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Minutes of the Workshop on Non-Farm Rural Development

Sustainable Rural and Urban Development

Rural Non-farm Sector and Poverty Alleviation: Current Thinking and Future Opportunities

Overview and objectives of workshop
Opening remarks by Alex McCalla
Household-level issues amongst the rural poor by Ann Gordon
Policy framework examined by Peter Lanjouw
Summation by Tom Reardon
Future topics for research
Topics for debate
Closing remarks by Alex McCalla

Overview and objectives of workshop
The World Bank’s Rural Network and the UK Department for International Development (DFID) through its partnership programme with the Rural Development Department of the Bank have been financing analytical work on the rural non-farm sector, drawing on international research knowledge and on country experiences. A workshop was held on 9 June 1999, jointly sponsored by the Bank’s Rural Sector Board and DFID, and co-ordinated by Gershon Feder and Felicity Proctor, on behalf of these two agencies respectively. The objectives of the workshop were to consider the implications of current understandings for policy and project interventions and for future research. Researchers Ann Gordon and Walter Pfluger (both of the UK Natural Resources Institute of the University of Greenwich), Peter Lanjouw (World Bank and Free University of Amsterdam) and Tom Reardon (Michigan State University and FAO), presented their emerging findings to a cross section of about forty staff from country units and specialist groups with interests in rural development, poverty alleviation, economic growth and human development. Martin Hebblethwaite of the Natural Resources Institute drafted this record of the proceedings. Henry Sandee (Free University of Amsterdam) also participated in the discussions.

Opening remarks by Alex McCalla
Alex McCalla, Director, Rural Development Department, opened the workshop, drawing attention to the high priority placed upon the rural non-farm sector both by the Bank’s Rural Sector Board and by DFID. Walter Pfluger then set the scene for the subsequent speakers and discussion, by summarising the importance of this sector, as a contributor to income, employment and poverty alleviation. This is due to a range of "distress-push factors" within rural areas, relating in part to trends in the farm sector, and "demand-pull factors" relating to opportunities in the non-farm sector. As with the subsequent speakers, the complexity and heterogeneity of activities, factors and inter-relationships were emphasised. As well as in-situ employment, migration and remittances can be important in diversification and sustainability of rural livelihoods. Also recognised was the institutional challenge posed by the multi-faceted nature of the sector. The policy environment relevant to facilitation of rural non-farm sector development embraces macro-economic policy, agriculture, education, infrastructure, financial and other business services. A policy framework spanning these policy areas is needed.

Household-level issues amongst the rural poor by Ann Gordon
Ann Gordon focused on household-level issues amongst the rural poor. Reasons to diversify income sources relate to seeking some income stability in the face of vulnerability and risk (distress-push), as well as to increase income levels and invest in skills or assets for long-run income prospects. Many of the rural poor are landless or small farmers, and they tend to move into low entry-barrier, poorly-paid, non-farm employment. Women are prominent amongst the rural poor, and their access to employment options can be more limited. Access factors are recognised as including health and nutrition, education, finance, land ownership, social networks, household composition and infrastructure. Policy and research agendas should span these factors. In addition, they should reflect a pro-poor focus and the intrinsic heterogeneity of the sector, and might include decentralisation as an enabling institutional process.

Policy framework examined by Peter Lanjouw
Peter Lanjouw examined further the policy framework. The national policy environment often contains biases against the small-scale rural non-farm sector. In particular, distortions in capital markets can be influential, with government intervention in interest rates tending (usually inadvertently) to place small rural enterprises at an increased disadvantage relative to large urban firms. Similarly, Government management of import tariffs and licences tends to hurt smaller firms located in rural areas. Labour market distortions are assessed as being less significant. Given the importance of linkages between farm and non-farm sectors, especially in the early development phase of the latter, the common policy bias against agriculture will also have inhibited the rural non-farm sector. Turning from biases in the economic policy environment to other policy fields, improved education provision in rural areas is seen as necessary but not sufficient for entry into salaried employment. In a situation of a scarcity of such employment, educational attainment may be a criterion for rationing, and ethnicity, gender, caste and ability to pay a bribe can all help determine who gets the salaried jobs. Consequently, benefits to higher non-farm incomes from education expansion will tend to be limited, unless there is potential for major take-off in a skill-intensive, high-productivity sub-sector. Casual non-farm employment, including public works schemes, represents a different employment category, but one which can be very important as a safety net for the rural poor, with both a direct job creation contribution and a possible wage-enhancing effect in the agricultural labour market. Concerning policy for roads, power and telecommunications infrastructure, improved provision should facilitate the rural non-farm sector through reduced transactions costs for rural enterprises and service providers, provided there are not biases against this sector in the overall incentive environment. A current policy challenge is to avoid the rural sector being left in a vacuum as a consequence of the recent push towards increased private sector service provision.

Overall, the great heterogeneity of the rural non-farm sector indicates little scope for specific policy prescriptions, but some organising principles could be drawn out at least on aspects and regions where there is some degree of commonality. The policy of decentralisation can facilitate responsiveness in decision-making to specific local conditions and, if this includes local-level democratisation (elected local representatives), distributional goals are less at risk of being compromised.

Summation by Tom Reardon
Tom Reardon drew upon and further elaborated aspects of the previous speakers’ presentations, and made particular reference to linkage aspects. Growth in the farm sector can induce increased upstream (input supply) and downstream (processing and distribution) non-farm sector activity. Also, consumption and investment linkages can arise across the two sectors. Linkages to the rural non-farm sector are stronger when technical change and growth in agriculture is based on smallholders rather than on large landholders. The nature of rural non-farm activity tends to differ between regions, and there is also much variety within regions. Overall, Africa and South Asia are regarded as at the first stage of transformation in this sector, in which rural non-farm activity is in the countryside rather than in rural towns and is directly linked to agriculture, producing goods and services for local consumption. Latin America tends to be at the second stage of transformation, with more activities not linked to agriculture, a lesser livelihood dependency on agriculture, more rural-urban links, emergence of sub-contracting of rural companies and rapid agro-industrialisation. East Asia is seen as at a third stage, with intensification of second stage characteristics. In a particular zone, the nature and performance of local agriculture can affect the development of the rural non-farm sector through eg agricultural product availability and price determining options and profitability of processing, food price effects on wages, and effects of intensity and seasonality of labour use in agriculture on non-farm labour costs.

Conversely, the nature of rural non-farm activity can affect agriculture. Non-farm activity can generate cash in households which may be used for agricultural input procurement and which may also lower household income risk, both impacts thereby influencing farm enterprise and technology choice and possibly breaking the vicious cycle of poverty and land degradation. Non-farm activities can compete with farm activities in the use of household resources (funds and labour), so that the opportunity costs across these two sectors need to be considered when devising agricultural programmes. Rural non-farm sector "upstream" and "downstream" conditions can facilitate or constrain the farm sector. Rural sector strategy should promote "linkage-friendly" activities. Also, urban-rural business links can be promoted, eg rural suppliers to urban enterprises.

Future topics for research
The research team had developed the following list of possible further topics for research, as a basis for discussion at the workshop:

  • The rural non-farm sector and the macro-economy
    • economic shocks and the rural non-farm sector
    • impacts of macro-economic policy
    • impacts of agricultural policy
  • Location and the non-farm sector
    • clustering
    • small towns
    • the role of savings
    • the role of social capital
  • Issues relating to access
    • education
    • rationing
    • rural infrastructure
    • decentralisation
    • health
    • gender/age
  • Understanding/describing the non-farm sector
    • poverty issues
    • farm/non-farm linkages

Topics for debate
Discussion on the presentations and on this possible research menu emphasised the following topics:

  • more description and analysis of the composition of the rural non-farm sector, with a poverty perspective, taking into account the livelihood patterns of those with little or no access to land, and the distinction between livelihood activities as safety nets and as pathways out of poverty;
  • operational guidelines for rural economy analysis, including linkage mapping between farm and non-farm sectors to identify pathways for poverty reduction and underlying factors;
  • a framework for best practice in infrastructural investment and rural non-farm employment creation, and the involvement of the private sector;
  • technology and product choice in agriculture, the globalising food economy and impact on the rural non-farm sector and poverty, including the roles of NARS and IARCs;
  • approaches to facilitating people’s mobility and flexibility in where they live and seek incomes;
  • the transition from traditional or micro enterprises to small businesses, and the potential enabling roles of different institutions;
  • the clustering of rural businesses and the role of small rural towns as engines of growth;
  • issues and approaches in diverting remittances from conspicuous consumption, (eg large houses) to productive rural investment;
  • gender dimension – women benefiting or losing out in particular rural diversification situations;
  • the particular situation of transition economies, in which many of the above topics are relevant, with a pressing need to avoid an influx of rural migrants to urban areas and for specific guidance;
  • institutional framework for the rural non-farm sector and, within this, the role of government, of decentralisation, and of universities as providers of information, including on market opportunities;
  • implications of grades, standards and regulation of the activity and products from the non-farm rural sector, and factors which may in the short or medium term become barriers to market entry, taking into account support which may be facilitated by the World Trade Organisation and the extent to which this will reach the rural poor;
  • given the complexity, the possible scope for identifying key factors in promoting opportunities and access in the rural non-farm sector, and the need to be alert to the possibility of negative effects of interventions in one policy area on the poor active in another area;
    specifically, the dynamics of education and the rural non-farm sector, including migration, and optimising trade-offs between investment in rural education, infrastructure etc.

Closing remarks by Alex McCalla
Alex McCalla closed the workshop discussion. He observed the richness but heterogeneity, which posed a challenge in deriving generalisable approaches, and the need to be alert to the limitations of the latter. Nevertheless, the research does appear to indicate discernible patterns and trends. Within these, many aspects appear to be common to farm and rural non-farm sector development, in which case we should, in part, be seeking policy and investment frameworks jointly promoting both sectors. The rural non-farm sector can function in providing safety nets for poor people, and as an upward path out of poverty. What can we say on the rural non-farm sector’s role in distribution of benefits from growth? Also, what can we say on any limits to the general concept of non-farm sector development being led by agricultural growth? More information is needed on the inter-relation of the farm and non-farm sectors and migration. We need a strategic approach, informed by a better understanding of factors favouring desirable trends, which itself needs organised thought on the need for additional information. While recognising that there may be some merit in best practice analysis, such work is better set within a clustering of countries of similar characteristics.

The workshop was followed on the following day by a discussion between the researchers and a working group comprising participants from the Rural Sector Board, country units and other specialist groups, with the purpose of identifying follow-up action. Gershon Feder chaired the session.

After reflecting on the workshop presentations and discussion, the working group reached the following conclusions:

A.  Research

  • A foundation paper is needed, building upon and consolidating the work to date, as enriched by these discussions, and taking a welfare economics framework to identify areas of market and government failure.
  • Barriers to entry into the rural non-farm sector is an important aspect, including the role of public sector intervention in situations where market mechanisms are inadequate for poverty alleviation goals, and considering a framework which identifies win/win and trade-off situations in growth and poverty alleviation.
  • There is need for a fuller characterisation and explanatory analysis of the rural non-farm sector, with particular reference to the transitional economies.
  • The inter-action between national economic structure, the regional and international context and national policy for development of the rural economy comprising the farm and non-farm sectors is a very wide topic, on which more case studies of specific rural economies at national level and their generic characterisation are needed.
  • Rural financial service provision is important, including consideration of characteristics of sustainable financial services for the non-farm sector relative to the farm sector; seasonality in the latter may be an important distinguishing constraint. The outcome from this meeting should be shared with those within the ongoing programme of the World Bank in micro-finance, to ensure and confirm that key elements are integrated.
  • The case for research on decentralisation requires further consideration, distinguishing between characteristics and impact, and assessing whether, in design and impact of decentralisation strategies and programmes, there is any differentiation between rural non-farm and farm sectors.

B.  Operational Guides
The following guides on best practice are needed:

  • Diagnostic methodologies for describing and analysing the rural non-farm sector, in terms of composition, roles, trends and barriers to entry.
  • A set of best practice case studies, on aspects such as the establishment of small scale industrial estates, set in a regional context.

The working group’s meeting was then closed. The above conclusions were taken away by the sponsors of the workshop, the Bank’s Rural Sector Board and DFID, for consideration of actions to be taken.

Natural Resources Institute, 16 June 1999

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