Rural Poverty in the Developing WorldReconciling risk management strategies

State policies to address rural poverty

• Agriculture as way out of poverty

• Access to factors of production – Land, financial capital (credit, loans)

• Access to inputs for greater productivity – Irrigation, fertilisers, high quality seeds etc.

Problems with the approachProblems with land access• Problems with land reform & redistribution• Imperfect land rental & sales markets– Low circulation of land

Problems with low profitability• High quality fertilisers, seeds not accessible• Poor irrigation facilities, rain-fed agriculture

Characterising the rural environment

• RISK : A severe issue for rural poverty in developing countries.

http://www.businessworld.in/bw/2009_08_21_Farmers_Struggle_To_Survive_In_DroughtHit_India.html

Risk in Rural Environments

• Harvest failures• Climate fluctuations, Rain-fed agriculture• Poor irrigation and water management systems• Declining soil quality• Low access to high quality inputs• Crop diseases

• Market fluctuations• Linked labour & agricultural sectors – Exacerbates labour market fluxes

Risk ManagementUNCERTAIN INCOME SOURCES

LIVELIHOOD DIVERSIFICATION RESOURCE DIVERSIFICATION

INVESTMENT IN CURRENT & FUTURE

DIVERSIFICATION RISK

REDUCTION RISK

INSURANCE

Risk Management Strategies(1) diversification of a given farmer's

landholdings into various spatially separated plots and into various crops

(2) storage of grain from one year to the next(3) purchases and sales of assets such as bullocks and land(4) borrowing : village lenders, merchants etc. (5) gifts and transfers in family networks.

TOWNSEND (1994), Econometrica 62(3)

Managing Risk : Livelihood Diversification

• Minimising related risks– Not just different types of crops, but diversifying

into non-farming activities– Not just labour on own or others’ farms, but non

agricultural labour

http://www.vatanappally.com/f_iyp.htm

Ellis (2000) Journal of Agricultural Economics, 51(2)

Risk Insurance : Loans, Transfers• Literature on– Gifts, informal loans, emergency assistance – Transfers across families– Within communities– Across social or kinship networks

• Usually models – Structure of the networks– Magnitude of such transfers– Effects on household consumption

Diversification & Productivity Increases

(COW DUNG FOR MANURE & OTHER USES)

http://www.vatanappally.com/images/yp_cow.jpg

• Using income from one livelihood as input into another.

• Investing income from a current livelihood into future diversification options.

• Using physical inputs derived from one livelihood as input into another.

Diverse natural resource assets

Policy Implications (I)Access to diverse land / natural resources

• Houseplots– Health benefits, food security

• Wasteland : Livestock rearing / grazing / water storage systems– Sources of wasteland : ‘classified wasteland’,

reclaimed mines • Forest land – Forest products, shifting agriculture

• Some overlaps with previous policies:– Increase ‘market’ access– Facilitates selling produce, but also for

employment opportunities

• Some additional requirements:– Managing & facilitating migration• Rural-urban migration• Rural-rural migration• Migration across natural resource systems

Policy Implications (II)Facilitate spatial & sectoral mobility

Risk Management

UNCERTAIN INCOME SOURCES

LIVELIHOOD DIVERSIFICATION

RESOURCE DIVERSIFICATION

INVESTMENT IN CURRENT & FUTURE

DIVERSIFICATION RISK

REDUCTION RISK

INSURANCE

Common Pool ResourcesCollective Management

Common Property Regimes

Risk Management:Common property regimes

• A risk sharing strategy– Benefits shared across group, costs also shared

across group– Risk sharing since everyone invests in the same

resource, so no single individual bears a high sunken cost if resource yields lower benefits

• A risk reducing strategy– Groups can collectively manage systems of inputs

into primary livelihood activity– Significant example : Irrigation systems– Crucial for drought-prone regions– Increasingly important in face of climatic

fluctuations and climate change adaptations

Risk Management:Common property regimes

• Fitting into the diversification theme– Allows individuals to take advantage of resources

that are efficiently managed at larger scales• For example : Grazing lands for livestock

– Allows individuals to take advantage of resources that are sustainably managed at larger scales• For example : Forests

Risk Management:Common property regimes

Maximising everything?• What are the trade-offs across different

diversification strategies?– Does facilitating some types of diversification hinder

others?– How can strategies be ranked according to optimality in

a given context, judging optimality by welfare increase?

• Do conditions that facilitate successful community level collective resource management , help or hinder other diversification strategies?

Policy implications of trade-offs• CAVEAT : Little to no literature directly linking

common pool resource (and common property regimes) literature to poverty & diversification literature.

• However, policy thrust on community based resource management necessitates understanding these links, whether synergistic or antagonistic.

CPRs and Poverty

• The specific institutional design matters– Collective governance of a resource DOES NOT

automatically lead to any specific distribution of benefits from that resource.

– Hence whether a poor household will benefit from a resource that is collectively managed by a local group will depend on the distributional rules employed, and the socioeconomic variables that affect the formation of that distributional rule.

2 complex links

1. Current institutions for local, collective resource governance spatially lock in communities and resources.

2. Success of a collective governance institution thought to depend upon repeated interactions between the same set of actors.

A lot of work in the social capital literature.

The links may be problematic• Successful livelihood diversification suggested

to depend upon policies facilitating greater spatial mobility.

• Successful local, collective resource governance thought to be more successful when the same group manages the same resource over time.

How can migration both in and out of communities be reconciled with conditions for successful CPR management?

Reconciling StrategiesFrom Diversification to Common Property Regimes . . . . . . . to Gender Rights

http://www.fao.org/sard/en/init/964/1602/2890/2897/index.html

Household-level strategies• Allocation of household members to different

diversification strategies. •Male members usually constitute the migrant

portion of a household.• Address Problem (1) : Women have limited (or

none) legal rights over household assets.• Address Problem (2) : Women traditionally

play limited roles in formal group institutions, especially in political or economic context.

Conclusion• Livelihood diversification involves a set of

strategies, each optimal in specific contexts.• Participation in some strategies necessarily

lowers participation in another.• Policy objectives need to be examined before

prescribing a specific diversification strategy.– Environmental goals ? Poverty ?

• Addressing rural poverty needs an understanding of how one set of policies affects another.

References :

Diversification & Risk ManagementRigg, J. 2005. Land, farming, livelihoods & poverty: Rethinking the links in the rural South. World Development, 34(1)

Ellis, F. 2000. The determinants of rural livelihood diversification in developing countries. Journal of Agricultural Economics, 51(2)

Ellis, F, Allison, E. 2004. Livelihood diversification and natural resource access. LSP Working Paper 9. FAO.

Reardon, T, Taylor, J.E., Stamoulis, K., Lanjouw, P., Balisacan, A. 2000. Effects of non-farm employment on rural income inequality in developing countries: An investment perspective. Journal of Agricultural Economics, 51(2)

Barrett, CB, Bezuneh, M., Clay, DC, Reardon, T. 2000. Heterogeneous constraints, incentives and income diversification strategies in rural Africa:

References :Risk insurance networksKrishnan, P, Sciubba, E. 2009. Links and architecture in village networks. The Economic Journal, 119 (April)

Fafchamps, M, Gubert, F. 2006. The formation of risk sharing networks. diversification in developing countries. [Working Paper].

Bloch, F, Genicot, G., Ray, D. 2006.Informal insurance in social networks. LSP Working Paper 9. FAO.

Townsend, R. 1994. Risk and insurance in village India. Econometrica, 62(3)

Udry, CR, Conley TG. 2004. Social networks in Ghana. [Working Paper].