De Los Rios, Carlos, 2014, Harnessing the Potential of the Nonfarm Economy for Smallholders in Latin America, Thematic evaluation

2.4 APPROACHES TO ENHANCE LIVELIHOODS, EQUITY AND INCLUSION

2.4.2. Social inclusion promotion (awareness raising on social inclusion in IE)

Recommendation: 

6) When designing programming with people dependent on the IE, promote focus on the rural nonfarm economy. This should not be to the exclusion of urban communities. Such support provides for poverty reduction of IE operators and workers in rural areas but may also contribute to strengthening rural economies (local economic development) and product/services shortages in rural markets shortages.

Facilitate a four component strategy to analyse market conditions of particular areas and plan concrete intervention aimed at strengthening the rural nonfarm economy. Such strategy would be composed of:

• Identifying potential drivers of growth which may include financial and personal services, trade and transportation, manufacturing, construction and mining
• Developing rural infrastructure
• Promoting access to markets
• Building human capital

Reference: De Los Rios, Carlos, 2014, Harnessing the Potential of the Nonfarm Economy for Smallholders in Latin America, Thematic evaluation, ELLA Policy Briefly, Practical Action, Lima, Evaluation focused on smallholder farmers and rural development in Latin American countries.

Evidence sample: the study found that, over the last decade, the rural nonfarm economy has attracted increasing attention from researchers and policymakers for its potential to contribute to rural development and its increasing importance as a source of income in rural areas. In poor agrarian economies characterised by low agricultural productivity, rural nonfarm economic activities are seen as an alternative to agriculture for stimulating rural development. In emerging economies, the rural nonfarm economy is expected to absorb households that are unable to participate in capital-intensive modes of production or more demanding markets. Given the relatively low capital requirements for farmers in the nonfarm economy, policymakers in both settings view it as a promising mechanism for stimulating local economic development and contributing to poverty reduction efforts. As highlighted by the paper, in Latin America, nonfarm activities carried out by rural households are distributed between financial and personal services (34%), trade and transportation (23%), manufacturing (22%), and construction, mining and others (21%); similar shares as the ones seen in West Asia and North Africa. Across the region, nonfarm wage employment has experienced significant growth over the last decade, reaching 32% of total rural incomes in 2009, while self-employment income shares have remained stable at 12% of total rural income.

1.Identifying potential drivers of growth: In order to strengthen the rural nonfarm economy, it is first important to determine the key activities and factors that drive economic growth within a particular territory. In areas with large agricultural productivity and trade opportunities, labour and capital can be attracted into complementary nonfarm activities such as tourism and mining. In such contexts, agriculture is the main engine of growth and the main driver of rural nonfarm economies

2. Developing rural infrastructure: Rural nonfarm activities in Latin America are mostly developed around locations close enough to markets of a certain size. As various studies have documented, backing investments in rural infrastructure is extremely important to close the gap between rural areas and big urban ones. As infrastructure improves and market barriers fall with development, rural population become ‘closer’ to urban areas, and the degree of market interaction enhances, leaking into the rural economy. Also, as rural-urban connectivity improves, rural households become more dependent on urban markets and social networks, and the productivity of rural nonfarm activities often increases as a result. Likewise, improving rural infrastructure increased the participation of nonfarm incomes in the local economy.

3. Promoting access to markets: In order to move poor households from “refuge” nonfarm activities to more productive ones, improving access to agricultural markets is fundamental. Traditionally, producers’ associations and cooperatives were established to overcome poor access to markets for smallholder farmers.  Three new different approaches were unfolding for the last decade:

- The value chain model, which considers all actors in a particular market system, from input supply through to end market retailers, service providers, and public and private decision-makers in the enabling environment.

- Contract farming, which is a potential means to incorporate small-scale farmers into growing markets for high-value commodities. Since contracts often include the provision of seed, fertilizer and technical assistance for accessing credit and a guaranteed price at harvest, this form of vertical coordination has the potential to address many constraints to small-farm productivity while simultaneously driving development in the nonfarm sector.

- Creation of bio-fairs, ecological markets and organic markets have emerged. These markets provide a platform for producers to sell niche products – such as jams and lotions - to an increasing client base, thereby supporting their diversification into nonfarm activities.

4. Building human capital: Education and training are fundamental to provide smallholders with the new skills and knowledge they require to capitalise on emerging opportunities in the nonfarm sector.