1. Rural Non Farm Employment – getting the jobs done Joachim von Braun Director General International Food Policy Research Institute Grupo de Análisis para el Desarrollo (GRADE) y Seminario Permanente de Investigación Agrícola (SEPIA) Lima, April 24 th 2006

2. Overview 1.Definition and conceptual issues 2.Dimensions and change 3.On linkages (of various types) 4.Policy considerations

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” “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” “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 Employment is one of the top themes

4. Unemployment rates by region, 1995-2004 (%) Source: Tarantino 2003

5. But where, for whom, how to “create” employment? Urban ? Rural ? Urban ? Rural ? City? Town? Village? City? Town? Village? Women ? Men? Youth? Children? Women ? Men? Youth? Children? Services? Industries? Agriculture? Services? Industries? Agriculture? Private ? Public actions ? Private ? Public actions ? Skills ? Education? Skills ? Education? Finance ? Credit ? Finance ? Credit ? Innovation ? Technology? Infrastructure ? Innovation ? Technology? Infrastructure ?

6. Definition of rural non farm employment Rural Non-Farm Employment (RNFE)? Defining by exclusion? “Non-farm” Defining by exclusion? “Non-farm” Mixing sectors and spatial geography “Rural” Mixing sectors and spatial geography “Rural” Its not a sector, but a “segment “ of the economy Its not a sector, but a “segment “ of the economy Operationally not helpful Operationally not helpful Alternative: “employment in services and industries in rural areas” (ESIRA)

7. General Characteristics of RNFE Surveys suggest: RNFE accounts for approx. 25% of full time rural employment in developing countries (global estimate =19%) 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 RNFE is a diverse set of activities, services are 2-3 times more important than manufacturing RNF income share has increased over time RNF income share has increased over time Source: Haggblade, Hazell and Reardon 2005

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 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 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. Much RNFE outputs are non-tradable and are consumed within their producing regions. Source: Haggblade, Hazell and Reardon 2005

9. Overview 1.Definition and conceptual issues 2.Dimensions and change 3.On Linkages (of various types) 4.Policy considerations

10. Big picture on population and employment 2005 – 2020 (Shares) PopulationEmployment UrbanRuralAgricultureServicesIndustry Rural serv. & ind. 2005 49 % 51%32%44%24%19% 202056%44%16%57%27%28% Source: author’s calculations based on Tarantino 2005, UN World Population Prospects and ILO Labor Statistics Database

11. Big Picture on global employment 2005 – 2020 (Billions) Farm ESI-Rural Areas ESI-UrbanAreasTotal 20050.90.61.53.0 20200.61.01.93.5 Change2005-2020 - 0.3 +0.4+0.4+0.5 Source: author’s calculations based on Tarantino 2005, UN World Population Prospects and ILO Labor Statistics Database

12. 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 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 and level of RNF income rises with household incomes. The share of RNF income drops as landholdings increase. The share of RNF income drops as landholdings increase. Landless tend to earn considerable non farm income and rely strongly on it. 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 Facts about Rural Non Farm Employment in Latin America

13. Rural Non Farm Employment in Latin America Early 1990sLate 1990s MenWomenMenWomen Bolivia1816 Brazil26472430 Chile19672665 Colombia31713378 Costa Rica48875788 El Salvador3381 Honduras19882184 Mexico35694567 Panama25864693 Dominican Republic5592 Venezuela34783587 Source: Reardon, Berdegué and Escobar 2001

14. Labor allocation of Peruvian rural households 1985-861997 Self-employment90.490.5 Agricultural activities75.864.7 Non Agricultural activities14.625.8 Wage employment9.69.5 Agricultural activities4.34.8 Non Agricultural activities4.34.7 Source: Escobal 2001

15. How many farms in the world? Farm Size (ha) % of all farms Number of farms (millions) < 2 85387.24 2 - 10 12 54.05 54.05 10 - 100 2.7 12.51 12.51 > 100 0.5 2.28 2.28 Total100456.07 Source: Von Braun 2003, derived from national data and FAO World Agricultural Census, various years

16. Non farm share of rural income Region Average Share Latin America 40 Africa East and South Africa East and South Africa West Africa West Africa424536 Asia East Asia East Asia South Asia South Asia323529 Source: Reardon et al. 1998

17. Rural Non Farm Income in Latin America Share of RNFI in rural incomes (mid and late 1990s) Weighted average40 Peru50 Brazil39 Chile41 Colombia50 Costa Rica59 Ecuador41 El Salvador38 Haiti68 Honduras22 Mexico55 Nicaragua42 Panama50 Source: Reardon, Berdegué and Escobar 2001, Dirven 2004

18. Overview 1.Definition and conceptual issues 2.Dimensions and change 3.On Linkages (of various types) 4.Policy considerations

19. 1. Agricultural growth linkages – powerful but changing Agriculture linkages: Production linkages - forward (outputs) Production linkages - forward (outputs) Production linkages - backward (factor markets and inputs) Production linkages - backward (factor markets and inputs) Consumption linkages – household items, transportation, services [most powerful ones] Consumption linkages – household items, transportation, services [most powerful ones]

20. Regional income multipliers from agricultural growth: typical magnitudes Asia: 1.6 – 1.9 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 Africa: 1.3 - 1.5 Latin America: 1.4 – 1.6 Latin America: 1.4 – 1.6 Source: Haggblade, Hazell and Reardon 2005

21. Agricultural growth multipliers Consumption linkages dominate: typically account for 70 - 80% of the total multiplier Consumption linkages dominate: typically account for 70 - 80% of the total multiplier Rural services and commerce account for the majority of rural nonfarm linkages Rural services and commerce account for the majority of rural nonfarm linkages Why are multipliers weaker in Africa? Why are multipliers weaker in Africa? - low use of purchased inputs - more poorly developed rural towns and agro- industry - higher transport costs

22. 2. Challenging linkages to agro-processing and retail industry Shrinking farms Shrinking farms Growing food processors Growing food processors Even more growing retailers Even more growing retailers Rural-to-urban job exports? Rural industrialization? Rural urbanization?

23. Farm Size by World Regions World Region Average Farm Size (ha) Africa 1.6 1.6 Asia Latin America and Caribbean 67.0 67.0 Europe 27.0 27.0 North America 121.0 Source: Calculated from FAO World Agricultural Census, various years

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 PastPresent 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. The dynamics of linkages: Between farms and food industries Large retailers and Processors Shrinking bottom Consolidation of retail & processing – FDI influence (China: 40% retail growth after FDI entry in 1992) Fragmentation in farming Expanding bottom: Increasing share of small holders Forward pyramid: Retailers/ processors Emerging mutual need for linkages Farmers pyramid Source: Gulati 2005

26. 3. Services and industry – linkages Finance and credit Finance and credit Insurance services in rural areas (facilitating more risky employment) Insurance services in rural areas (facilitating more risky employment) Infrastructure (transport, communications) Infrastructure (transport, communications)

27. 4. Human capital conditioned employment linkages Nutrition Nutrition Health Health Education (and, for instance, child labor) Education (and, for instance, child labor)

28. Overview 1.Definition and conceptual issues 2.Dimensions and change 3.On Linkages (of various types) 4.Policy considerations

29. What policy makers want … Policy makers - facing elections - want to “create” jobs 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-poor growth” is not enough for policy makers, if it does not include broad based job creation “pro-jobs” growth ? “pro-jobs” growth ? A challenge for sound development policy ! May be a threat to market oriented policies ?

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. High Diversity of policies & strategies to “create” employment to be expected… Approaches will be determined by Structural realities (assets; income levels) Structural realities (assets; income levels) Political power of labor (urban, rural) Political power of labor (urban, rural) Knowledge base for policy formulation and implementation Knowledge base for policy formulation and implementation Market functioning Market functioning Initial conditions Initial conditions

32. What where? (1) Strategies in remote areas Emphasis on small scale agriculture that will fuel the diversification of the rural economy. Emphasis on small scale agriculture that will fuel the diversification of the rural economy. Investments in: Investments in: - Roads - Electricity and telecommunications at local levels - Education and health - Activation of financial and land markets

33. What where? (2) Strategies in agriculturally prosperous areas Rural enterprises often involve overlapping institutional activities: Rural enterprises often involve overlapping institutional activities: - Sub-contracting - Sub-sectoral promotion - Clustering Scope for Public Private Partnerships Scope for Public Private Partnerships

34. Employment for poverty reduction: Linkages and program concerns Source: Adapted from von Braun 1995 RESOURCES Capital Labor (Food-) cash Wages Organizations EMPLOYMENT PROGRAMS Program choices Implementation choices Employment Assets Household Income and Risk Insurance

35. Re-run of Public Employment Programs: a comeback? Not to be re-invented, but to be adapted Not to be re-invented, but to be adapted Decentralization of gov. in the past 20 years can help better implementation now Decentralization of gov. in the past 20 years can help better implementation now Role of community versus households in targeting (Africa) Role of community versus households in targeting (Africa) In need of innovations in program design (e.g combinations with conditional transfer programs?) 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) Scope for experimentation and scaling up (the Chinese experience may matter for others)

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. 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