Rural household sources of income, livelihoods strategies and institutional constraints in different commodity contexts - Institutional Constraints to Small Farmer Development in Southern Africa - page 36

Following the above findings, a conclusion can be drawn that the composition of rural
income is undergoing changes. The share of non-farm income is growing. This implies
that promotion of non-farm activities is essential for rural households' income growth.
Explanations for high and increasing portion of non-farm income in rural areas have
been sought with researchers giving varied reasons. In the case of Bangladesh, Nargis and
Hossain (2006) found that a high and increasing portion of rural non-farm income could
be explained by rapidly decreasing land size of farm households, as well as production and
marketing constraints in subsistence agriculture. This makes subsistence agriculture an
unsustainable income generating strategy, pushing individuals into non-farm activities to
reduce risks and in search of stable sources of income.
2.6 Income distribution
Piesse et al. (1999) suggest that non-farm incomes address inequality in income distribution
across rural societies. With corresponding views, Reardon et al. (2006) note that non-farm
sources of income will only address inequality if: (1) the income created by such sources
is large enough to influence the rural income distribution; (2) that non-farm income is
unequally distributed (an income source that is perfectly equally distributed, by definition,
cannot alter the distribution of total income); and (3) that this unequally distributed
income source favours the poor.
Several arguments have been posited in the literature on the effect of different sources
of income on overall income inequality. Holden et al. (2004) found that involvement in
non-farm activities increases income inequality in most rural areas. Holden et al. (2004)
argued that asset poverty, a characteristic feature of the poor, appeared to inhibit entry into
remunerative non-farm earnings, e.g. own-business. Furthermore, Adams (1999) argued that
ample land access may tend to keep the poor in low returns subsistence agriculture and to
'pull' only richer households into the non-farm sector. Empirical evidence from various parts
of Africa indicates that often only rich households are able to engage in non-farm activities,
such that non-farm enterprises development increases inequality and have only a limited
impact on poverty (Van de Berg and Kumbi, 2006). The poor are trapped in a vicious circle
of poverty, from which they can only escape through acquisition of selected assets.
In another study on inequality carried out De-Janvry et al. (2005) in China using detailed
household survey data from Hubei province established that the Gini index of the observed
income is lower than that of predicted income in the absence of non-farm activities. This
implies that participation in non-farm activities reduces income inequality. With the aid of
statistical tools the studies found that in the absence of non-farm incomes, the Gini index of
total household income would increase by 36.8% in that region. In this view, income earned
in the rural non-farm sector represents the agent of positive change towards addressing
income inequality rather than income earned from traditional agricultural sector.