Elsevier

Food Policy

Volume 26, Issue 4, August 2001, Pages 315-331
Food Policy

Nonfarm income diversification and household livelihood strategies in rural Africa: concepts, dynamics, and policy implications

https://doi.org/10.1016/S0306-9192(01)00014-8Get rights and content

Abstract

Asset, activity and income diversification lie at the heart of livelihood strategies in rural Africa. This paper introduces a special issue on the topic “Income Diversification and Livelihoods in Rural Africa: Cause and Consequence of Change.” We concentrate on core conceptual issues that bedevil the literature on rural income diversification and the policy implications of the empirical evidence presented in this special issue.

Introduction

Diversification is the norm. Very few people collect all their income from any one source, hold all their wealth in the form of any single asset, or use their assets in just one activity. Multiple motives prompt households and individuals to diversify assets, incomes, and activities. The first set of motives comprise what are traditionally termed “push factors”: risk reduction, response to diminishing factor returns in any given use, such as family labor supply in the presence of land constraints driven by population pressure and fragmentated landholdings, reaction to crisis or liquidity constraints, high transactions costs that induce households to self-provision in several goods and services, etc. The second set of motives comprise “pull factors”: realization of strategic complementarities between activities, such as crop-livestock integration or milling and hog production, specialization according to comparative advantage accorded by superior technologies, skills or endowments, etc.

These micro level determinants of diversification are mirrored at more aggregate levels. From the “push factor perspective”, diversification is driven by limited risk-bearing capacity in the presence of incomplete or weak financial systems that create strong incentives to select a portfolio of activities in order to stabilize income flows and consumption, by constraints in labor and land markets, and by climatic uncertainty. From the “pull factor perspective”, local engines of growth such as commercial agriculture or proximity to an urban area create opportunities for income diversification in production- and expenditure-linkage activities.

The consequence of the ubiquitous presence of the above factors in rural Africa is widespread diversification. Despite the persistent image of Africa as a continent of “subsistence farmers”, nonfarm sources may already account for as much as 40–45% of average household income and seem to be growing in importance (Bryceson and Jamal, 1997, Reardon, 1997, Little et al., 2001).

Perhaps more importantly, nonfarm activity is typically positively correlated with income and wealth (in the form of land and livestock) in rural Africa, and thus seems to offer a pathway out of poverty if nonfarm opportunities can be seized by the rural poor. But this key finding is a double-edged sword. The positive wealth–nonfarm correlation may also suggest that those who begin poor in land and capital face an uphill battle to overcome entry barriers and steep investment requirements to participation in nonfarm activities capable of lifting them from poverty.

Hence the rapid emergence of widespread attention paid these issues by scholars, policymakers and donors.1 Poverty policy generally aims to improve the asset holdings of the poor, either by endowing them with additional financial, fixed, human, natural, or social assets, by increasing the productivity of assets they already hold, or both. Diversification patterns reflect individuals’ voluntary exchange of assets and their allocation of assets across various activities so as to achieve an optimal balance between expected returns and risk exposure conditional on the constraints they face. By providing a window into households’ revealed preference among livelihood strategies and the feasible set of strategies among which different households can choose, the study of diversification behavior offers important insights as to what sorts of interventions might be effective in reducing poverty and vulnerability. This can happen through identification of either effective means of targeting transfers to the poor or the food insecure, or impediments to the smooth functioning of factor markets in labor, land and capital that condition households’ on- and off-farm investment.

This paper introduces a special issue of Food Policy on “Income Diversification and Livelihoods in Rural Africa: Cause and Consequence of Change.” The seven papers that follow offer an unprecedented collection of case studies based on detailed primary data from across Africa. The striking consistency of the papers’ findings across space, time and analytical methods suggests empirical regularities with respect to the determinants and effects of diversification behaviors that can and ought to inform policymaking in Africa. This introductory paper aims to call attention to several core conceptual issues that continue to bedevil the existing literature on rural income diversification, so as to place the seven subsequent papers in a broader context, and then to draw out the policy implications of the accumulated empirical evidence.

Section snippets

Conceptual issues

Several conceptual issues lurk just beneath the surface of the rapidly growing literature on nonfarm rural economies and livelihood diversification. The most mundane, yet essential, concern foci and definitions: is one inherently interested in assets, incomes, or shares of land or time in alternative activities? What distinguishes “farm”, “non-farm” and “off-farm” categories? The next subsection briefly addresses these questions in the interest of helping foster greater standardization of terms

Determinants and effects of nonfarm income diversification in Africa

While reliance on nonfarm income diversification is widespread in rural Africa, not all households enjoy equal access to attractive nonfarm opportunities. Reardon’s (1997) review of the available data in Africa found a strong positive relation between nonfarm income share and total household income, and therefore an even more pronounced relationship between the level of nonfarm income and total income. The same holds true in general for household landholdings. Consequently, even in countries

Implications for policy

The empirical regularity of a positive association between income diversification and wealth, consumption or earnings leads too many analysts to the facile conclusion that promoting diversification is equivalent to assisting the poor. Yet diversification can rise through increased off-farm, unskilled labor that does little to reduce household risk exposure or increase expected income. More commonly, and absent explicit efforts to reach marginalized subpopulations, stimulus to the nonfarm sector

Conclusions

As development scholars and practitioners pay increasing attention to the rural nonfarm economy for a variety of reasons, our understanding of the etiology and effects of income diversification behavior among African farm households must likewise increase. In introducing an exciting set of seven papers on the topic “Income Diversification and Livelihoods in Rural Africa: Cause and Consequence of Change”, this paper has reviewed the core conceptual issues at the heart of research on

Acknowledgements

We thank Abdillahi Aboud, Mesfin Bezuneh, Michael Carter, Jean Paul Chavas, Dan Clay, Layne Coppock, Frank Ellis, Michael Lipton, Peter Little, John McPeak and Kevin Smith for helpful discussions that helped shape parts of this paper. This work was made possible by support provided in part by the US Agency for International Development (USAID) Agreement No. LAG-A-00-96-90016-00 through the Broadening Access and Strengthening Input Market Systems Collaborative Research Support Program (BASIS

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