Rural Non Farm Employment – getting the jobs done

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

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Rural Non Farm Employment – getting the jobs done

  1. 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. 2. Overview 1. Definition and conceptual issues 2. Dimensions and change 3. On linkages (of various types) 4. Policy considerations
  3. 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. 4. Unemployment rates by region, 1995-2004 (%) Source: Tarantino 2003
  5. 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. 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. 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. 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. 9. Overview 1. Definition and conceptual issues 2. Dimensions and change 3. On Linkages (of various types) 4. Policy considerations
  10. 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. 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. 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. 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. 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. 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. 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. 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. 18. Overview 1. Definition and conceptual issues 2. Dimensions and change 3. On Linkages (of various types) 4. Policy considerations
  19. 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. 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. 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. 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. 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. 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. 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. 26. 3. Services and industry – linkages • Finance and credit • Insurance services in rural areas (facilitating more risky employment) • Infrastructure (transport, communications)
  27. 27. 4. Human capital conditioned employment linkages • Nutrition • Health • Education (and, for instance, child labor)
  28. 28. Overview 1. Definition and conceptual issues 2. Dimensions and change 3. On Linkages (of various types) 4. Policy considerations
  29. 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. 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. 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. 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. 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. 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. 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. 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. 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

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