ABSTRACT
Many rural households engage in farm and non-farm activities to increase household income during economic hardship and diversify income sources. The study was conducted to compare the effect of farm and non-farm activities on rural household income in Abia and Ebonyi States. In conducting the study, multi-stage random sampling procedure was used to select a sample size of 240 farmers. Data collection was through structured questionnaire and analyzed using both descriptive and inferential statistics such as z-test for independent samples and multiple correlation and regression at 0.05% level of significance. The findings revealed that, in Abia State, farm activities contributed an average annual income of five hundred and ninety-four thousand, four hundred and thirty-three Naira thirty-two kobo (N594,432.32) representing 51.9% of household income greater than non-farm activities that contributed five hundred and thirty-six thousand, one hundred and seventy Naira, seventy-two kobo (N532,170.72) representing 48.1% of household income. In Ebonyi State, household annual mean farm income was six hundred and eighty-eight thousand, one hundred Naira (N 688,100.00) representing 65.2% of total household income, while non-farm activity had three hundred and sixty-seven thousand, seven hundred and twenty-six Naira sixty-eight kobo(N367,726.68) representing 34.8% of household income. Test of hypothesis one revealed no significant difference between farm and non-farm income in Abia state. Hence, the null hypothesis was accepted at 5%. Test of hypothesis two revealed a significant difference between farm and non-farm income in Ebonyi state in favour of farm income. Therefore, the null hypothesis was rejected at 5%. Test of hypothesis three indicated no significant difference in farm income between Abia and Ebonyi States. Hence, the null hypothesis was accepted at 5%. Test of hypothesis four indicated a significant difference in non-farm income between Abia and Ebonyi states. Hence, the null hypothesis was rejected at 5%. Test of hypothesis five showed a significant difference in the profitability of non-farm activities between Abia and Ebonyi states. Thus, the null hypothesis was rejected at 5%. Test of hypothesis six revealed no significant difference in rating of factors that determine engagement in non-farm activities between Abia and Ebonyi states. Thus, the null hypothesis was accepted at 5%. Test of hypothesis seven revealed no significant influence of the factors that determine engagement in non-farm activities. Hence, the null hypothesis was rejected at 1%. The study concluded that Abia state rural farm households do well in non-farm enterprises than rural farm households in Ebonyi state. This was because Ebonyi state is more rural in nature than the Abia state and provides greater diversification of agricultural production than Abia State. The study recommended among others, that, while encouraging engagement in non-farm activities, the extension should emphasize diversification of agricultural production as a form of risk reduction strategy to minimize much engagement in non-farm activities to increase food production.
TABLE OF CONTENTS
Declaration
i
Certification
ii
Dedication iii
Acknowledgments
iv
List of
Tables ix
List of
Figures xi
Abstract
xii
CHAPTER 1: INTRODUCTION 1
1.1 Background
of Study 1
1.2 Problem
Statement 5
1.3 Research
Questions 7
1.4 Objectives
of the Study 7
1.5 Hypotheses
of the Study 8
1.6 Justification
of the Study 9
1.7 Scope
of Study 10
1.8 Definition
of Terms 11
CHAPTER
2: REVIEW OF RELATED LITERATURE
13
2.2 Rural Farm and Non-Farm Business
and Poverty Alleviation 14
2.3 Contribution of Non-Farm Activities on
Rural Economy 17
2.4 Contribution of Non-Farm Income to Household
Upkeep 18
2.5 Livelihood Diversification 19
2.6 Determinants of Households’
Participation in Farm and Non-Farm Activities
21
2.6.1 Pull and push factors 23
2.6.2 Risk factor 23
2.6.3 Education 24
2.6.4 Age 25
2.6.5 Farm size 25
2.6.6 Household size 26
2.6.7 Asset value 26
2.6.8 Climatic factors 27
2.7 Impact of Participation in Farm and Non-Farm
Activities on
Household
Food Security 28
2.8 Increasing
Rural Non-Farm Opportunities 30
2.8.1 Creating
rural non-farm opportunities 30
2.8.2 Building
on coping strategies 31
2.8.3 Capacity
building 32
2.8.4 Facilitating
access to market 33
2.8.5 Establishment
of programmes and institutions 33
2.8.5.1 Advantages of sub/activity group 34
2.9 Agricultural Production and Non-Farm
Activities in Nigeria 35
2.10 Farm and Non-Farm Works as Complementary
Evidence from
Nigeria
37
2.11 Challenges Facing Non-Farm and Farm
Activities 38
2.12 Relationship
Between Non-Farm and Farm Activities 40
2.12.1 Positive
relationship 40
2.12.2 Negative
relationship 42
2.13 Linkages Between Farm and Non-Farm
Sectors 43
2.13.1 Production linkages 44
2.13.2 Expenditure linkage 44
2.13.3 Consumption linkage 45
2.13.4 Investment linkage 45
2.14 Net
Effects of Non-Farm Income on Agricultural Productivity 46
2.15 Profit
and Profitability 47
2.15.1 Profit 47
2.15.1.1 Gross profit 48
2.15.1.2 Operating
profit 48
2.15.1.3 Net profit 48
2.15.2 Profitability
49
2.15.2.1 Driver of profitability 49
2.16 Challenges in Maintaining Profitability 50
2.17 Factors
Determining Profitability of Rural Farm and Non-farm
Activities 51
2.17.1 Non-farm and farm incomes 52
2.18 Review of Empirical Studies 53
2.19 Theoretical Framework 58
2.19.1 Theory
of economies of scope 59
2.19.2 Economies of scope
examples 60
2.19.3 Methods
of achieving economies of scope 61
2.19.3.1 Flexible manufacturing 61
2.19.3.2 Related diversification 62
2.19.3.3 Linked supply chains 64
2.20 Conceptual Framework 66
CHAPTER
3: METHODOLOGY 69
3.1 Study Area 69
3.1.1 Abia State 69
3.1.2 Ebonyi
State 71
3.2 Population of Study 72
3.3 Sample
and Sampling Procedure 72
3.4 Data Collection 72
3.4.1 Instrument
for data collection 73
3.5 Validity of Instrument 73
3.6 Reliability
of Instrument 74
3.7 Measurement
of Variables 75
3.7.1 Data
analysis 75
3.8 Model Specification 77
CHAPTER 4: RESULTS
AND DISCUSSION 82
4.1 Socio-Economic Characteristics of Households
in Abia and Ebonyi States
82
4.1.1 Marital
status 84
4.1.2 Age
84
4.1.3 Educational level 85
4.1.4 Household size 86
4.1.5 Farm size 87
4.1.6 Farming experience 87
4.1.7 Number of non-farm activities 88
4.1.8 Years involved in non-farm
activities 89
4.2 Contribution
of Farm and Non-Farm Activities to Rural Household
Income in Abia State 90
4.3 Contribution
of Farm and Non-Farm Activities to Rural Household
Income in Ebonyi State 92
4.4 Annual Cash Expenditure on Farm and Non-farm
Activities in Abia
and
Ebonyi States 95
4.5 Comparison
of Rural Households’ Income from Farm and
Non-Farm Activities in Abia
and Ebonyi States 97
4.6 Comparison
of the Profitability Between Farm and Non-Farm
Activities in Abia and Ebonyi
States 100
4.7 Comparison
of the Factors that Affect Rural Household Involvement
in Non-farm Activities
Between Abia and Ebonyi States 104
4.8 Hypothesis Testing 107
4.8.1 Hypothesis 1 107
4.8.2 Hypothesis 2 106
4.8.3 Hypothesis 3 107
4.8.4 Hypothesis 4 109
4.8.5 Hypothesis 5 110
4.8.6 Hypothesis 6 111
4.8.7 Hypothesis
7 112
CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATIONS
118
5.1 Summary
118
5.2 Conclusion
123
5.3 Recommendations 124
Reference
Appendices
LIST OF TABLES
Distribution
of respondents by selected socio-economic characteristics in Abia
and
Ebonyi States 82
Households
income from farm and non-farm activities in Abia State 90
Mean
and percentage household income from farm and non-farm activities in Abia
State
91
Households
income from farm and non-farm activities in Ebonyi State 92
Mean
and percentage household income from farm and non-farm activities in
Ebonyi
State 94
Household
cash expenditure on farm and non-farm activities in Abia and Ebonyi
States
95
Mean
household cash expenditure on farm and non-farm activities in Abia and
Ebonyi
States 96
Distribution of rural
households based on annual income from farm and non-farm activities in Abia and
Ebonyi States 98
Mean
household farm and non-farm income in Abia and Ebonyi States 99
Distribution
of rural households based on net profit from farm and non-farm
activities
in Abia and Ebonyi States 101
Mean
households farm and non-farm net profit in Abia and Ebonyi States 102
Profitability
of non-farm activities in Abia and Ebonyi States 103
Respondents
rating of factors affecting involvement in non-farm activities
between
Abia and Ebonyi States 105
Significance of difference between
household income from farm and non-farm
activities in Abia State 107
Significance of difference between
household income from farm and non-farm
activities in Ebonyi State 108
Significance of difference between Abia and
Ebonyi State farm incomes 109
Significance of difference in non-farm
income of rural households between
Abia and Ebonyi States 111
Significance
of difference in profitability of non-farm activities between
Abia
and Ebonyi States 112
Significance
of difference in rating of factors that determine engagement in
non-farm activities between Abia and Ebonyi States 113
Multiple regression of the relative
effects of the variables that determine
engagement n non-farm activities 115
LIST OF FIGURE
2.1 Conceptual
framework for effect of farm and non-farm
activities on household
income 68
CHAPTER
1
INTRODUCTION
1.1 BACKGROUND
OF STUDY
Agriculture and
other related activities have been primarily the foundation of the economy of
rural areas of Nigeria. Alternative means such as non-farm activities for
income generation have become so much important to rural households due to
economic pressure in order to adjust to the problem of insufficient income.
Diversifying sources of income is a major challenge since petroleum was
discovered in Nigeria (Madaki et al.,
2014 and Reardon, 1997). In contrast to the
agricultural sector, employment in non-farm activities is crucial. It is
crucial in the sense that it is the main
variable for diversification of the sources of rural household income. In rural
areas, household income generation has been supported by engagement in non-farm
activities.
It was pointed out
that non-farm activities could improve economic growth as it creates income
opportunity than subsistence agriculture. It also enables households to
modernize their production by giving them a prospect
to apply the necessary inputs as well as reduce their income shortage during
periods of unexpected crop failure (Madaki et
al., 2014 and FAO, 1998).
Non-farm
activities have also been gaining prominence in the comparison of its influence
on rural household income to farm activities since interest in boosting
agriculture in Nigeria and establishing channels that can help rural farmers to
sell off their farm produce declined (Start, 2001; Lanjouw and Shariff, 2002).
The belief that rural areas of Nigeria are completely agrarian is also fast
becoming obsolete as youths no more regard subsistence agriculture practised by their parents under land
fragmentation system but aspire for commercial agriculture which involves huge
capital, and a large area of land.
Multiple
factors can cause households to diversify assets, incomes and activities (Ellis
and Freeman, 2004). However, non-farm activity is important for the economic
growth of rural areas. They also provide an option
for rural households in adverse situations such as reduction of cultivable
lands, conflict or communal crisis, sub-division of landholding, a high or
frequent increase on farmland rent and
population pressure as well as insufficient capital to invest on the farm. At the same time, rural households face
unexpected crop failure because of crop diseases, variability in soil quality,
unpredictable rainfall, and other related weather events (Nashid and Tanjila,
2015). The theory of portfolio diversification postulates that household’s trade-off for the comparative average
profitability of one business to moderate risk and optimizes utility (Ibrahim et al., 2009).
In
small farming in Nigeria and Bangladesh, farm sector comprises four main
components of such as crops, livestock, fisheries, and poultry (Parvin et
al., 2012). The rural farm activities comprise all those
agricultural activities, which generate income for
rural households, either through wage work or through self-employment (Tanjila,
2015). A widely accepted view of the development literature is that, in the
course of structural economic transformation that goes with economic development, as a country GDP grows, the share
of the farm sector in the country’s GDP will decrease (Chenery and Syrquin,
1975). This indicates that, in rural areas, a dwindling agricultural sector and
increasing rural non-farm activities, as well as a varying definition of rural
itself, can be viewed as possible features of economic development (Benjamin, and Kimhi 2007).
A non-farm
activity refers to any economic activity other than the production of primary
agricultural commodities, livestock and forestry, fishing and hunting
(LIFCHASA, 2012). Non-farm activities thus include mostly processing of
agricultural commodities into different forms with private machines,
shop-keeping, peddling, petty trading, medium and large-scale trading, manual labour based activities such as mining,
manufacturing, construction, commerce, financial and personal services,
self-employed subsistence-oriented cottage industries, wage employment in rural
business activities, transport operation, and construction labour, etc. (Mhazo et al., 2008 In: Ndirika, 2011).
Physical and human capital-intensive activities include commercial type rural
industries, including food processing, trading, basket weaving, shoemaking, carpentry, transportation, etc. The
types of non-farm activities differ across geopolitical
locations (Meludu et al., 1999;
Lanjouw and Lanjouw, 2001). Generally, non-farm activities are categorized into
two groups of livelihoods: labour associated with high productivity that leads
to high-income activity and labour associated with low productivity that
provides an only residual source of
income (Ellis and Freeman, 2004).
Rural
households in many diverse circumstances have the tendency to diversify their
income sources, which permit them to manage risk and increase consumption
(Ellis, 1998; In Ibrahim et al., 2009). Incomes generated from
non-farm activities contribute half of the total income in Asia, Nigeria and
other developing countries. It also allows more income for rural households
(Dave and Dave, 1996). According to Dave and Dave, 1996, when there is a subsequent addition to labour force because of
extreme pressure of population, the agricultural sector alone cannot provide
adequate income to sustain the livelihood of the rural households nor create
additional employment opportunities.
Over
the last two decades, it has become widely accepted in both academic and policy
research that rural non-farm activities have a significant influence on income
at the level of rural household in developing countries. Beginning in the 1970s
and 1980s, evidence from field surveys across many developing countries show
that non-farm activities were widespread
(Cornilius, 2004).
The
correlation between non-farm and farm activities has specifically drawn major
attention from researchers in this area. It has been employed in several
studies to argue in favour of a widely held view, which asserts that rural
non-farm activity is important for enhancing living standard as it assists
rural farm households in overcoming cash constraints when making decisions
(Cornilius, 2004). This view, if accurate, would be very crucial for
maintaining rural household income in developing countries, especially, given
the widespread evidence for economic shocks (crop failure) and institutional
failures in rural capital markets. For this reason, the idea has attracted a
great deal of attention from many non-governmental organizations (NGOs) and
development agencies working in developing countries in their work to improve
rural household income through engaging them in diverse sources of income (farm
and non-farm activities) (Bernstein et al., 1992; Ellis, 1998 and Ellis,
2000).
On
the contrary, it has been a source of worry in some areas that, the effect of
expanding rural non-farm sector activities would be hostile on the development
of rural households’ agriculture, which will in turn influence negatively on
rural households’ income generation (Low, 1986; Lipton, 1977; and Ellis, 1998).
In Zimbabwe, for instance, up until the early 1990s, rural households that have
been resettled on formerly white-owned farmlands in 1980s had been encouraged
to avoid limiting themselves to farm sector activities but rather get involved
more in non-farm sector activities to maintain household income (Kinsey, 2002).
While rural non-farm activities may have the potential to support in generating
household income, it seems, though, that knowledge about the relationship
between rural non-farm activities and the broader process of farming is not
wide in literature especially how they are connected by nature (Lanjouw, 2001).
Earlier
studies on the direction of effect of the relationship between farm and
non-farm activities, based on the rural growth-linkage model, seems to suggest
that growth or increase in household income at rural level was due to the
productivity gains in farm and non-farm sector activities (Haggblade and
Hazell, 1989; Hazell and Haggblade, 1993). This suggests that the growth of the
rural household income is dependent on the progress of the farm and non-farm
activities, rather than the opposite.
1.2 PROBLEM
STATEMENT
Poor
household income in rural regions is widespread. Recent government policies
have been regarded as a shock to the economic lives of rural households vis-a-vis
inflation and a loss of lifetime savings (Judith et al., 2011). There are indications that small household farms
(95% of total farms) are less than two hectares of land and are vulnerable in
terms of risk. The question arises how these small farms can cope with the
ongoing economic downturn and whether rural non-farm activities could provide a
better life. Despite continuing efforts to fight poor rural household income,
it has persisted to the present day. In contrast to the past, current rural
youth empowerment approaches have therefore adopted a more comprehensive view,
acknowledging the diverse endowments of rural regions, and particularly the
multiplicity of income sources of rural households (Organization for Economic
Cooperation and Development (OECD), 2006; and World Bank, 2007). Farm-based
households pursue non-farm activities because they lack sufficient agricultural
output and because they seek additional income sources to diversify risks
(Buchenrieder et al., 2010). In
developing countries, detailed analyses of rural household income sources have
revealed the tremendous importance of farm and non-farm activities on income
(Reardon et al., 2007).
In
order to promote broader concepts of rural development, a better understanding
of the influence of farm and non-farm activities on rural household income and
its implication for poverty and inequality is essential.
Despite
the economic importance of the rural areas, people in the region are poorer
than any other parts of the country. Most of the people here live in absolute
poverty (Bangladesh Haor & Wetland Development Board BHWDB Report,
2011). The people of rural areas have very little production assets and have no
year-round working opportunities to earn
money for purchasing food and other daily necessities of life. As a result,
they face hunger during lean period of work. They are mostly agricultural
labourers, who suffer from food insecurity and high micronutrient deficiencies,
which results in consistently reduced productivity, loss of working days and
various illnesses. Another way of increasing the income of rural households is
to engage in various non-farm activities, which will complement farm income and
facilitate the households to lead a good life (Parvin et al., 2012).
Nigeria
has demonstrated a growing interest in an income-related
debate recently. A World Bank study (2006), which is based on the national
household budget surveys (2002 – 2004), gives for the first time, a
comprehensive overview. It, however, does
not consider rural households as a separate category.
Rural
households have always engaged in farm and non-farm activities, however, with
the present hard economic situation, it does appear that rural households who
are mostly farmers are diversifying their source of income to cope with the
present hard economic conditions leading to greater engagement in non-farm
activities to improve household income. In this regard, the situation in Abia
and Ebonyi States is apparently unknown and worth investigating. It is on these
bases that this study was conceived.
Consequent
upon the above, the study sought to find answers to the following research
questions:
1.3 RESEARCH QUESTIONS
1. What are the socio-economic characteristics
of the rural households?
2. How does the contribution between farm and
non-farm activities to rural household income differ in
Abia State?
3. How does the contribution between farm and
non-farm activities to rural household income differ in
Ebonyi State?
4. Do cash expenditures on the farm and non-farm activities differ between Abia and
Ebonyi States?
5. Does
the income of rural households from the farm and non-farm activities differ between
Abia and Ebonyi States?
6. Are non-farm activities more profitable than
farm activities in the study areas?
7. Do the factors that determine engagement in
non-farm activities differ between Abia
and Ebonyi States?
1.4 OBJECTIVES OF THE STUDY
The
purpose of the study was to compare the effect of farm and non-farm activities
on rural household income between Abia and Ebonyi States, Nigeria. The specific
objectives of the study were to:
1. describe selected socio-economic characteristics of the rural
households;
2. compare the contributions of farm and
non-farm activities to rural households’
income in Abia State;
3. compare the contributions of farm and
non-farm activities to rural households’
income in Ebonyi State;
4. determine cash expenditure on the farm and non-farm activities in the study areas;
5. determine the income
of rural households from the farm and
non-farm activities in Abia
and Ebonyi States;
6. ascertain the profitability between farm and
non-farm activities in Abia and Ebonyi
States; and
7. examine
the factors that determine rural household engagement in non-farm activities in
Abia and Ebonyi States.
1.5 HYPOTHESES
OF THE STUDY
The
following null hypotheses were used to guide the study:
H01
: There
is no significant difference between income from farm and non-farm activities
in Abia State.
H02
: There
is no significant difference between income from farm and non-farm activities
in Ebonyi State.
H03
: Farm
income does not differ significantly between Abia and Ebonyi States.
H04
: There
is no significant difference in non-farm income of rural households between
Abia and Ebonyi States.
H05
: There
is no significant difference in the profitability
of non-farm activities between Abia and Ebonyi States.
H06
: The
rating of factors that determine engagement in non-farm activities do not differ
significantly between Abia and Ebonyi States.
H07
: Factors
that determine engagement in non-farm activities do not significantly influence
non-farm activities.
1.6 JUSTIFICATION OF THE STUDY
The
study was necessary because a relatively large proportion of the rural farm
households in the study area engage in non-farm activities for the need for improved well-being in the present hard
economic condition.
The
study has shown the relative contribution of farm and non-farm activities to
rural households’ income, which would motivate rural farm households to diversify
into profitable non-farm activities and allocate scarce resources accordingly.
It will also inform the government on the significance of instituting small and
macro enterprises in rural areas, which can facilitate the establishment of
non-farm activities as a potential area
of growth that can link agriculture to the non-agricultural sector.
The
income and expenditure findings that show a profit
on the farm and non-farm activities would
be valuable to academics and policymakers
to ensure rural household well-being through improving farm and non-farm
linkages to increase cash income for rural households. Understanding the
linkages would have far-reaching policy implications for the development of the
rural economy as a whole.
The
findings on the profitability of non-farm
and farm activities would serve as a focus in providing technologies and
support on the major farm and non-farm
activities that are likely to improve welfare and income distribution problem
in the study area.
Furthermore,
the study has revealed that farming contributes more to rural household income
than non-farm activities. This means that, if farmers are provided with greater
resources, they will increase the contribution of farm activities to family
income. Moreover, if farm income sustains the family, less attention would be
given to non-farm activities, which reduces both labour and other resources
that would be used for farming activities. The study, therefore, justifies the
need to pay more attention to making farming more profitable rather than giving
more attention to non-farm activities.
Finally,
the result has revealed the relative influence of various factors on engagement
in non-farm activities and shown that the
growth of rural non-farm sector can be to the advantage of poor rural farm
households and suggest policy measures to reduce the influence, and mechanisms
to best exploit synergies across agricultural and non-agricultural sectors.
1.7 SCOPE OF STUDY
The
study was confined to the effect of farm and non-farm activities on rural
household income. In this regard, the study focused on ascertaining factors
determining rural households’ involvement in non-farm activities, and the
comparison of contributions and profitability of major farm and non-farm
activities to household income in Abia and Ebonyi States.
1.8 DEFINITION
OF TERMS
The
following terms and variables used in the study are operationally defined
below:
Farm: It is a place or portion of earth’s surface on
which a particular farmer, farm household or other organizations cultivate crops or tends livestock.
Farm activity:
Income earning activity done directly on
the farm to produce crops and livestock
for earning income; a production unit where the rational
use of resources is made (Tania, 2013).
Non-farm activity:
Any
economic activity other than the production of primary agricultural
commodities, livestock, and forestry, fishing and hunting (LIFCHASA, 2012).
According to Haggblade et al. (2007) cited in
Obinna, (2014) it could also be all economic activities in rural areas except
agriculture, livestock, fishery and hunting.
Income:
The amount of money received either as payment for work done, goods delivered,
or services rendered or as profit on
capital or produce harvested from the owned
farm over a period.
Profitability: This is used to assess a business's
ability to generate earnings compared to its expenses and other relevant costs incurred during a specific
period.
Diversification: Process of extending or expanding an enterprise or income into new
areas of business.
The
economy
of scope: The process of reducing the cost of
resources and skills for an individual business enterprise by spreading the use
of these resources and skills over two or more enterprises.
Poverty:
The state of not having enough money or input to take care of basic needs such
as food, clothing, and shelter.
Pull Factors:
These are benefits from complementarities between activities, new income
opportunities created by market development improvement of infrastructure, and
diversification for asset accumulation (Davis and Pearce, 2001; Jalan and
Ravallion, 1998),
Push Factors:
These factors include ex-ante risk management ex-post risk coping, high
transaction costs liquidity constraints and credit market failure, and the
seasonality of agricultural activity (Hoogeveen, 2001 and Carter, 1997).
Credit
Facility: A
credit facility is a type of loan made in a business or corporate finance context, including revolving credit, term
loans, committed facilities, letters of credit and most retail credit
accounts(www.investopedia.com/terms/c/creditfacility).Or a
variety of different loans that a company brings on to meet its financing needs
(http://www.businessdictionary.com/definition/credit
facility.html).
Economic Depression: In
economics, a depression is a sustained, long-term downturn in economic activity
in one or more economies. It is a more severe economic downturn than a
recession, which is a slowdown in economic activity over the course of a normal
business cycle (https://en.m.wikipedia.org/wiki/Economics).
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