Rural Income Generation and Diversification - A Case Study ... - Doria

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saving and of accumulation of assets usable for food during difficult times (Gordon and
Craig 2001). On the other hand, when food security is assured people have potential to
demand services and goods produced by the RNF sector. Non-farm income may also reduce
the need to sell household assets following shocks affecting production, such as droughts and
floods. Reardon et al. (1998) claim that non-farm income is potentially particularly important
for long-term food security in Africa because it may broaden smallholders’ access to farm
inputs, and consequently increase productivity and intensify production.
4.8 Rural income diversification and income equality
The literature provides ambiguous findings on the impact of income diversification on income
equality. RNF development has been found to increase rural income inequality under
certain conditions (Reardon et al. 2000); although it is commonly held that it has the opposite
effect (Ellis 2000). The question is whether rural income distribution would be more
equal without diversification than with it.
It has been widely debated whether smaller farms would have higher non-farm income than
larger farms, which would flatten the income-distribution curve. The evidence is mixed: on
the one hand a strong negative relationship between RNF and total household income or the
size of the landholding has been found (e.g., Islam 1997), but there is also evidence of a
positive relationship between non-farm and total income or the size of the landholding especially
in Africa (Reardon et al. 2000). Variation is obvious depending on the country or region
in question, for example.
Given the potential entry constraints preventing the poorest from engaging in more remunerative
income-generating activities, there is justification also for the view that income diversification
has a non-equalising effect. Households with poor asset endowments may engage
in RNF activities but the level of income generated remains low.
Basing his arguments on the Gini decomposition method (introduced in Chapter 5.2.1),
Brons (2005) concluded that agricultural income was the dominant factor in income inequality
in Burkina Faso because of its large share of total income, and Escobal (2001) found that
rural wage-employment income in Peru contributed very little to a reduction in income inequality
because it was rather limited in scope. Moreover, Woldenhanna and Oskam (2001)
discovered that crop income made the highest contribution to income inequality in Ethiopia
followed by livestock and wage-employment income. The equalising or non-equalising effects
of farm and non-farm income seem to be related to their relative contributions to total
income.