Are African Farmers Increasingly Diversifying Their Incomes?

COMMON WISDOM #13: Despite economic growth, rural income diversification remains limited in Africa.

SCORE: 3 - Factish

FINDINGS:

• Agriculture remains the mainstay of Africa’s rural livelihoods, particularly where agro-ecological conditions are favorable
• Up to 98% of rural households in the nine African countries studied engage in on-farm agriculture (including livestock) compared with an average of 85% in the 13 non-African countries studied
• Only between 1% and 26% of rural households engage in agricultural wage labor, which typically contributes less than 5% of rural income
• For their level of development, rural households in Africa appear no less diversified, with diversification more in household enterprises than in wage employment
• Rural African households derive about two-thirds of their income from on-farm agriculture—a level consistent with the level of gross domestic product (GDP) in the African countries
• Income from nonfarm wage employment averages 8% in African countries, compared with 21% elsewhere
• In favorable agro-ecological conditions, farming remains the occupation of choice but  when urban integration is low, households engage more fully in nonfarm activities in Malawi and Niger, but less so in some other countries

POLICY MESSAGES:

Rural household income diversification seems in line with Africa’s level of development. In all countries, African and non-African, wealthier households show greater reliance on nonfarm sources of income.

SUMMARY

The literature from the past 20 years suggests that rural household income diversification is the norm, with some off-farm diversification common at all levels of welfare. Does this hold true in Africa, a latecomer to the process of structural transformation? This paper compares income diversification among rural households in Africa with that in other regions and seeks to understand how geography drives income diversification, particularly agro-ecological potential and distance to urban areas.

The Analysis

The analysis uses comparable disaggregated income data from 41 national household surveys from 22 countries from all developing regions spanning 1991–2012. It complements the surveys compiled in the Rural Income Generating Activities (RIGA) database of the Food and Agriculture Organization of the United Nations with six Living Standard Measurement Study–Integrated Surveys on Agriculture (LSMS-ISA). The nine African countries included in the study, Ethiopia, Ghana, Kenya, Madagascar, Malawi, Niger, Nigeria, Tanzania, Uganda, represent 51% of the Sub-Saharan African population in 2012. Comparable protocols were followed to construct the occupational classifications and income aggregates as described on the RIGA website. The geo-referencing of the households in the LSMS-ISA surveys is exploited to analyze the role of geography in income diversification.

The Results

• Most countries outside Africa—generally with higher gross domestic product (GDP) levels—have a larger share of households with diversified portfolios (45% versus 29%), and they derive a larger share of income from off-farm activities (67% versus 37%).
• Although African households are more likely to specialize in farming than are households in other regions (52% versus 21%), once level of GDP is controlled for, shares of income and participation in nonagricultural activities are similar, suggesting Africa’s structural transformation is on track.
• Africa shows less diversification into wage employment, both in agriculture (5% of income versus 13%) and outside agriculture (8% versus 21%).
• As elsewhere, wealthier rural households tend to participate more in, and derive more income from, nonfarm activities. They also participate more in nonagricultural wage employment. Agricultural wage employment is disproportionately at the low end of the income distribution.
• In agro-ecologically well-endowed areas, the share of agricultural income is higher, irrespective of the distance to urban centers. Elsewhere, and in more remote areas, patterns in both diversification in Malawi and Niger, and agricultural specialization in Tanzania and Uganda, are observed.

Policy and Research Implications

• The latest evidence does not support that Africa’s income diversification is lagging, though rural wage employment remains limited and agriculture is the mainstay of rural livelihoods.
• The sheer number of people engaged in agriculture and the large share of income derived from it suggests that a balanced rural development strategy is needed with continued attention to productivity growth in both the farm and nonfarm sectors. Even a rapidly growing nonfarm employment sector cannot absorb the population currently engaged in farming.
• As countries develop, their policy emphasis on farm, nonfarm self-employment, and nonfarm wage employment evolve such that the latter sectors become more important. Geographic considerations (agro-ecological potential and integration with urban centers) will inevitably influence the policy perspective.