Impacts of Agrifood Market Transformation during Globalization on the Poor's Rural Nonfarm Employment: Lessons for Rural Business Development Programs

This paper presents emerging evidence pointing to the transmission to developing countries' rural spaces of the impacts of agrifood market transformation occurring at national and global levels. That transmission takes place via retail chains penetrating intermediate cities and rural towns, and urban-based food manufacturers selling products to those chains as well as to traditional shops. The paper presents and justifies three main hypotheses concerning the impacts of that penetration. (1) The direct effect is that the modern retailers and modern-sector processed products directly compete with, and present potentially major challenges to, the processed foods, farm inputs, and commercial services already being undertaken in the RNFE sector by the rural poor among others. (2) The indirect effects is that modern sector firms tend, once they have "modernized" their procurement systems, to prefer larger suppliers if available, and/or small suppliers that have the requisite levels of capital assets. This further translates to a potential labor substitution bias, in particular of unskilled labor, although it may drive skilled labor demand. (3) The production and consumption linkage effects of the above impacts on RNFE firms, laborers, and farmers, all else equal, probably implies greater demand for non-tradeable goods and services in the RNFE that correspond to the demand patterns of the upper stratum of rural consumers. Faced with the above, what can business development programs do? (1) Given the change in the market context, it will be increasingly undesirable and "un-strategic," except in the most remote, hinterland areas, to maintain the separation between competitiveness and nonfarm employment programs. At least for RNF activities that supply processed products, farm inputs, and retail commerce, RNF enterprises will need to face the same general challenge that exporters in their country face on the global market, and urban firms face, which is to compete on cost and quality. (2) Second, maintaining the analogy to international competitiveness, it will be necessary go beyond a generic competitiveness approach, to employ a "customized competitiveness" strategy (a term used by Reardon and Flores 2006 for export programs, but applicable here). Such an approach focuses on understanding the specific requirements of transformed markets and building the capacity of particular groups to respond to those requirements (as suppliers) or match cost and quality and compete for specific niches. The capital assets that programs should building include market intelligence capital, organizational capital, technology capital, and financial (and risk reduction) capital. (3) In the economic transformation, this time in the rural space, the poorest, those with least assets, are again vulnerable. Special attention should be paid to equipping those households and firms to participate in the increasingly challenging rural nonfarm economy.

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Department of Agricultural Economics Staff Paper #2006-25

 Record created 2017-04-01, last modified 2018-01-22

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