Rural household sources of income, livelihoods strategies and institutional constraints in different commodity contexts - Institutional Constraints to Small Farmer Development in Southern Africa - page 28

sector has developed as several farm households becoming more actively involved in non-
farm activities in developing countries (Barrett et al., 2001). Non-farm activities imply a
set of activities carried out in the rural areas that are not agricultural (Barrett et al., 2001).
Attempts have been made by researchers to classify economic activities carried out by rural
populations. In South Africa, Machethe (2004) came up with three classes of rural economic
activities, namely: (a) smallholder (subsistence or semi-subsistence) farming consisting of
self-employed farmers producing staple foods and selling surplus; (b) commercial farming
comprising medium and large-scale farmers and providing employment to a significant
number of the landless; and (c) the rural non-farm employment. Perret et al. (2005) made
almost similar classifications based on studies in the former homeland areas of Limpopo and
North West Provinces. Income generating activities in these Provinces manifest themselves
in the form of either farm or non-farm activities. The Eastern Cape Province is not different
in this regard; Fraser et al. (2003) recorded a number of commercial and trading enterprises
in the Province. Rural households in the Province derive income from inheritances and
transfers, provision of personal and community services, and value adding activities such as
food processing, construction and manufacturing (Fraser et al., 2003).
The above sources of income are not exclusive to rural South Africa. Studies by Sanchez
(2005) in Bolivia and Barrett et al. (2001) in rural areas elsewhere in Africa show diverse
sources of income in rural areas. Furthermore, analysis of rural livelihoods by Otsuka and
Yamano (2006) in Asia and East Africa confirm income diversification as a typical practice
in most rural areas. Figure 2.1 below adapted from Davis and Pearce (2001) shows the
sources of income of farm households in Latin America.
As shown by in the diagram by Davis and Pearce (2001), sources of income in rural areas can
be classified into three categories, namely on-farm income, off-farm income and transfers.
Non-farm income being all the income associated with wage work or self-employment.
Own farm income implies income from own agricultural activities.
Despite the wide range of activities pointed out above, rural households' transition into high
return, non-farm activities is not without constraints. Barrett et al. (2001) wrote that not all
households enjoy equal access to high-return, non-farm activities. Selected households with
the required capacities are able to diversify into high return, non-farm sector (Deininger
and Olinto, 2001). Household activity choice is largely dependent on endowments in
terms of assets, access to credit and the required skills. For policy implication, Barrett et al.
(2001) wrote that reforms that fail to address these constraints leave the less fortunate sub-
populations trapped in low-return, high-risk livelihood strategies based largely on unskilled
labour and part-time, self-employed farming. Policies addressing the underlying constraints
to activity choice facilitate the access of the poor populations to livelihood strategies that
are relatively more lucrative, less risky, or both (Barrett et al., 2001).