LITERATURE REVIEW Introduction This section deals with literatures under the following themes: Definition of rural non-farm activities, determinants of rural non-farm activities, challenges of rural non-farm activities and the contribution of rural non-farm activities to poverty reduction. Rural non-farm activities Junior R. Davis (2005), defines rural non-farm activities as comprising all those activities associated with wage work or self employment in income generating activities(including income in kind that are not agriculture but which generate income) including remittances etc. n rural areas. Rural non-farm activities also refers to those activities that are not primarily agriculture or forestry or fisheries but includes activities such as trade or processing of agricultural products (even if in the case of micro processing activities which take place on the farm)(Gordon Ann and Craig Catherine, 2005). Rural non-farm activities is also defined as all economic activities conducted in rural areas except agriculture, livestock rearing, fishing and hunting (Lanjouw and Lanjouw, 1995).
Rural non-farm activities include agro processing, small businesses in rural areas, migration or switching from farming to commodity trading or household assets selling in response to negative circumstances (Davis and Pearce, 2001). In the context of this research, rural non-farm activities is defined as all economic activities in rural areas with the exception of agriculture( the growing of crops and the rearing of animals for sale or for consumption) which provides a source of livelihood for the rural people.
Some of these activities include petty trading, food processing, craftworks, carpentry works and all other activities that are not agriculture. Determinants of rural non-farm activities The establishments of rural non-farm activities require very low levels of capital investment and are some are also based on locally available raw materials (G. S. Mehta, 2002). Monica Janowoki and Anna Bleahu (2003) identifies that the ethnicity and religious affiliations of a group of people influence their ability to be involved in some kind of activities.
David Rider Smith (2002) reveals that social, historical as well as contemporary levels of investment being the determinants of varying levels of livelihood sources. Mariya Portyanko (2007) also identifies infrastructure as the determinant of rural non-farm employment citing that, the only infrastructural factor that affects non-farm employment is the availability of telecommunication. Access to infrastructure is a factor that affects rural non-farm employment and income and that the quality of two key types of infrastructure: road and electricity determine its success. (John Gibson and Susan Olivia, 2010).
Taylor and Francis (2004), emphasizes the role of location factors in the determination of rural non-farm employment possibilities in rural Honduras. They found that while rural non-farm wage jobs are predominantly located close to urban areas, rural non-farm self employment jobs are geographically dispersed around the country depending on local motors such as a profitable agricultural activity, an important road or a tourist attraction. Martine Dirven (2004), also indicates that, location and various distances that go with it are a vital determinant of rural non-farm economy.
A study by Peter Lanjouw in the Brazilian North-east revealed that education and location is an important determinant of both employment and earnings in rural non-farm activities. Others like Reardon Thomas, Julio Berdegue and German Escobar (2001), reviews the results of a number of country specific studies in Latin America and the general findings from these studies were that rural non-farm employment and income are significant parts of rural household income. The important determinants of employment in the rural non-farm sector from the study are education and access to infrastructure.
Alexander Freese (2010), finds human capital variables, access to inputs, distance to community infrastructure and household composition to be the most important for stimulating a successful participation in the rural non-farm economy. Using Burkinabe household data and applying the two-step Heckman selection model. Another study in Doma area of Nasarawa State in Nigeria identified that, the determinants of non-farm diversification are access to credit, level of household income, total household farm size and household dependency ratio. (Ibrahim, H. I and Onuk, G.
E. ). All these literatures concentrate on the investment levels, infrastructure and religious affiliation without considering the marketing avenues and access to raw materials which mostly determines the operation of these activities. Challenges of rural non-farm activities Mandal (2004) highlighted four important obstacles and all these constraints have to be removed if the rural non-farm is to play a significant role in reducing rural poverty. These constraints are market related constraints, physical constraints, policy and institutional constraints.
He indicated the policy constraints as inadequate credit, irrational tax structure and bias against rural industrialization are dominant factors. He further added that, institutional constraints like absence of business advisory services for rural non-farm sector enterprises and lack of institutional set up for rural non-farm sector are the main constraints. Technological changes have affected most of rural non-farm enterprises with many social and economic consequences.
Cost of new technology, wrong adoption of technology, non awareness of new technological packages, perception of traditional technology as superior to improved technology among them hinder the development of rural non-farm sector. ( Jonathan Okechukwu Alimba and Johnny Onyema Ogunji). Survey results from rural non-farm enterprises from Tanzania to identify subjective as well as objective obstacles to the expansion and productivity of the country’s rural non-farm sector suggested that, infrastructural constraints significantly reduce participation in sector investment and productivity (J.
Afr Econ, 2009). Cintia Silvia Vega (2010), reported from a study that, the Bolivian medium and small enterprises are characterized by relatively low use of external financing, poor levels of expenditure on fixed assets, technology and quality and an intensive use of unqualified labour which negatively affects their productivity. Empirical results from China confirms that, rural households engaged in non-farm activities are faced with financial constraints and migration income offers a valuable capital resource and facilitates the development of diverse business operations in rural China. Jialu Liu, 2010). Others like Anderson K and Pomfret R (2001), analyses the challenges facing non-farm household businesses and identifies that, high taxes, low product demand and high input prices as the three most cited challenges. Frequent mention of license difficulties and extortion, in addition to high taxes indicates that the grabbing hand of the government is a major obstacle to private businesses.
Lack of access roads, irregular means of transportation, inadequate credit facilities, inaccessibility to socio-economic facilities and land tenure are identified as among the factors that have adverse effects on the participation of activities of rural women engaged in informal economic activities in the rural areas of Imo State. (Emmanuella Chinenye Onyenechere, 2009). Johann Kirstena (1995), highlighted that there is lack of diversity in the rural non-farm economy with a complete domination by trading and service related enterprises with virtually absence of small scale rural industries.
S. Canagarajah et al, (2001), reports that, non-farm earnings contribute to rising inequality. The inequality-inducing effect is driven by self-employment income. The tendency of non-farm income to contribute to inequality is greater among female headed household for whom self-employment is important and non-farm opportunities being more limited. The above literatures identified some constraints as inadequate credit facilities, tax structures, lack of advisory services, technological changes and infrastructure as hindering the development of the rural non-farm sector.
Although these are major problems, they fail to recognize it being neglected from government development plans as being a major constraint which is really affecting the development of the rural non-farm sector. Contribution of rural non-farm activities in poverty reduction Policy makers see the rural non-farm economy as a sector that can productively absorb the many agricultural workers and small farmers being squeezed out of agriculture by increasingly commercialized and capital intensive modes of farming.
Given frequently low capital requirements in the rural non-farm economy, policy makers in both settings view the rural non-farm economy as offering a potential pathway out of poverty for many of their rural poor. Expectations everywhere are high ( Haggblade Steven, Hazell Peter B. R. , Reardon Thomas, 2009). According to M. K. Rao (2004), in recent years, the rural non-farm sector employment acquired importance in economic development.
By providing gainful employment to the rural labour force, this sector is playing a positive role in the removal of poverty. It is a significant source of income to small and landless farmers during the slack season. Peter Lanjouw and Abusaleh Shariff (2004), also identified that the rural non-farm income account for a significant proportion of household income in rural India but, the direct contribution of the rural non-farm sector to poverty reduction is possibly quite low as the poor lack assets.
Caridad Araujo(2004), explores the role of the local context on the effect of policy interventions in reducing poverty through non agricultural rural employment and found that the non agricultural rural employment is negatively associated with poverty in Mexico. Others like Thomas Reardon et al (2001),reports that the rural non-farm economy has been growing faster and been most poverty alleviating where there are dynamic growth motors particularly in the agric sector, tourism, links to urban areas, mining and forestry.
According to Alain de Janvry et al (2005), without non-farm employment, rural poverty would be much higher and deeper and that, income inequality would be higher as well. Stifel David (2010), finds that, high returns non-farm activities provide an important pathway out of poverty, but barriers such as lack of education, formal credit and access to telecommunication restrict participation in such activities although the poverty reduction effects may be limited.
Mohammed Abdul Malek and Koichi Usami identifies that the overall non-farm income significantly mattered for reducing income poverty and among the non-farm income components, out-country remittances and non-farm self-employment incomes were more income poverty reducing. Results from a study of rural non-farm activities suggests that, local non-farm activities and migration offer employment opportunities for workers from low potential agricultural areas and is likely to provide an important pathway to reduce poverty in low potential agricultural areas in East Africa. Matsumoto, T. et al, 2006). The above literatures suggest that, the rural non-farm has been seen to provide a potential pathway out of poverty by providing employment and raising incomes of the rural poor. As to whether the rural non-farm is playing its role in poverty reduction is quite unidentified. In conclusion, although a lot of researchers have worked to identify the potentials of the rural non-farm activities in creating employment and raising income levels in rural areas, research works on the role of the rural non-farm activities in poverty reduction is very limited.