This study assesses the determinants of off-farm work participation decisions of farm households in Ethiopia.
Ethiopia is an agrarian society where nearly 85% of the population is directly dependent on farming activities for their livelihood. It accounts for about 50% of the GDP and 90% of the total foreign exchange earnings. Crop production, livestock husbandry and mixed farming are the main types of farming activities in the country. Family labour is the primary farm input for the sector. The agricultural sector of the country is still characterized by low labour productivity, a declining farm size (an average of one hectare per household) and traditional farming systems, natural resources degradation, variable weather conditions, tenure insecurity, weak agricultural research base and extension system, lack of financial services, imperfect agricultural markets and poor infrastructure.
Non-farm activities have a great potential to provide employment and additional incomes during the slack season to rural households. In addition, given rising population pressure on agricultural land which results in a decline in land holding per individual, off-farm activities can provide alternative employment. Despite their great potential, rural non-agricultural activities account for less than 3% of the rural labour force.
TABLE OF CONTENTS
Contents
ACKNOWLEDGEMENTS
TABLE OF CONTENTS
ABSTRACT
CHAPTER ONE
1. INTRODUCTION
1.1. Background of the study
1.2. Objective of the Review
CHAPTER TWO
2. LITERATURE REVIEW
2.1. Concepts and Roles of Off-Farm Activities
2.1.1. Concepts of Off-Farm Activities
2.1.2. Role of Off-Farm Activities
2.2. Theoretical Model
2.2.1. Theoretical Framework Of Modeling Selection Bias
2.3. Empirical Studies
2.3.1. Empirical Evidences from Other Developing Countries
2.3.2. Empirical Evidences on Ethiopia
2.4. Motives of Livelihood Diversification
2.5. Overview of Livelihood Diversification in Africa
2.6. Household Level Benefits of Off-Farm Activities
2.7. Conceptual Frame Work
CHAPTER THREE
3. Summary and Conclusion
3.1. Recommendation
References
ACKNOWLEDGEMENTS
First of all, I would like to thank God .Then, I would like to express my gratitude to my instructor Dr. Daniel Masresha for his support in providing guidance and encouragement, for the initial to the final stage of my seminar presentation.
Second, I would like to acknowledge to different scholars who study on the area of my topic I reviewed and discussed
Finally, I would like to acknowledgement my wife W/ro Marta Abera for all her support, encouragements and enthusiasms throughout my life and my work.
ABSTRACT
This study assesses the determinants of off-farm work participation decisions of farm households in Ethiopia. The results of the study show that human capital variables such as health and training on non-farm activities have positive relationships with off-farm participation decisions of farm households. The education status of the farmers has also significant relationship with the off-farm participation decisions of the members of the family. The availability of credit and transfer income is the other factors that have a positive relation with the decisions of farmers to participate in off farm activities. According to this study family size is found to be a significant and positively influenced household off-farm participating of the farm households implying that, households with large family size, having children of productive age, could be participate in the off-farm activities. Cultivated land size is also positively determined the rural household off-farm participation. This implies that households who had larger farm size had better chance to participate on off-farm activities. Since households who had larger farm size had better chance to assess other additional income activities. But household those who landless could also participate on off-farm work like doing on someone’s land. So, it was better it would be studied and recommended. Total livestock owned is another factor that is related to the probability of participating on off-farm in the country. The positive relationship is explained by the fact that total livestock owned being a proxy for farmer’s resource endowment, those farmers with large herd size have better chance to earn more income from livestock production. This in turn enabled them to participate on off-farm participation through production of milk and meat, and manure from livestock which is an important fuel for the sample households and used as a fertilizer. Therefore, the country should encourage farmers to use credit facilities, introduced a proper forage development programs, expanding veterinary service and disease prevention programs in the study area is crucial to increase livestock production and productivity. Finally, policies that aim to increase the off-farm work participation decisions of family members should take into consideration the difference in responses to the various factors that affect the off-farm work decisions of farm households.
Keywords: Off-farm; participation; rural households; Ethiopia
CHAPTER ONE
1. INTRODUCTION
1.1. Background of the study
Ethiopia is an agrarian society where nearly 85% of the population is directly dependent on farming activities for their livelihood. It accounts for about 50% of the GDP and 90% of the total foreign exchange earnings. Crop production, livestock husbandry and mixed farming are the main types of farming activities in the country. Family labour is the primary farm input for the sector. The agricultural sector of the country is still characterized by low labor productivity, a declining farm size (an average of one hectare per household) and traditional farming systems, natural resources degradation, variable weather conditions, tenure insecurity, weak agricultural research base and extension system, lack of financial services, imperfect agricultural markets and poor infrastructure (Degefe and Nega, 1999).
Non-farm activities have a great potential to provide employment and additional incomes during the slack season to rural households. In addition, given rising population pressure on agricultural land which results in a decline in land holding per individual, off-farm activities can provide alternative employment. Despite their great potential, rural non-agricultural activities account for less than 3% of the rural labor force (CSA, 1999b).
Compared to other African countries, the proportion of the rural labor force engaged in non-farm activities in Ethiopia is too low. According to the International Labor Organization (1993), in Ghana for instance 26.7% of the rural workers were engaged in rural non-farm activities, 15% in Sierra Leone and an average ranging from 10 to 20% in sub-Saharan Africa. According to this report the importance of the rural non-farm activities in Ethiopia is under stated because of the narrow definition by the Central Statistical Authority, and the Ethiopian definition of urban areas as towns of 2000 inhabitants or more compared to the UN definition, which uses 20,000 people as the cut-off point.
Farmers in Ethiopia are engaged in both self-employment and wage employment. Studies show that about 43% of farm households are self-employed. Among the major activities are trades in grain/general trade making and selling firewood, dung cakes, charcoal, weaving/spinning, collecting and/or selling straw, and trade in livestock/livestock products. Other activities are handicrafts, making and selling of farm implements, broker, selling araki, bakery, salt trade, shuribasira, pottery, etc. Off-farm employment refers to employment in activities not on his/her farm. It includes employment on another farmer’s farm. Non-farm employment refers to employment not related to farming activities. Thus, off farm wage employment describes those households that are working off their land against payment in cash or in kind.
In rural areas of developing countries in general and Ethiopia in particular, labor market participation is the major source of income for many landless and small farm households. In spite of the high potential of the non-farm sector in generating employment, they are not covered by government policies and strategies. Rural development policies aiming at promoting the farm/nonfarm linkages should consider the role of the non-farm sector. Thus identifying the factors that affect the off-farm participation decisions of farm households is necessary if there is a need to make households to diversify the ways in which they gain their livelihood. However, studies on the off-farm participation decision of Ethiopian farm households are limited. Moreover, the available literature does not consider the difference in the response by the male and female members of the family to the different personal, location and farm characteristics. Therefore, the objective of this study is to review the determinants of off-farm work participation decisions of farm households in Ethiopia.
1.2. Objective of the Review
The main objective of this paper is to review and discuss determinants of off-farm work participation of farm Households in Ethiopia which studied by different scholars; In addition to that, give recommendations to investigate the real determinants of food security as the concerned body put it into consideration while designing policy and implementation.
CHAPTER TWO
2. LITERATURE REVIEW
2.1. Concepts and Roles of Off-Farm Activities
2.1.1. Concepts of Off-Farm Activities
As engine of economic growth and poverty reduction, in developing countries, agriculture should be integrated with sectors that have direct or indirect linkages. According to Babatunde et al. (2010) financial capital appears to be the most limiting factor for farming, so that cash income from off-farm activities helps to expand farm production; increase household income and reduce risk of crop failure. Hence, off-farm is one among the activities whereby agriculture is believed to be integrated with. World Bank (2008) has reported that, in most developing countries, the importance of off-farm activities is increasing and estimated to account for 30 to 50% of rural incomes. According to Rios et al. (2008), the higher the off-farm income is, the larger capital endowments; and having higher capital endowments will in turn help to produce more and more and even to be productive.
According to Asenso-Okyere and Samson (2012), Haggblade et al. (2010) and Diao and Nin Pratt (2007), modern agricultural inputs can result with ample production and productivity of marketable commodities that results with trade linkage; the requirement of agricultural inputs and marketing facilities by itself, induces off-farm activities. According to World Bank (2018), Off-farm employment comprises both being wage employed outside the farm-household (i.e. off farm wage employment) and running a non-farm enterprise (NFE) (i.e. off-farm self-employment). Men and women enter off-farm employment either out of necessity (push factors) or opportunity (pull factors) (Haggblade et al., 2010). The literature has defined push factors as negative factors that force households and individuals to seek supplementary income sources outside the farm while pull factors are defined as positive factors that attract people into off-farm employment to improve their welfare (AloboLoison, 2015).
In line with the above inclination, Rijkers et al. (2002) as cited in Woinshet (2010) reported that 25% of Ethiopian rural households own more than one labor intensive off farm activities, although 23% of these rural households did their off-farm activities parallel with their agricultural practices. Hence, only 2% of Ethiopian rural households were those who exclusively rely on off-farm activities. Besides, according to Merima and Peerlings (2012) for the past eight years, back from 2012, not more than 25% of the rural households had engaged in off-farm activities which are minimal compared with 42% of the sub- Saharan Africa average; and its contribution for employment creation in Ethiopia is 1.14%. From this one can deduce that Ethiopian rural households’ off-farm participation is insignificant and its effect onto crop production as well as its overall benefit has not yet been exploited. Hence, identifying determinants of off-farm participation decision and examining the impact of participation on crop yield is found to be imperative for a clear and sound policy indication whereby farm households would participate and diversify their income and cope up food security challenges.
The concept of off-farm activity is a relatively recent development as compared to other concepts of economics. Despite this, some of the empirical studies that were made to identify the factors affect off-farm activity participation which mainly has got from Internet similar to the topic of the study have been summarized into developed countries, developing countries and Ethiopia, respectively as follows. Gudbrand et al (2008) by using an unbalanced panel data set from 1991 to 2005 from Norwegian grain farms showed that the likelihood of off-farm work and the share of time allocated to it increase with increasing age (up to 39 years), and with low relative yields (compared to others farms in the surrounding area/region).
Benjamin and Guyomard cited in Beyene (2008), in their study of off-farm work decisions of French agricultural households, show that the main effects on off-farm labor market participation decisions of both members (husband and wife) are: -
- Higher general education was reflected in higher off-farm labor market participation of both operators and spouses.
- The younger wives are the more likely to work off-farm.
The number of children decreases the wife’s participation in the off-farm labor market, i.e. increases her reservation wage, and
- Farm operators seem to be more responsive to farm characteristics than wives
The study conducted to identify determinants of off-farm work participation decisions off farm households in Ethiopia show that human capital variables such as health and training on nonfarm activities have a positive effect on the off-farm participation decisions of farm households. The education status of the head has no significant impact on the participation decisions of the members of the family as most of the off-farm activities do not require formal education. The availability of credit and transfer income is the other factors that have a positive impact on the decisions of male members to participate in off-farm activities (Beyene, 2008.
2.1.2. Role of Off-Farm Activities
De Janvry and Sadoulet (2001) studied the role of off-farm activities in rural households in Mexico. The result shows that participation in off farm activities helps reduce poverty and contributes to greater equality in the distribution of income. Results show that education, ethnic origin and regional availability of off-farm employment are found to affect participation in off-farm activities. Education helps the farm households in the study area to participate in the more remunerative off-farm activities. A study by Corpal and Reardon (2001) also shows that the effect of education is found to be different depending on the type of off-farm activities. Similarly, land scarcity and access to roads have an effect on the participation decision in nonfarm employment.
Human capital, as embodied in education and experience, is essential in increasing non-farm earnings and time allocation of rural families and to diversify the rural economy away from agriculture. A husband or wife who had more schooling (as measured by years of schooling) had a significantly higher probability of engaging in non-farm activities. The other variables nonlabour income and distance to the regional capital are found to have a negative influence on the participation decisions of farm households. Unlike other studies the presence of children had no significant effect on the participation decision of women in non-farm work and on the labor supply of husbands and wives. This is similar with findings of Rosen Zweig (1980) and Skoufias (1994). Jacoby (1993) also indicated that the number of children 5 years old and younger does not lessen women’s hours worked, which includes housework, though not child care per se. But a well-developed infrastructure and population density had positive significant effects on the probability of non-farm work by both males and females.
The Ministry of Labor and Social Affairs (MOLSA) in Ethiopia undertook a survey of the Agricultural Wage Employment and Rural Non-Farm Employment in 1997. Similarly, Woldehanna (2000) tried to determine the impact of traditional and modern education on the supply of labor for off-farm wage employment in Tigray and reached the same result (negative sign). He argued that higher education increases the productivity of the individual on the farm or in the household more than it increases the productivity in off-farm employment or off-farm employment in the rural areas of Tigray may not require education at all and hence there is no special demand in the labor market for relatively educated farm households. On the other hand, a study carried out by GebreEgziaber (2000) in two Woredas of SNNP revealed that education is one of the effective instruments in promoting non-farm activities in rural areas. His research also shows that farmers with more farm resources are less attracted to non-farm activities.
2.2. Theoretical Model
The study conducted to identify determinants of off-farm activities participation decisions off farm households in Ethiopia show that human capital variables such as health and training on nonfarm activities have a positive effect on the off-farm participation decisions of farm households. The education status of the head has no significant impact on the participation decisions of the members of the family as most of the off-farm activities do not require formal education (YadetaBekele, GutaRegasa&Panchugopal Biswas, 2017). In most Ghanaian societies, women play several economic roles and are noted for their entrepreneurial abilities. Women in many rural communities engage in petty trading and other income earning activities to supplement household income. Thus, women tend to be engaged in multiple off-farm activities to supplement household income compared to men and play multiple roles in the household. The result of this study is consistent with who reported higher participation of women in off-farm work in Malaysia.
Other previous studies on participation in off-farm work in Ghana support the findings of this study (Benjamin Tetteh Anang and Richard W.N. Yeboah, 2019).According to YakubuBila, Bulama S. Mshelia, James H. Landi(2015), Household members should be encouraged to take up off farm activities so as to argument their income and raise their standard of living, Creation of accessible credit schemes can facilitate the establishment of off-farm businesses, Off-farm activities should be diversified and rural households properly informed on its advantages to livelihood and Some of the constraints highlighted by the households should be looked into by all stakeholders in order to raise the living standards of the households. According to Ayana Anteneh Astatike*, Ermias Ganamo Gazuma(2019) ,off-farm income means off the owner’s own farm that includes wage income in agriculture earned on other people’s farms along with nonfarm earnings from the owner’s non-farm enterprises or from non-farm wage earnings. Households engage in off-farm activities to generate more income to cushion the effects of poverty (Yakubu Bila, Bulama S. Mshelia, James H. Landi, 2015). The probit model result revealed that age of the household head, sex of the household head, marital status, distance to the nearest market, agro-ecological zone, credit access, livestock ownership, the amount of farm income, and having mobile phone were key factors that influence participation of households in off-farm activities (Ayana Anteneh Astatike, Ermias Ganamo Gazuma, 2019).
Off-farm activities involve participation in remunerative work outside the participant’s own farm and have been recognized to play an increasingly essential role in sustainable development and poverty reduction particularly in rural areas. Income from off-farm work supplements on farm income and helps to expand economic activity and employment opportunities in rural areas .For the agricultural sector ,income from off-farm activities is an alternative source of income which may be used to finance agricultural production. Income diversification therefore has the potential to increase farm investment leading to higher productivity (Benjamin Tetteh Anang and Richard W.N. Yeboah, 2019).Education does not only improve agricultural productivity and farm incomes, but also promotes off-farm activity participation and the returns from off-farm work. Education also facilitates diversification of the rural economy away from agriculture. In either way, education is expected to play a positive role in the rural economy.
As indicated by, developing the human capital through training and skill building is important to promote both agricultural development and rural off-farm employment (BenjaminTettehAnangandRichard.h2019).Total livestock owned is another factor that is related to the probability of participating on off-farm in the country. The positive relationship is explained by the fact that total livestock owned being a proxy for farmer’s resource endowment, those farmers with large herd size have better chance to earn more income from livestock production. This in turn enabled them to participate on off-farm participation through production of milk and meat, and manure from livestock which is an important fuel for the sample households and used as a fertilizer. Therefore, the country should encourage farmers to use credit facilities, introduced a proper forage development programs, expanding veterinary service and disease prevention programs in the study area is crucial to increase livestock production and productivity. On the other hand access to credit has a significant and positive influence on off-farm participation in the country. So the government should create an opportunity to the rural household to use credit service from public agencies and private institutions to increase participation on off-farm activities. In addition, continuous monitoring and evaluation should also be used as an important instrument for effective use of credit at grass root level.
According to Ayana Anteneh Astatike*, Ermias Ganamo Gazuma(2019) ,off-farm income means off the owner’s own farm that includes wage income in agriculture earned on other people’s farms along with nonfarm earnings from the owner’s non-farm enterprises or from non-farm wage earnings. Households engage in off-farm activities to generate more income to cushion the effects of poverty (Yakubu Bila, Bulama S. Mshelia, James H. Landi,2015). The literature dealing with factors influencing farmers’ participation on off-farm activities. A significant part of this aspect of off-farm activities has not yet been researched in developing countries in general and Ethiopia in particular. Very few studies have empirically considered the factors that influence the decisions of rural farm households in sub-Saharan Africa to participate in non-farm production and labor supply off-farm (Reardon, 1997, cited by Abdulai& Delgado, 1999).
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