Rural economy: Stimulating non-farm activities

Abdul Bayes | Published: December 18, 2017 18:34:52

Although agriculture remains the dominant source of rural livelihoods at least in terms of generating employment, its relative role in earning income has been falling over time. This is apparent from the slide in the share of the sector in Gross Domestic Product (GDP). The trend is not surprising either as, with economic development, resources tend to move out of agriculture to other sectors. The recent most household-level survey data show that non-agricultural income contributes roughly 70 per cent of household income. A recent study of the World Bank sheds some light on this particular issue. Although agriculture still remains important in terms of employment generation, non-farm employment generation will continue to warrant strategies to promote more robust development of the rural non-farm economy.
According to the World Bank report, and as per the 2010 labour force survey, rural non-farm employment in Bangladesh is almost 50 per cent more than all urban employment put together. Rural non-farm employment is growing faster than urban employment, and three-quarters of rural households have at least some form of non-farm income. Clearly, a high priority to facilitate more rapid economic transformation is to implement strategies for improving enabling environment for creating better and more productive jobs in the rural non-farm sector. The report says that a strategy to promote robust development of the rural non-farm economy should pay attention to the country's secondary cities - loosely called 'growth centres'.
Aside from agriculture, rural non-farm sector is driven by connectivity and proximity to urban areas. The need for strategy and policy to focus on previously neglected secondary cities is highlighted by an interesting combination of facts. More jobs are located near the mega-cities of Dhaka and Chittagong, but growth has been in informal and seemingly vulnerable jobs, while the shares of all other types of more productive jobs have fallen. Well-connected cities have had positive growth in jobs of better quality (especially businesses). Poorly connected cites have shown no dynamism when it comes to creating employment, calling attention to the need for infrastructure development.
An emerging concern is that rural non-farm activities do not seem to be growing in scope or sophistication over time. Many rural non-farm activities are still linked to agriculture, consistent with the process of transformation-processing, trading, food preparation, and so on. But the problem is they are not being upgraded. "This stagnation in the types and quality of non-farm activities is puzzling, because such activities, especially rural non-farm enterprises, are associated with higher returns. At the same time, the rate of return to rural non-farm enterprises is not associated with urban proximity. It may be that because most rural non-farm enterprises still produce traditional and low-quality products, they cannot compete with cheaper and better quality mass-produced goods". A number of binding constraints bedevil rural non-farm enterprises. The most important is the lack of credit, although lack of infrastructure is also important.
Given that a rapidly growing share of rural non-farm enterprises focuses on trading, especially in agricultural produce, the World Bank report finds markets to be functioning very well. Marketing margins are quite small and reasonable, with transport costs as the major source of traders' variable costs. More importantly, "the survey found very little evidence of the much-talked-about cartelisation of markets by a few powerful traders fleecing farmers, or other forms of uncompetitive behaviour. Another finding that demystifies another widely-held view is that the physical post-harvest losses are very low (under 5.0 per cent)-much lower than the 30-40 per cent generally quoted.
The report further notes that the liberalised markets of Bangladesh appear to serve both producers and consumers very well. Comparable data on high-value commodities surveyed for this report are limited, but for rice, a recent study comparing Bangladesh, China, and India finds that the share of farm-gate price of rice in the final retail prices is higher in Bangladesh than in either of the other two countries.
Despite modest improvement in market integration as it happened over the years in Bangladesh, the report is of the view that improvement in market infrastructure and finance is vital to enable Bangladesh move to the next level of more modernised and even more efficient supply chains. But that is apparently hardly to come by through the past level of reforms and infrastructural development. Arguably, further investment is needed in roads, electricity infrastructure, and upgrading market facilities. Traders, especially those operating in markets for high-value products, require substantial working capital and better access to finance.
Finally, the report provides an insight into the trade-off between availability of rice (staple food) and non-rice crops. In fact, almost the same observations, as can be found from paraphrased points below, were drawn from repeat household surveys in Bangladesh. Projections indicate that the future supply of rice relative to demand is unlikely to be a major concern, but that the supply of other food groups needs to grow significantly faster than in the past. This has raised important questions for policymakers on the strategic priorities for public investments and policy focus. The prospects for agricultural growth, food security, and nutrition are closely linked. Fortunately, the trade-off appears to be less of an issue now than in the past when self-sufficiency in rice was the overarching imperative. The scope for improving rice yields is substantial, especially if farmers succeed in closing the yield gaps for aman and aus varieties of rice. With a continued focus on agricultural research to push the production frontier forward and to build agriculture's resilience to climate and biophysical stress, there is significant potential to release land for much-needed crop diversification.
The writer is a former Professor of Economics at JahangirnagarUniversity.
abdul.bayes@brac.net