Browsing by Subject "Off-farm activities"

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Off-farm income diversification among rural households in Nigeria : impact on income, food security and nutrition
(2009) Babatunde, Raphael O.; Qaim, Martin
The promotion of off-farm activities and income diversification in order to provide alternative income earning opportunities for rural households in developing countries has received increased policy attention recently. The growing importance of off-farm activities has also led to rising interest in analyzing the wider implications for household livelihoods and rural development, especially in Africa. In this dissertation, the impact of off-farm income diversification on income, food security and nutrition is analyzed in rural Nigeria. This is done within the scope of three research articles. The analyses build on a survey of 220 farm households, which was carried out in Kwara State, north-central Nigeria, in 2006. The first article is entitled ?The role of off-farm income in rural Nigeria: Driving forces and household access?. Off-farm employment is disaggregated into different segments to take account of heterogeneity in the rural labor market. Various econometric techniques are used to model the determinants of household participation in and income from different economic activities. Furthermore, the contribution of the individual income sources to overall income inequality is examined using the Gini decomposition method. Results indicate that almost 90% of the households sampled have at least some off-farm income; on average, off-farm income accounts for 50% of total household income. Sixty-five percent of the households are involved in some type of off-farm employment ? 44% in agricultural wage employment, 40% in non-agricultural wage employment, and 50% in self-employed non-farm activities. In fact, self-employed activities are the dominant source of off-farm income, accounting for almost one-fourth of overall household income. The share of off-farm income is positively correlated with overall income, indicating that the relatively richer households benefit much more from the off-farm sector. Strikingly, the share of off-farm income also increases with farm size, suggesting that there are important complementarities between farm and off-farm income. The econometric analysis shows that households with little productive assets and those who are disadvantaged in terms of education and infrastructure are constrained in their ability to participate in more lucrative off-farm activities. Accordingly, off-farm income tends to increases income inequality. The analysis counters the widespread notion that shrinking per capita land availability is always the main driving force for the growing importance of off-farm activities. It shows that financial capital rather than land is the scarcest factor for farm households in the study region, so that cash income from off-farm activities can also help to expand farm production. Entry barriers to off-farm activities for poor households need to be overcome to promote equitable rural development. In the second article, entitled ?Impact of off-farm income on food security and nutrition in Nigeria?, 7-day food expenditure and anthropometric data are used to analyze the effects of off-farm income on household calorie consumption, dietary quality, micronutrient supply and child nutritional status. Descriptive analysis indicates that engagement in off-farm activities is associated with higher calorie consumption and a reduced prevalence of undernourishment. Dietary quality, measured by the calorie supply that comes from fruits, vegetables and animal products, is also higher among households with off-farm income. Similarly, households with off-farm income enjoy a higher supply of micronutrients, particularly iron and vitamin A. Child nutritional status, indicated by the average Z-scores for height-for-age, weight-for-age, and weight-for-height of children aged 0 to 5 years, is also better in households with off-farm income. Employing instrumental variable approaches, econometric analyses confirms that the net effect of off-farm income on household food security and nutrition is positive and in the same magnitude as the effect of farm income. This is an interesting result, because it is often believed that farm income is more important than off-farm income for food security and dietary quality in rural areas. Accordingly, improving poor households? access to the off-farm sector can contribute to reducing problems of rural malnutrition. In the third article, entitled ?Patterns of income diversification in rural Nigeria: Determinants and impacts?, descriptive analysis is used to examine income diversification patterns among households, disaggregated by income classes and livelihood strategies. Econometric models, focusing on three measures of income diversification ? the number of income sources, the share of off-farm income in total income and the Herfindahl diversification index ? are also estimated. The impact of diversification on total household income is analyzed using an instrumental variable approach. The results indicate that rural households in Nigeria have indeed a diversified income base, with 93% having at least two sources of income. Interestingly, richer households tend to be more diversified than poorer ones, and income diversification leads to net increases in total household income. Yet, the regression models also show that households have unequal abilities to diversify their income sources. Education, asset endowment, access to credit and good infrastructure conditions increase the levels of household diversification. These factors improve the opportunities to start own businesses and find employment in the higher-paying non-farm sector. In other words, resource-poor households in remoter areas are more constrained in diversifying their income sources. What are the broader policy implications? Enhancing poor households? access to off-farm activities is important to support equitable rural development, since farming alone often cannot sustain a sufficient livelihood. In the Nigerian context ? as in many other parts of SSA ? this requires improvements in the physical infrastructure, including roads, electricity, water, and telecommunication, but also improvements in rural education and financial markets. But up to what level is income diversification desirable? According to economic theory, specialization allows exploitation of comparative advantages and economies of scale, resulting in higher profits and household incomes. Hence, when markets function properly, diversification is associated with foregone benefits. When there is risk involved and formal insurance markets fail, these foregone benefits can be considered as an informal insurance fee that poor households in particular are willing to pay. But the fact that richer households are more diversified in rural Nigeria suggests that there are other mechanisms at work, too. An important motive for richer households to have highly diversified income sources instead of specializing more is that there are limited opportunities to expand single economic activities. This is mainly due to markets that are small and poorly integrated in rural Nigeria, which again is largely a function of infrastructure weaknesses. Better roads, for instance, would enable villagers to commute to the next bigger town, where they might find more stable employment. Better roads and information networks would also improve marketing opportunities for food and non-food products originating from household self-employed activities. Therefore, income diversification should not be considered as a policy objective per se. Rather, it has to be understood as a household response to various market imperfections. Hence, the policy objective should be to reduce these imperfections and make markets work better. While this would facilitate income diversification among the poorest, it would probably promote a higher degree of specialization among relatively richer households.