Executive Summary
This report summarises the findings from more than 55 studies of rural economies and the rural
non-farm economy (RNFE), most of them financed by DFID. It relates these to the existing
understanding of the RNFE in the literature and tries to draw out policy implications.
In brief it reports that:
· The RNFE is an important part of the rural economy in almost every case, providing
between 40 and 60% of incomes and jobs in rural areas;
· Much of RNF activity arises in trading and in the processing of agricultural and other
primary products. Rural manufacturing tends to comprise only a small part of the RNFE;
· Much of the RNFE provides goods and services for the local, rural economy. Little of it is
tradable and earns incomes outside of the immediate rural context. In large part, then, its
growth depends on that of other rural activities, above all, agriculture;
· The RNFE may be seen as divided into much activity that is small-scale, uses little capital,
and which is low productivity and offers low returns, often little better than farm labouring;
and activities that operate at larger scale, with more capital investment, and generating
better returns to labour than can be had in most kinds of farming;
· Since the former category is accessible to the rural poor, the RNFE is essential in mitigating
poverty and preventing destitution, but it is less clear that it can eradicate poverty.
Moreover, since it is the better-off who can generally access the well-rewarded RNF
activities, the RNFE may exacerbate inequalities. But much depends on the ability of RNF
enterprises to create jobs and so distribute the benefits across rural societies. At the same
time, if some rural non-farm activities provide support to growth sectors (e.g. in the case of
agriculture, input supply, equipment manufacturing and distribution, transport, repairs, etc)
then it may indirectly play an important role in poverty alleviation by enabling poverty
reduction elsewhere (in this case in agriculture).
Policy implications include:
· The RNFE cannot be expected, in most cases, to drive the rural economy. There may
however be niche markets to exploit; such opportunities would benefit from targeted
interventions such as reduction of import duties, corporate taxes, and administrative and
bureaucratic requirements; improvement in communications and in transport
infrastructure; and provision of credit, extension and advice services. None of this is
entirely novel to development practitioners; policy for the RNFE may be more a matter of
attending to some well-known areas rather than advocating novel approaches. A clear need
is to identify models of successful intervention in these areas (for example in rural
manufacturing, tourism and non-agricultural primary activities).
· Basic elements of an RNFE policy include the importance of having the physical
infrastructure in place and universal education. There is much to be done to resolve the
credit and finance bottleneck. Fortunately, the lessons of micro-finance are being learned
and may provide useful lessons and application for the RNFE. Providing business support
services in training, technical assistance and information is indicated, but it is not clear
where the models lie.
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· If there are novel departures, then the advocates of supply chain analysis, and of the
potential for clustering of rural business, have ideas that merit attention. But their ideas may
apply first and foremost to rural manufacturing, tourism and non-agricultural primary
activities that may, in most cases, apply to a minor part of the RNFE.
· In drawing up PRSPs, policy-makers have given little or no explicit attention to the RNFE.
Nevertheless, strategies that see only farming in the countryside can miss RNFE
opportunities and issues, and policies that stress decentralisation (e.g. predatory and
capricious local governments) may actually produce threats to the micro businesses that
make up a large and important part of the RNFE.
· Generally speaking, rural areas are poorly serviced with the physical infrastructure required
to access national market centres, or export points. Planning departments need to ensure
that the rural-urban split of resources dedicated to infrastructure provision is fair, and this
may necessitate lobbying by local government and other relevant agencies.
· Information on market opportunities should be made more readily available. This should
include not only an initial study to identify viable markets for rural producers, but a regular
flow of information that provides reliable market intelligence. It could be used not only to
give producers an idea of price trends, but also, for example, opportunities for product
customisation.
· It is well recognised that poorly functioning financial systems in rural areas are an
impediment to growth, but the development of credit co-operatives and micro-credit
organisations should be complimented with training on how to develop business plans and
approach financial institutions. Issues relating to the effective targeting of credit and
appropriate terms of repayment require further research, although the notable successes in
the field are numerous enough to provide some useful guidance.
· An important component of good practice projects, training can be delivered through a
variety of media. Training should be delivered not only to ‘core’ project clients but also to
other key players in the product chain, although how to do this over wide areas, while
catering for a variety of stakeholders is at present unclear.
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1 Introduction
This report is part of growing volume of empirical work on the rural non-farm economy and
livelihood diversification among the poor. The work presented in this report is based on a review
of 55 DFID financed RNFE and livelihood diversification projects, programmes and research
comprising rural household survey and other field-related research projects representing a broad
range of methodologies borrowed from economics, sociology and social anthropology. Over the
past three years, DFID has funded policy research work and dialogue in four regions of the
world on aspects of the RNFE through the WB-DFID collaborative programme. In particular,
this has included work in Africa (Uganda), Asia (India and Bangladesh), Latin American
Countries (LAC, South and Central America) and Central and Eastern European Countries and
the Commonwealth of Independent States (CEE/CIS) (Armenia, Georgia, and the Balkans).
This document is intended to be read in conjunction with the following papers: (i) by Davis &
Bezemer (2003) on key emerging and conceptual issues of the rural non-farm economy in
developing and transition countries; (ii) RNF access issues and best practice in RNFE project
design by Wandschneider (2003); and (iii) key issues on the RNFE by Wiggins (2003). The rural
non-farm economy (RNFE) is of interest to governments, bilateral and multilateral donor
agencies, non-governmental organisations (NGOs) and development practitioners because of its
prevalence in both developing and transition economies. In many parts of the world, the number
of poor people in rural areas exceeds the capacity of agriculture to provide sustainable livelihood
opportunities. Even with a decline in fertility rates and a slowing of population growth, this
situation will not change significantly. Out-migration is not possible for all types of people, and
urban centres cannot (or should not, for economic and social reasons) be assumed capable of
providing adequate livelihood opportunities for all those unable to make a living in agriculture.
For these reasons, a healthy RNFE holds out the prospect of improved livelihoods for people
living in rural areas. This set of circumstances puts the spotlight on the RNFE as a potential
vehicle for poverty reduction in rural areas.
2 What is the rural non-farm economy?
The rural non-farm economy (RNFE) may be defined as comprising all those non-agricultural
activities which generate income to rural households (including income in-kind and remittances),
either through waged work or in self-employment. In some contexts, rural non-farm activities are
also important sources of local economic growth (e.g. tourism, mining, timber processing, etc).
The RNFE is of great importance to the rural economy because of its production linkages and
employment effects, while the income it provides to rural households represents a substantial and
sometimes growing share of rural incomes. Often this share is particularly high for the rural poor.
There is evidence that these contributions are becoming increasingly significant for food security,
poverty alleviation and farm sector competitiveness and productivity.
The RNFE can be defined/ classified on many dimensions: on-farm/off-farm, wage/selfemployment,
agriculturally related/otherwise, etc. An ideal classification of the RNFE should
capture some or all of the following distinctions:
· Activities closely linked to farming and the food chain, and those not part of that chain -
since agricultural linkages are often important determinants of the RNFE’s potential for
employment and income generation;
· Those producing goods and services for the local market, and those producing for distant
markets (tradables) - since the latter have the chance to create jobs and incomes
independently of the rural economy; and,
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· Those that are sufficiently large, productive, and capitalised to generate incomes above
returns obtainable in farming, and those that offer only marginal returns - since this reflects
the RNFE capacity to generate local economic growth. Although low return activities can
maintain households above the poverty line; they usually do not foster growth.
Why are policymakers and economists interested in the RNFE? And why should policymakers
and donors invest in rural areas (and thus in the RNFE)? Just because most of the poor live in
rural areas is as much an argument for social welfare as e
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