regression model was expressed as follows; N = a + b 1 X 1 + b 2 X 2 + b 3 X 4 + b 4 X 4 + b 5 X 5 + b 6 X 6 + b 7 X 7 + b 8 X 8 + U Where; N = No. of Non-farm activities of the household (actual number) a = Constant term b 1 - b 7 = Regression coefficients X 1 = Total Household income from agriculture (N)

3 PAT 2009; 5(1): ISSN: ; Ibrahim, H.I. and Onuk, G.E; Analysis of Rural Non-Farm Diversification.51 X 2 = Household access to credit (Dummy: yes=1, No=0) X 3 = Years of formal education of household head (years) X 4 = Age of household head (years) X 5 = availability of electricity in the household (Dummy: yes=1, No=0) X 6 = Total household farm size (hectares) X 7 = Dependency ratio of household (number of dependents) Household size X 8 = Cooperative Membership (Dummy: yes=1, No=0) U = well behaved Error term Results and Discussion Types of Non-farm Diversification activities The types of non-farm diversification activities among the households are presented in Table 1. The table revealed that most of the households (76%) had diversified into self employment activities. The respondents had in their households, self employed blacksmiths, food vendors, petty traders, automobile mechanics, cloth weavers, cobblers and masons. 24% of the respondents were wage employees namely; security guards, civil servants i.e. teachers and office cleaners. This implies that self employment opportunities are more common in the study area compared to wage employment. The level of education of the respondents may be a major driven force behind this scenario. Reasons for Non-Farm Diversification The reasons why households diversify into non-farm activities are presented in Table 2. The table shows that majority of the households (34.3%) diversified into non-farm activities because it creates additional income and helps to maintain the standard of living of the households. It was also observed that some households diversified to generate income in order to invest in the general personal development of the household members (31.4%). Other households diversify in order to reduce the risk that may occur from agricultural production (11.43%). This risk could be in the form of bush fire outbreaks, crop failure and unfavorable weather conditions which might lead to low agricultural output. Determinants of non-farm diversification The factors that determine non-farm diversification are presented in Table 3. The table revealed that 62% of the variation in the number of non-farm activities was explained by the variables included in the model. Household income and total household farm size had negative and significant coefficients. This implies that the lower the household income and household farm size, the higher the tendency to diversify into non-farm activities and vice-versa. Households with smaller farms are likely to combine farm and non-farm activities than those with larger ones. Dependency ratio and access to credit had positive and significant coefficients. A household with a very high ratio of

4 PAT 2009; 5(1): ISSN: ; Ibrahim, H.I. and Onuk, G.E; Analysis of Rural Non-Farm Diversification.52 dependants has a higher tendency to diversify into other non-agricultural activities in order to cope with the needs of the household. Access to credit plays a crucial role in the decision to diversify. Increase in access to credit by a given household will increase the level of non-farm diversification. The reason is because the increase in the capital base will enable them to have enough resources to support members of the household. A given household may also decide to start up another business apart from the previous one because there is available disposable capital (credit). Access to credit without any means of increasing farm size will cause the households to invest in non-farm activities in order to increase the rate of return to capital investment. Constraints to non-farm diversification The constraints to non-farm diversification are presented in Table 4. The table shows that the major constraint to non-farm diversification was high financial risk. The risk of investing a huge sum of money into a business has become a challenge and is a constraint to household members in the study area. This is because of the uncertain outcome from any given non-farm activity. Another serious constraint was high competition. It is assumed that since there are many people who are engaged in a given business activity, there will be high competition in the marketing of whatever is offered for sale. Another major constraint is lack of information on starting a business. Conclusion and Recommendations Diversification into non-farm activities is very high in the study area. However, some socio-economic characteristics of the respondents influence their level of non-farm diversification. Based on the findings of this study the following are therefore recommended; Government policies and programmes to encourage rural non-farm diversification should focus on increasing households assess to credit, improving the land tenure system and providing basic amenities such electricity. Table 1 Types of non-farm Diversification Types Frequency Percentage (%) Wage employment Self employment Total Source, Field survey, 2008

5 PAT 2009; 5(1): ISSN: ; Ibrahim, H.I. and Onuk, G.E; Analysis of Rural Non-Farm Diversification.53 Table 2 Reasons for Non-farm diversification Reasons Frequency Percentage (%) (a) Create additional income and maintain standard of living (b) Compensate for unstable return on agriculture (c) Reduce risk (d) Investment in personal development and education of household member (e) Gain prestige through non-farm self employment (f) Create employment opportunities Total 105* Source, Field survey, 2008 *Multiple responses was allowed, hence the total frequency exceeded the sample size Table 3: Determinants of Non-farm diversification Variables Estimated Standard Error t-value Coefficient Constant *** Household income(x 1 ) ** Access to credit(x 2 ) * Education(X 3 ) NS Age(X 4 ) NS Electricity(X 5 ) NS Household farm size(x 6 )\ ** Dependency ratio(x 7 ) ** Cooperative Membership(X 8 ) NS Source: Field survey, 2008 R 2 = 0.62 F-Ratio = * * = Significant at 10% ** = Significant at 5% *** = Significant at 1% NS = Not Significant

6 PAT 2009; 5(1): ISSN: ; Ibrahim, H.I. and Onuk, G.E; Analysis of Rural Non-Farm Diversification.54 Table 4: Constraints to Non-farm diversification Constraints Frequency Percentage (%) High competition Job insecurity High financial risk Lack of information on how to start a Business Total 118* Source: Field survey, 2008 * Multiple responses was allowed, hence total frequency exceeded the sample size References Chibnik, M. (1994) Risky Rivers: The Economics and Politics or Flood plainfarming in Amazonia University of Arizona Press. Tuscon Ellis, F. (1998) Household Livelihood Strategies and Rural Livelihood Diversification. Journal of Devt. Studies 35:(1)1-38 FAO (1999) Food and Agriculture Organization of the United Nation. The State of Food and Agriculture, Rome, Italy Lanjouw, P. and Shariff, A. (2002) Rural non farm employment in India: World Development 29(3): Reardon. T., Delgado, D and Milton, P. (1992) Determinants and Effects of Income Diversification amongst Farm Household in Burkina Faso. Journal of Devt. Studies 28 (20): Start, D. (2001) The rising and fsll of the rural non farm economy:poverty impacts and policy options. Development policy review 19: Valdivia, C., Dunn, E. and Jette, E. (1996) Diversification as a Risk Management Strategy in an Andean Agro pastoral Community. American Journal of Agric Economics 78: (5)