The Rural Nonfarm Economy: Pathway Out of Poverty? Steven Haggblade Michigan State University

Transcription

1 The Rural Nonfarm Economy: Pathway Out of Poverty? Steven Haggblade Michigan State University

2 Can the RNFE substitute for agriculture as an engine of rural poverty reduction? 1. Characteristics of the RNFE 2. Rural dynamics: what drives change in the RNFE? 3. RNFE as an engine of pro-poor growth?

3 1. Characteristics of the RNFE Big Growing Heterogeneous Equity impact variable

4 Big Africa Nonfarm share of rural income 37% Asia 51% Latin America 47%

5 Growing Rural Nonfarm Share of China Farm hh income 17% 25% 26% 39% National income 4% 7% 10% 28%

6 Growing India 1968 Nonfarm share of rural income 26% % %

7 Growing Egypt 1960 Nonfarm share of rural income 19% %

8 Growing Ecuador 1974 Nonfarm share of rural income 23% %

9 Growing Tanzania Nonfarm share of farm hh income 24% 46%

10 Growing Uganda Nonfarm share of farm hh income 38% 54%

11 Heterogeneous activities Africa Rural Nonfarm Employment Shares Mftr 23% Trade 22% Services 25% Constr etc 30% Asia 28% 26% 32% 14% Latin America 20% 20% 27% 34%

12 Heterogeneous activities Africa Rural Nonfarm Employment Shares Mftr 23% Trade 22% Services 25% Constr etc 30% Asia 28% 26% 32% 14% Latin America 20% 20% 27% 34%

13 Heterogeneous activities Africa Rural Nonfarm Employment Shares Mftr 23% Trade 22% Services 25% Constr etc 30% Asia 28% 26% 32% 14% Latin America 20% 20% 27% 34%

14 Rural manufacturing: 20 to 25% RNFL

15 Commerce and services:75% to 80% RNFL

16 Commerce and services:75% to 80% RNFL

17 Commerce and services:75% to 80% RNFL

18 Commerce and services:75% to 80% RNFL

19 Commerce and services: 75% to 80% RNFL

20 Commerce and services:75% to 80% RNFL

21 Commerce and services:75% to 80% RNFL

22 Heterogeneous wage rates Sudan Carpet making Pot making Water selling Food selling Blacksmithing Construction Income per day (lb) Sector Manufacturing Manufacturing Commerce Commerce Services Services

23 Heterogenous spatially India Total employment Nonfarm employment share Agric Nonfarm Manufacturing Commerce + Services household factory Rural 85% 15% 22% 16% 62% Rural towns 24% 76% 9% 20% 71% Urban 5% 95% 4% 30% 66%

24 Heterogenous spatially India Total employment Nonfarm employment share Agric Nonfarm Manufacturing Commerce + Services household factory Rural 85% 15% 22% 16% 62% Rural towns 24% 76% 9% 20% 71% Urban 5% 95% 4% 30% 66%

25 Heterogenous spatially India Total employment Nonfarm employment share Agric Nonfarm Manufacturing Commerce + Services household factory Rural 85% 15% 22% 16% 62% Rural towns 24% 76% 9% 20% 71% Urban 5% 95% 4% 30% 66%

26 Heterogenous spatially India Total employment Nonfarm employment share Agric Nonfarm Manufacturing Commerce + Services household factory Rural 85% 15% 22% 16% 62% Rural towns 24% 76% 9% 20% 71% Urban 5% 95% 4% 30% 66%

27 Because of this heterogeneity, equity impact of RNFE varies Poor dominate some segments of the RNFE Rich dominate others Net impact on poverty varies

28 Capital intensity and returns to labor Bangladesh RNF Activity K/worker (Tk) VA/worker (Tk/day) Female workers Tailoring 5, % Carpentry 3, % Handloom 1, % Pottery % Paddy husking % Bamboo products % Coir rope %

29 Income source by quintile, India 1999 Quintile Agriculture Rural nonfarm Prodn Wage labor Wage labor Self empl Salary total Poorest Middle Richest

30 Income source by quintile, India 1999 Quintile Agriculture Rural nonfarm Prodn Wage labor Wage labor Self empl Salary total Poorest Middle Richest

31 Income source by quintile, India 1999 Quintile Agriculture Rural nonfarm Prodn Wage labor Wage labor Self empl Salary total Poorest Middle Richest

32 Mixed equity impact Rural Nonfarm Income as Share of Total Equity enhancing Neutral Inequitable Kenya Pakistan India Ethiopia Ecuador Viet Nam Poorest Middle Richest

33 Mixed equity impact Rural Nonfarm Income as Share of Total Equity enhancing Neutral Inequitable Kenya Pakistan India Ethiopia Ecuador Viet Nam Poorest Middle Richest

34 Mixed equity impact Rural Nonfarm Income as Share of Total Equity enhancing Neutral Inequitable Kenya Pakistan India Ethiopia Ecuador Viet Nam Poorest Middle Richest

35 Mixed equity impact Rural Nonfarm Income as Share of Total Equity enhancing Neutral Inequitable Kenya Pakistan India Ethiopia Ecuador Viet Nam Poorest Middle Richest

36 1. Characteristics of the RNFE Big Heterogeneous Employs lots of poor, though in lowwage activities Employs rich in high-wage activities Will RNFE growth will help reduce poverty?

37 2. Rural dynamics: what drives change in the RNFE? Two dimensions of change in the RNFE a) Spatial dynamics b) Sectoral dynamics

38 Sectoral and spatial dimensions of growth What activities? Where? Here rural There rural rural town urban Agriculture AG AG Nonfarm RNF RNF RTNF UNF

39 Sectoral and spatial dimensions of growth What activities? Where? Here rural There rural rural town urban Agriculture AG AG Nonfarm RNF RNF RTNF UNF

40 Spatial and sectoral dimensions of growth What activities? Where? Here rural There rural rural town urban Agriculture AG AG Nonfarm RNF RNF RTNF UNF

41 Migration does not imply nonfarm activity. What activities? Where? Here rural There rural rural town urban Agriculture AG AG Nonfarm RNF RNF RTNF UNF

42 Nonfarm dispersion What activities? Where? Here rural There rural rural town urban Agriculture AG AG Nonfarm RNF RNF RTNF UNF

43 Rural nonfarm: here vs there Here There Ratio (local RNFY) (NF migrant remittances) Here/There Africa, mining economies 26% 50% 0.5 Other Africa 28% 6% 4.7 Latin America 40% 11% 3.7 Asia 41% 6% 6.8

44 Rural nonfarm: here vs there Here There Ratio (local RNFY) (NF migrant remittances) Here/There Africa, mining economies 26% 50% 0.5 Other Africa 28% 6% 4.7 Latin America 40% 11% 3.7 Asia 41% 6% 6.8

45 Why does spatial dispersion occur? of population? of economic activity? Why do rural areas exist? Why is there any here here????

46 Agriculture requires physically dispersed production Population dispersion Transport costs Price gradients

47 Manufacturing and services Benefit from economies of scale Concentration Clustering

48 Spatial dynamics: tension among initial spatial distribution of population economies of scale benefits of clustering costs of transiting space

49 2b. Sectoral dynamics Structural transformation Agricultural growth linkages Other motors of RNF growth

50 Structural transformation 40 agricultural share in GDP GNP per capita ($1980)

51 Structural transformation 40 agricultural share in GDP GNP per capita ($1980)

52 Structural transformation Engel s Law agricultural share in GDP GNP per capita ($1980) share of spending on food per capita expenditure ($)

53 Structural transformation Engel s Law agricultural share in GDP GNP per capita ($1980) share of spending on food per capita expenditure ($)

54 Structural transformation Engel s Law agricultural share in GDP GNP per capita ($1980) share of spending on food per capita expenditure ($)

55 Agriculture as the engine Production linkages (backward and forward) Consumption linkages Labor market linkages Investment linkages Spatial linkages

56 Agriculture as the engine Production linkages (backward and forward) Consumption linkages Labor market linkages Investment linkages Spatial linkages

57 Rice Marketing in Bangladesh, 1990 Consumer purchases Vol=8.5 MMT Retailing Rice Retailers N=37,000 vol = 8 MMT Govt Ration Shops Rice trade Rice Traders N=33,000 vol = 8 MMT DG Food Milling Husking mills N=31,000 vol = 8.8 MMT Small mills and crushers N=52,000 vol = 7.3 MMT Large mills N=500 vol = 1.2 MMT Paddy trade Paddy traders N=57,000 vol = 8.3 MMT Farming Farms N=9 million non-marketed home consumption, vol = 8.8 MMT marketed paddy vol = 8.5 MMT Channel 1 Channel 2 Channel 3 Channel 4

58 Rice Marketing in Bangladesh, 1990 Consumer purchases Vol=8.5 MMT Retailing Rice Retailers N=37,000 vol = 8 MMT Govt Ration Shops Rice trade Rice Traders N=33,000 vol = 8 MMT DG Food Milling Husking mills N=31,000 vol = 8.8 MMT Small mills and crushers N=52,000 vol = 7.3 MMT Large mills N=500 vol = 1.2 MMT Paddy trade Paddy traders N=57,000 vol = 8.3 MMT Farming Farms N=9 million non-marketed home consumption, vol = 8.8 MMT marketed paddy vol = 8.5 MMT Channel 1 Channel 2 Channel 3 Channel 4

59 Rice Marketing in Bangladesh, 1990 Consumer purchases Vol=8.5 MMT Retailing Rice Retailers N=37,000 vol = 8 MMT Govt Ration Shops Rice trade Rice Traders N=33,000 vol = 8 MMT DG Food Milling Husking mills N=31,000 vol = 8.8 MMT Small mills and crushers N=52,000 vol = 7.3 MMT Large mills N=500 vol = 1.2 MMT Paddy trade Paddy traders N=57,000 vol = 8.3 MMT Farming Farms N=9 million non-marketed home consumption, vol = 8.8 MMT marketed paddy vol = 8.5 MMT Channel 1 Channel 2 Channel 3 Channel 4

60 Agriculture as the engine Production linkages (backward and forward) Consumption linkages Labor market linkages Investment linkages Spatial linkages

61 Production and consumption linkages Initial Ag Additional Income Growth Source of linkages Income Growth Other Ag Nonfarm Total Cons Prodn Asia % 19% Africa % 13% Latin Am % 58%

62 Production and consumption linkages Initial Ag Additional Income Growth Source of linkages Income Growth Other Ag Nonfarm Total Cons Prodn Asia % 19% Africa % 13% Latin Am % 58%

63 Production and consumption linkages Initial Ag Additional Income Growth Source of linkages Income Growth Other Ag Nonfarm Total Cons Prodn Asia % 19% Africa % 13% Latin Am % 58%

64 Agriculture as the engine Production linkages (backward and forward) Consumption linkages Labor market linkages Investment linkages Spatial linkages

65 Labor market linkages Agriculture Nonagriculture services cottage industry trade total nonag Slow agric. Wage rate (tk/hr) Growing Agricultural Regions (% increase) Wage rate 29% 4% 90% 195% 59% Employ -ment 8% 30% -81% -28% -29% income 40% 35% -63% 113% 12%

66 Labor market linkages Bangladesh Agriculture Nonagriculture services cottage industry trade total nonag Slow Agric. Wage rate (tk/hr) Growing Agricultural Regions (% increase) Wage rate 29% 4% 90% 195% 59% Employ -ment 8% 30% -81% -28% -29% income 40% 35% -63% 113% 12%

67 Labor market linkages Bangladesh Agriculture Nonagriculture services cottage industry trade total nonag Slow Agric. Wage rate (tk/hr) Growing Agricultural Regions (% increase) Wage rate 29% 4% 90% 195% 59% Employ -ment 8% 30% -81% -28% -29% income 40% 35% -63% 113% 12%

68 Labor market linkages Bangladesh Agriculture Nonagriculture services cottage industry trade total nonag Slow Agric. Wage rate (tk/hr) Growing Agricultural Regions (% increase) Wage rate 29% 4% 90% 195% 59% Employ -ment 8% 30% -81% -28% -29% income 40% 35% -63% 113% 12%

69 Labor market linkages Bangladesh Agriculture Nonagriculture services cottage industry trade total nonag Slow Agric. Wage rate (tk/hr) Growing Agricultural Regions (% increase) Wage rate 29% 4% 90% 195% 59% Employ -ment 8% 30% -81% -28% -29% income 40% 35% -63% 113% 12%

70 Investment linkages Bangladesh Ghana India Sierra Leone Nonfarm rural startup capital from agriclture 33% 71% 31% 38%

71 Spatial growth linkages India Initial Agric Income Growth 1.00 Rural.26 Resulting increase in nonfarm income Regional towns.51 Total regional.77 Kenya Mexico

72 Growth linkages run in both directions Production linkages Consumption linkages Labor market linkages Investment linkages Spatial linkages

73 RNF as the engine: Other motors of nonfarm growth Technology Export markets Foreign investment Globalization, consolidation

74 Supermarket growth Latin America Supermarket share of food retailing 1990 s 20% 2000 s 60% China Kenya 30% 6% 48% 21%

75 Zambian Food Retailers Adjust to the Arrival of Shoprite a. before Shoprite b. after Shoprite Urban food consumption, 1990 Urban food consumption, 2000 Retailing Market stalls, Retail Shops, Market stalls, Retail Shops Shoprite Wholesaling/ Import Wholesalers, Importers Wholesalers, Importers Processing Local processors Local processors Farming Zambian Farmers Imports Zambian Farmers Imports Inputs Farm Input Suppliers Farm Input Suppliers Channel 1 Informal Suppliers Channel 2 Formal Zambian Suppliers Channel 1 Informal Suppliers Channel 2 Formal Zambian Suppliers Channel 3 Shoprite

76 Zambian Food Retailers Adjust to the Arrival of Shoprite a. before Shoprite b. after Shoprite Urban food consumption, 1990 Urban food consumption, 2000 Retailing Market stalls, Retail Shops, Market stalls, Retail Shops Shoprite Wholesaling/ Import Wholesalers, Importers Wholesalers, Importers Processing Local processors Local processors Farming Zambian Farmers Imports Zambian Farmers Imports Inputs Farm Input Suppliers Farm Input Suppliers Channel 1 Informal Suppliers Channel 2 Formal Zambian Suppliers Channel 1 Informal Suppliers Channel 2 Formal Zambian Suppliers Channel 3 Shoprite

77 Thai Silk Subsector, 1990 Traditional Thai Consumers (500 M baht) Modern Thai Silk, Export and Tourist Market (4,500 M baht) Retailing Weaving Yarn Trading Traditional Household Producers Yarn Traders n=100 Weaving factories n=140 Jim Thompson Silk Reeling n=295,000 Household Yarn Producers n=65,000 Reeling mills n=1 Rearing traditional cocoons hybrid cocoons n=7 Hybrid egg multiplication Dept of Ag. Extension (DOAE) n=8 Channel 1 Channel 2 Channel 3 Channel 4

78 Thai Silk Subsector, 1990 Traditional Thai Consumers (500 M baht) Modern Thai Silk, Export and Tourist Market (4,500 M baht) Retailing Weaving Yarn Trading Traditional Household Producers Yarn Traders n=100 Weaving factories n=140 Jim Thompson Silk Reeling n=295,000 Household Yarn Producers n=65,000 Reeling mills n=1 Rearing traditional cocoons hybrid cocoons n=7 Hybrid egg multiplication Dept of Ag. Extension (DOAE) n=8 Channel 1 Channel 2 Channel 3 Channel 4

79 Thai Silk Subsector, 1990 Traditional Thai Consumers (500 M baht) Modern Thai Silk, Export and Tourist Market (4,500 M baht) Retailing Weaving Yarn Trading Traditional Household Producers Yarn Traders n=100 Weaving factories n=140 Jim Thompson Silk Reeling n=295,000 Household Yarn Producers n=65,000 Reeling mills n=1 Rearing traditional cocoons hybrid cocoons n=7 Hybrid egg multiplication Dept of Ag. Extension (DOAE) n=8 Channel 1 Channel 2 Channel 3 Channel 4

80 Thai Silk Subsector, 1990 Traditional Thai Consumers (500 M baht) Modern Thai Silk, Export and Tourist Market (4,500 M baht) Retailing Weaving Yarn Trading Traditional Household Producers Yarn Traders n=100 Weaving factories n=140 Jim Thompson Silk Reeling n=295,000 Household Yarn Producers n=65,000 Reeling mills n=1 Rearing traditional cocoons hybrid cocoons n=7 Hybrid egg multiplication Dept of Ag. Extension (DOAE) n=8 Channel 1 Channel 2 Channel 3 Channel 4

81 Thai Silk Subsector, 1990 Traditional Thai Consumers (500 M baht) Modern Thai Silk, Export and Tourist Market (4,500 M baht) Retailing Weaving Yarn Trading Traditional Household Producers Yarn Traders n=100 Weaving factories n=140 Jim Thompson Silk Reeling n=295,000 Household Yarn Producers n=65,000 Reeling mills n=1 Rearing traditional cocoons hybrid cocoons n=7 Hybrid egg multiplication Dept of Ag. Extension (DOAE) n=8 Channel 1 Channel 2 Channel 3 Channel 4

82 Which engine is more powerful? Ethiopia Block (1999) Agriculture Initial Income Growth 1.00 Resulting Additional Gains in National Income Ag.09 nonfarm.45 Total GDP.54 Modern industry Traditional industry

83 Which engine is more powerful? Ethiopia Block (1999) Agriculture Initial Income Growth 1.00 Resulting Additional Gains in National Income Ag.09 nonfarm.45 Total GDP.54 Modern industry Traditional industry

84 Distributional impact of alternate 1% sectoral income shocks Income gain, Foodgrains Export Crops Manufacturing 8 African countries Rural poor 3.0% 2.5% 1.5% Urban poor 1.2% 1.3% 1.9%

85 Distributional impact of alternate 1% sectoral income shocks Income gain, Foodgrains Export Crops Manufacturing 8 African countries Rural poor 3.0% 2.5% 1.5% Urban poor 1.2% 1.3% 1.9%

86 3. Can the RNFE serve as an alternate engine of pro-poor growth?

87 3. Can the RNFE serve as an alternate engine Characteristics of powerful engines of pro-poor growth Tradable of pro-poor growth? Big Pro-poor direct effects Strong sectoral linkages

88 3. Can the RNFE serve as an alternate engine of pro-poor growth? Characteristics of powerful engines of pro-poor growth Tradable Characteristics of the RNFE No, mostly nontradable commerce and services Big Pro-poor direct effects Strong sectoral linkages

89 3. Can the RNFE serve as an alternate engine of pro-poor growth? Characteristics of powerful engines of pro-poor growth Tradable Big Pro-poor direct effects Characteristics of the RNFE No, mostly nontradable commerce and services Big, but heterogeneous. So each individual RNF activity is typically small. Strong sectoral linkages

90 3. Can the RNFE serve as an alternate engine of pro-poor growth? Characteristics of powerful engines of pro-poor growth Tradable Big Pro-poor direct effects Characteristics of the RNFE No, mostly nontradable commerce and services Big, but heterogeneous. So each individual RNF activity is typically small. Some yes, some no Strong sectoral linkages

91 3. Can the RNFE serve as an alternate engine of pro-poor growth? Characteristics of powerful engines of pro-poor growth Tradable Big Pro-poor direct effects Strong sectoral linkages Characteristics of the RNFE No, mostly nontradable commerce and services Big, but heterogeneous. So each individual RNF activity is typically small. Some yes, some no Some, especially investment

92 Can RNF serve as an alternate engine of pro-poor growth? NOT ALWAYS What activities? Where? Here rural There rural rural town urban Agriculture AG AG Nonfarm RNF RNF RTNF UNF

93 In very poor countries, Agriculture is a more powerful poverty reducing engine RNFE is a poor engine But it can be a significant handmaiden, if - led by pro-poor agricultural growth - facilitated by good rural infrastructure

94 In middle-income countries, urban nonfarm can begin to serve as an alternate engine of rural growth Transport corridors Export markets, urban-torural subcontracting

95 What activities? Where? Here rural There rural rural town urban Agriculture AG AG Nonfarm RNF RNF RTNF UNF

96 Conclusion Lots of poor depend on the RNFE But RNFE growth doesn t automatically benefit the poor RNFE is not a reliable engine of growth But can be strong handmaiden Requires policy support and situationspecific diagnostics to facilitate participation by the poor

97 Conclusion Lots of poor depend on the RNFE But RNFE growth doesn t automatically benefit the poor RNFE is not a reliable engine of growth But can be strong handmaiden Requires policy support and situationspecific diagnostics to facilitate participation by the poor

98 Cassava supply channels, Madagascar 1999 Markets Marketed human consumption fresh 8% dried 12% Animal feed 12% Export 1% Retailing Retailers Feed retailers Export Processor s Feed mills Processing Regional transport, storage and Wholesalers Regional traders Assembly Collectors Collectors Drying Production Farm household production & consumption, fresh cassava Vol=656 (40%) Onfarm animal feed, fresh cassava Vol=330 (20%) Fresh sales Vol=12 3 (8%) Farm hh cons, dried cassava Vol=107 (7%) Onfarm drying Vol=412 (25%)