The rural non-farm economy: prospects for growth and poverty reduction

Non-farm earnings account for 35 to 50 per cent of rural household income across the developing world. Landless and near-landless households everywhere depend heavily on non-farm income for their survival, while agricultural households count on non-farm earnings to diversify risk, moderate seasonal income swings and finance agricultural input purchases. Over time, the rural non-farm economy (RNFE) has grown rapidly, contributing significantly to both employment and rural income growth. This paper gives a descriptive profile of the rural non-farm economy and discusses the rural dynamics and internal processes of rural growth and change as well as the impact of growing globalisation and urbanisation on rural non-farm activity. <br /><br />The publication presents the following characteristics of RNFE:<br /> size: RNFE accounts for about 30 per cent of full-time rural employment in Asia and Latin America, and 20 per cent in West Asia and North Africa composition: it is composed of a highly heterogeneous collection of trading, agro-processing, manufacturing, commercial and service activities equity implications: its extreme heterogeneity results in widely varying productivity and profitability dynamics: it is characterised by shifting motors of rural economic growth, and pull factors which result in towns attracting rural workers leading to rural-to-urban migration.<br />The paper examines the conditions under which the two preconditions for pro-poor growth of the RNFE can be met. Available evidence suggests the RNFE can significantly expand economic opportunities for the rural poor if the following conditions hold:<br /> the RNFE must be growing robustly&nbsp;&ndash; from a policy perspective this requires investments in agricultural technology, rural education, communications, transportation and electrification, plus a favorable policy environment access by the poor to growing non-farm market niches &ndash; this requires investment in rural education and health in order to improve the existing human capital stock of the poor and the removal of existing economic and social barriers that limit entry by the poor into lucrative non-farm professions.<br />The authors go on to make further observations and suggestions.<br /> Poverty-reducing rural non-farm growth requires an aggregate increase in rural non-farm income coupled with growing income per worker. Investments must be made in the productive capacity and productivity of rural tradables such as agriculture, tourism or natural resource-based activities in order to ensure their competitiveness in external markets. Where low-cost rural labour and low transportation costs coincide, rural households can compete in urban or export markets through commuting, short-term migration or urban-to-rural subcontracting arrangements.<br />