Non-farm activities in rural areas

1. Non-farm activities in rural areas Lectures for the Master course in Non-Farm Activities and Rural Development in Developing Countries at the University of Rome “La Sapienza” by Prof. Elisabetta Basile

2. Economic structure in contemporary rural areas does not correspond to the image described by the theory of structural transformation • Structural transformation implies specialisation and spatial restructuring • By contrast, there is a wide evidence that capitalist transformation of agriculture leads to the emergence and growth of industrial and service activities in rural areas which use the same space and share resources of the same origin • In this sense, economic differentiation in rural areas is a diversion from the pattern of pure capitalist growth

3. Agriculture is no longer the unique centre of economic life in the countryside • The emergence of industrial and service activities changes the spatial and intersectoral allocation of resources and impacts on production relations • The emergence of RNFA is observed both in developing and developed countries and has different explanations • Here we analyse the dynamics of differentiation in developing countries

4. Due to the emergence of RNFA the rural economy is differentiated • The system is based on a network of inter-relations among its components • RNFA are linked to agriculture as they employ former agricultural resources, mainly labour but also capital and buildings • All rural activities are closely inter-related through input and output markets, and share infrastructures, institutions, and culture

5. RNFA are a heterogeneous category • One basic distinction is between rural industry and rural services • Other differences are shown in relation to RNFA contribution to rural development and to the processes by which RNFA are generated • In general terms, RNFA can be defined • In relation to a rural space • In relation to a rural population

6. Other differences are shown in relation to • The content and use of technology • The quality and quantity of labour-force • Resource and labour productivity • The pattern of intersectoral linkages in input and output markets

7. A basic typology of RNFA refers to production relations • Sub-sector 1 contains enterprises that use relatively sophisticated technology, and employ both family and wage labour • firms in sub-sector 1 are stable and show ability to accumulate capital to increase the scale of production • Sub-sector 2 contains activities that are run with unpaid family labour-force and use primitive technology. • These activities are often seasonal, produce for local markets, and do not generate accumulation

8. Two trajectories of rural change • Both emphasise the link between agricultural performance and the growth of RNFA, and assume the shift of labour-force from agriculture as a basic condition for rural differentiation • One explanation suggests that the shift of agricultural labour-force is due to the crisis of the primary sector • The other ascribes it to the growth of the primary sector

9. Agricultural growth and RNFA • RNFA are generated by the introduction of technical change in agriculture • John Mellor first proposed this interpretation of rural differentiation in 1976 while analysing the impact of the Green Revolution in India • According to Mellor an injection of technical change in agriculture has a wide impact on rural development • By increasing agricultural productivity, it also increases farm incomes and frees labour-force • At the same time, the increase in farm incomes raises farmers’ demand of consumption and investment goods

10. The increase in farm consumption plays a crucial role for rural development • It becomes an incentive for local industries that respond to local demand becoming competitive on local and national markets • This occurs because agriculture is linked to other sectors via input and output markets • In addition to the demand effect, the increase in farm incomes provides an important source for capital accumulation in the rural economy • The injection of technical change in agriculture contributes to create employment and wealth and is a powerful stimulus for the growth of the rural (local) economy.

11. Agricultural distress and RNFA • The expansion of RNFA is the outcome of survival strategies of poor peasants unable to get a suitable income from agriculture • because the sector is locked in a low productivity/low income trap • Because it cannot employ and remunerate the available labour-force • The RNFS is seen as a low-productivity residual sector • RNFA do not promote growth, being only an instrument to integrate farm incomes and reduce poverty.

12. The advantages of RNFA • RNFA allow an ‘accessible’ form of industrial growth for rural areas that can be pursued by enhancing manufacturing structures already existing in the countryside, such as pottery, textiles, and other crafts • RNFA absorb the workforce expelled from agriculture, supporting a poverty-oriented strategy of development • RNFA are based on production units compatible with rural institutions and infrastructures, which are integrated with agriculture through input and output markets.

13. Rural industry is the major type of RNFA • It contains many types of industrial structure that range from cottage industries to manufacturing industries and are located both in villages and in small and intermediate towns • It is often organised in geographical agglomerations of small firms in the same industry – or in closely related industries – that are currently called ‘industrial districts’ and/or ‘clusters’ • Clustering allows small firms to overcome the limits of their size, enhancing their competitiveness in local and global markets