Nonfarm Employment and Poverty Alleviation of
Rural Farm Households in Honduras
RUERD RUBEN and MARRIT VAN DEN BERG
*Wageningen University, The Netherlands
Summary. Ð This paper analyzes the role of nonfarm income of rural farm households in Honduras. It uses the national income and expenditure survey from 1993 to 1994. Income from nonfarm wage and self-employment represents 16±25% of farm household income and is especially important for middle and higher income strata. Nonfarm wage labor is geographically concentrated in small rural towns and in the industrial free zones located in the Northern region, while self-employment is particularly developed in the Southern region. Access to nonfarm wage employment is con®ned to educated individuals that belong to large households, while female members of wealthier households are mainly involved in self-employment. Food security is strongly enhanced through the engagement in nonfarm activities. Moreover, nonfarm income enables farmers to purchase external inputs for improving yields and labor productivity. Suitable policies to enhance nonfarm employment include education, training, and technical assistance to reduce labor intensity in agricultural production, as well as public investment and credit services to improve access to nonfarm activities. Ó 2001 Elsevier Science Ltd. All rights reserved.
Key words Ð nonfarm employment, wage labor, self-employment, food security, input use, Honduras
1. INTRODUCTION
Honduras is one of the few Latin American
countries where more than half of the
economically active population is still engaged in agricultural activities. Poverty is widespread in the Honduran countryside. Recent ®gures state that 67% of the rural population live in extreme poverty and 40% are illiterate (World
Bank, 1994). Rural underemployment is
calculated at 42% of the labor force (PREALC, 1986). Agricultural productivity is substantially below the Central American average, and yields stagnated during recent decades. Credit provi-sion and technical assistance services only reach a small segment of the rural population. State-led poverty alleviation programs focus on the provision of social safety nets and public works as shelter against malnutrition, while nongov-ernmental organizations (NGOs) focus on the promotion of low-external input practices designed to also raise yields.
Farming represents, however, only a minor share of peasants' household income, since
rural livelihood strategies have become
increasingly dependent on income generated through engagement in o-farm wage and self-employment. According to ocial data, the
farm labor force comprises about 75% of own-account workers and family laborers, while wage laborers represent only 25% of the labor force (DGEC, 1988).
Most statistics tend, however, to neglect nonfarm wage employment and self-employ-ment activities, in which rural farm households are increasingly involved, giving rise to a portfolio of income sources. Moreover, the importance of nonfarm employment has been neglected in most rural development policies and programs. Attention is usually focused on income derived from agricultural production,
Ó2001 Elsevier Science Ltd. All rights reserved Printed in Great Britain 0305-750X/01/$ - see front matter PII: S0305-750X(00)00107-8
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*This paper is based on data from the Encuesta Nacional de Consumo, Ingreso, Gasto y Nutricion 1993± 94(CIENS94) that was made available by the Agricul-tural and NaAgricul-tural Resource Oce (ARDO) of the USAID mission in Honduras (ARDO/USAID contract # 522-8103-C-3315-00). We owe thanks to Dr. Mike Wise for the permission to use this data base for research purposes. Ir. Eelco Mol (currently working with FAO) helped with preliminary processing of the data base. We are grateful for comments on an earlier version of this paper by Tom Reardon and two anonymous referees. The authors remain responsible for the arguments and the conclusions presented.
while options for improving household food
security or intensifying cropping systems
®nanced with nonfarm income receive little attention. Recently, the potential role of nonfarm employment has been emphasized, looking for options to enhance household
expenditures and investment opportunities
through selective engagement in the labor market (Lanjouw & Lanjouw, 1995; Reardon, 1997). Nonfarm employment is considered as an important device for income diversi®cation, consumption smoothing and risk management (Rosenzweig & Wolpin, 1994). Farm income changes can be compensated through labor market participation (Maitra, 1996). Engage-ment in nonfarm employEngage-ment can be helpful to overcome credit market failures (Reardon, Crawford, & Kelly, 1994; Jacoby, 1993). Nonfarm income represents an important sources to ®nance land acquisitions (Salgado, 1994) and the purchase of farm inputs and food.
In this paper we analyze the importance of nonfarm wage employment and self-employ-ment for rural farm households' welfare. We explore three questions: (a) What is the pattern of income composition across regions and income strata? (b) What are the relevant
regional, farm household, and individual
characteristics that give rise to engagement in nonfarm activities? (c) How does nonfarm
income aect farm input use and food
consumption of the rural household? We focus attention on farm households that own or rent land and are located in predominantly rural areas or small rural towns.
We consider the household as a complex of the farm unit (combining inputs to produce
agricultural outputs), the consumer unit
(spending money to maximize welfare), and the worker household (supplying farm labor and earning nonfarm income). We de®ne nonfarm income as the revenues from nonfarm wage employment and self-employment.
The paper is structured as follows. Section 2 provides background on the evolution of agri-cultural development and rural employment in Honduras. Section 3 presents evidence regard-ing the relative importance of farm and nonfarm income in rural household income, exploring dierences over regions and income strata. Section 4 examines the factors that in¯uence the involvement of rural households in farm wage employment, nonfarm wage employment, and nonfarm self-employment. Section 5 provides an analysis of the
implica-tions of nonfarm income for nutritional ade-quacy and farm input use. Section 6 concludes with policy implications for enhancing agricul-tural productivity and food security based on the linkages between nonfarm activities and farm household expenditures.
2. AGRICULTURAL DEVELOPMENT AND RURAL EMPLOYMENT IN
HONDURAS
A high level of land concentration and limited market development generally charac-terizes the agrarian structure in Honduras. Although the land reform program in the 1970s favored the creation of agrarian cooperatives, a large number of rural families remain landless, and most small farmers face conditions of severe un- and underemployment (Brockett, 1988; Ruben, 1999).
Nonfarm employment is important to guar-antee additional income and can be used to satisfy consumption requirements when farm production is not sucient to safeguard food security. Since access to formal ®nancial insti-tutions is often limited by collateral constraints, limited possibilities are available to improve input use in agricultural production. The little informal credit available can only be used to ®nance current operating costs. Consequently, farmers rely on pre-harvest crop sales to
maintain consumption expenditures. Poor
development of rural roads results in high transaction costs that make commercial farm-ing less attractive. Additional income from
nonfarm employment can reduce these
compulsory sales and improve production and marketing eciency.
can only be used in an extensi®ed manner and agricultural support services (credit, technical assistance) have been strongly restricted.
The main hirers of farm labor are medium-size producers, land reform cooperatives, and commercial largeholders, but even small farm-ers hire labor. The labor/land ratio declines with farm size, however. Demand for farm
wage labor, particularly for harvesting,
strongly increased with the expansion of the area under coee production from 80,000 ha in 1974 to 175,000 ha in 1993. This coee expan-sion has been facilitated by the land titling program.
Nonfarm activities are usually underesti-mated in income surveys. Several studies report that 28% of the Honduran rural economically active population is engaged in nonfarm employment (DGEC, 1988) and that income derived from rural nonfarm activities in small peasant households represents about 17% of income (CADESCA, 1989). Opportunities for nonfarm wage employment developed in the Northern region, where joint-venture enter-prises created in industrial free zones additional employment for almost 50,000 people, mainly young women (Perez Sainz, 1996). For part of this workÐmainly in textilesÐsubcontracting
arrangements are established with local
communities.
Opportunities for self-employment arise in particular in commerce and small-scale manu-facturing. These are often related to agriculture through the selling or processing of its produce on local markets (i.e. fresh vegetables, tortillas, baked bananas, fried meat) and the manufac-turing of inputs for agrarian production (production of hoes, repair shops, brick-mak-ing, etc.). An active system of local savings and credit unions facilitates short-term credit for
commercial activities, while international
donor organizations ®nanced and provide
training for small- and micro-enterprises
(SME).
Compared to other Central American coun-tries, cereal yields and farm labor productivity are extremely low (PREALC, 1986). This contributes to rural households not being able to meet minimum food requirements and purchase many external inputs. Increasing fertilizer prices after the implementation of the Structural Adjustment Program led to a reduced application of yield-increasing inputs. Roughly 80% of small-scale farming takes place on hillsides, while the more fertile valleys are used by large (inter)national producers devoted
to livestock production, sugar cane, bananas, and palm oil cultivation (Ruben, 1999).
Food security strategies of rural farm households are increasingly based on market transactions. Land reform and former subsi-dized credit programs strongly enhanced the incorporation of small farm households into market production (Boyer, 1986; Brockett, 1987). Consequently, the proportion of maize production for market exchange increased from 34% during the 1970s to almost 60% at the end of the 1980s (Baumeister, 1996, p. 26). Most peasant farms in Southern Honduras registered a shift from a food surplus to a de®cit related to the declining per capita availability of basic grains. During the 1980s, real wages increased more than farmers margins (Dõaz & Cruz, 1992; World Bank, 1994). Taking into account rising prices for consumer goods, income from nonfarm employment becomes increasingly important to ®nance food purchases.
Clear regional dierences mark the develop-ment of nonfarm employdevelop-ment opportunities. The Northern region covers 20% of Honduras and consists of humid lowland areas suitable for agro-export production (bananas, oil palm) by international companies and land reform cooperatives. Road and harbor infrastructure is well developed and San Pedro Sula has became an important industrial center. In the Southern region, medium and large farms devoted to livestock and rice production dominate the landscape, and shrimp production is common. This region has a high population density around the capital city of Tegucigalpa and is provided with a broad network of feeder roads and services. The Western region consists of two parts: the dry and rather infertile frontier region with El Salvador devoted to basic grains production, and the mountains close to the border with Guatemala where small-scale coee production takes place. This region has less physical and social infrastructure than else-where in Honduras and suers from serious soil erosion.
food-for-work provided by the Honduran Social Investment Fund. Nonfarm employment is promoted through ®nancial support to SME development, but international agencies limit these facilities to (peri-)urban areas. Local savings and credit unions have a long history supporting small-scale commercial activities.
3. INCOME COMPOSITION OF RURAL HOUSEHOLDS
For the empirical analysis, we used the
Encuesta Nacional de Comsumo, Ingreso, Gasto
y Nutricion 1993±94, a large and detailed data
base collected by the Agriculture and Resource Oce (ARDO) of USAID-Honduras. The data base covers 2,727 households located in rural areas and small towns of Honduras. For our analysis, we focused on farm households that are engaged in agricultural production and
potentially diversify their activities into
nonfarm wage employment or self-employ-ment. After elimination of outliers, our sample consists of 2,584 economically active family members and 818 farm households. We present
some descriptive statistics regarding the
importance of various economic activities for the income composition and discuss dierences between regions and income strata.
(a) Regional patterns
Preliminary examination of the data indi-cates that farming is by far not the only activity of Honduran rural households. Most persons do not restrict themselves to a single activity but receive incomes from various sources. Farm households living in small rural towns receive the highest average income and derive more than half of their income from nonfarm wage and self-employment. Within rural areas, total per capita income in the Southern region is more than twice as high as the average per capita income in the Western region. Rural poverty is most profound in the Western region, especially the frontier departments with El Salvador (Ocotepeque, Lempira, Intibuca, and La Paz). Rural households in the Western region receive relatively less public and private transfers. Agricultural activities contribute a minor income share in the Southern region, where there is a major share of income derived from nonfarm sources. Farm households loca-ted in richer regions have higher shares of nonfarm income in total income. On average,
only about 50% of total income is derived from agricultural (cropping and livestock) activities, 32% comes from (agricultural or nonfarm) wage employment and 12% is from own-ac-count activities (see Table 1).
Agricultural income is relatively more
important in the Western region where inten-sive small-scale production of basic grains and coee takes place, whereas income from live-stock production is mainly important in the largehaciendas located in the Southern region
(the departments of Olancho, Valle and
Choluteca). Agricultural wage employment is almost equally distributed among the three rural areas, but is substantially lower for people living in rural towns. In the Northern region, major opportunities for wage employment exist with international banana companies and on the oil-palm cooperatives, whereas in other
regions agricultural wage employment is
generally found with small and medium-size producers engaged in commercial production of coee, horticulture crops or irrigated rice. Nonfarm wage employment is particularly important in the Northern region, where industrial free zones have been established around the city of San Pedro Sula and close to the harbor of Puerto Cortez. In small towns and in other rural areas, nonfarm wage labor is linked to small enterprises. Self-employment is most common in the Southern Region and includes own-account activities for the supply of services, crafts, and processing, and commerce. A sustainable market for these activities usually requires a higher population
density. Exogenous income derived from
personal savings, pensions or government assistance programs represents 5±8% of income. Regional dierences in the share of nonfarm income in total income are related to speci®c social and economic factors. Self-employment in the South is mainly based on processing and commercial activities linked to agriculture and responds to increasing demands for high-qual-ity goods and services by wealthier households. Self-employment in small rural towns is more commercially oriented. In the Northern and Western regions, self-employment represents a lower segment of nonfarm activities (repair shops; fast food) that provide services to middle-class and poor households.
(b) Patterns over income strata
sample into four farm household income cate-gories and included income data from rural landless households to enable a comparative analysis of dierences in income composition (see Table 2). Average income of landless households is comparable to the higher cate-gories of farmers' income. Nonfarm income
sources represent almost 60% of the income of the landless. Some landless still maintain cattle grazing along the roads.
Despite the importance of income diversi®-cation, still 32% of all rural individuals only have income from farming activities, 14% are exclusively dependent on farm wage labor, and
Table 2. Total income and shares of income sources per income group N1666a
Landless Farm households
<500 Lps/ (capyear)
500±1000 Lps/ (capyear)
1000±2000 Lps/ (capyear)
>2000 Lps/ (capyear) (N848) (N295) (N225) (N155) (N143)
Total income per ca-pita (Lps)
2206.61 254.21 700.07 1389.00 6787.89 (2771.37) (526.56) (140.36) (289.12) (7330.53)
Livestock 0.03 0.00 0.04 0.10 0.18
(0.09) (0.22) (0.16) (0.22) (0.31)
Crop 0.00 0.52 0.42 0.36 0.41
(0.06) (0.41) (0.34) (0.32) (0.40)
Agricultural wage 0.24 0.28 0.25 0.21 0.06
(0.39) (0.35) (0.31) (0.30) (0.18)
Nonfarm wages 0.34 0.06 0.10 0.13 0.18
(0.41) (0.22) (0.24) (0.27) (0.31)
Self-employment 0.24 0.08 0.14 0.13 0.13
(0.36) (0.21) (0.26) (0.25) (0.27) Capital income,
pen-sions and aid
0.15 0.07 0.06 0.07 0.04
(0.29) (0.18) (0.17) (0.18) (0.10)
aStandard deviations in parentheses.
Table 1. Total farm household income, income shares and wage rates per region (N818)a Small towns
(N76)
North and rest (N215)
West (N300)
South (N227)
Total income per capita per year (Lps)b 3453.93 1400.83 1067.29 2355.11 (5316.34) (2113.23) (2172.62) (5695.23)
Income composition
Livestock activities 0.06 0.05 0.05 0.08
(0.22) (0.22) (0.22) (0.27)
Cropping activities 0.36 0.44 0.52 0.36
(0.37) (0.37) (0.38) (0.38)
Agricultural wage 0.16 0.22 0.23 0.23
(0.25) (0.30) (0.32) (0.33)
Nonfarm wages 0.23 0.12 0.06 0.10
(0.33) (0.27) (0.22) (0.25)
Self-employment 0.12 0.09 0.10 0.16
(0.26) (0.21) (0.21) (0.30) Capital income, pensions and aid 0.07 0.08 0.05 0.08
(0.16) (0.19) (0.12) (0.19)
Wage rates
Farm wage (Lps/h) 1.92 1.62 1.09 1.93
(2.17) (1.00) (0.50) (1.76)
Nonfarm wage (Lps/h) 3.14 2.62 2.31 2.98
(3.09) (3.21) (2.79) (3.16)
Self-employment (Lps/h) 5.55 4.02 3.25 4.98
(8.84) (7.57) (4.30) (6.69)
a
Standard deviations in parentheses. b
25% are fully specialized in nonagricultural activities (Ruben & van den Berg, 2000, p. 199). While poor households try to diversify their income within the agricultural sector, higher income strata seem to be better able to guar-antee income diversi®cation across economic sectors.
The share of nonfarm income in total income increases from 14 to 31% as household income rises. Higher income strata receive substantially
more income from livestock production,
nonfarm wages, and self-employment
compared to lower income strata. Notably, self-employment is taking a substantially higher share among higher income strata of both landless and farm households. Poor households rely strongly on cropping income (52%) and farm wage employment income (28%).
Wage rates dier markedly over activities, as shown in the lower part of Table 1. Urban nonfarm wages are 5±10% above the highest rural wages. Average wages for farm labor and nonfarm employment are respectively 75% and 30% higher in the Southern region compared to the West, while wages in the Northern region are 14±19% below the average wage in the South. This may be due to the fact that competition in the labor market and demand for more quali®ed labor are substantially higher in the South. The wage gap between farm and nonfarm employment is, however, largest in the Western region. Nonfarm wages are between twice as high (in the West) or half as high (in the South) as farm wages. Hourly returns on self-employment are 2.6±3 times higher than farm wages, with the Southern region having a 50% higher rate than the Western region.
4. DETERMINANTS OF OFF-FARM EMPLOYMENT
We used a Logit regression to determine the probability that an individual becomes engaged in agricultural wage employment, nonfarm wage employment, and/or self-employment as a function of the following: (a) regional charac-teristics (with the Northern region as the benchmark); (b) individual characteristics such as age, gender, education; and (c) farm house-hold characteristics related to farm size, soil quality, land use, availability of family labor, and access to credit or technical assistance (see Table 3). The model predicts participation in farm wage employment with 83%, nonfarm
wage employment with 92%, and self-employ-ment with 80% accuracy.
Individuals with smaller farms and more hillside land are most likely to be engaged in farm wage labor. Farmers who are less engaged
in livestock production, which requires
constant care, are better able to undertake agricultural wage employment. With respect to individual characteristics, age, gender, and education aect participation in the farm labour market. Access to the local labor market increases with age, but for the elderly this eect declines in importance, probably because while experience increases access, health problems decrease it. Farm wage labor is primarily a male activity and requires almost no formal education. It is therefore highly accessible to the poor and illiterate. Engagement in farm wage labor declines with access to private
transfers (i.e., remittances from family
members abroad) and is more likely for those
bene®tting from government assistance
programs. Our data do not permit further disaggregation of agricultural wage employ-ment into seasonal and permanent activities, or according to the type of farm work. Baumeister (1996) notes, however, that landless laborers are more engaged in permanent wage employ-ment, while small farmers and members of land reform cooperatives seek employment during their o-season on other farms in the same region. While land preparation and sowing are usually performed by men, women weed and harvest. The substantial increase of the coee area during the last decade generated demand for coee harvesting, where women have an advantage.
secondary education. Engagement in nonfarm wage employment is usually not dependent on formal credit, since search and entry costs can be
®nanced from capital income and pensions. Income from nonfarm employment can be used as a substitute for formal credit.
Table 3. Logit estimation for participation of o-farm employment by type (N2584)
Farm wage employment Nonfarm wage employment Self-employment
Region
West )0.193 )1.178 0.041
(0.159) (0.243) (0.136)
South )0.152 )0.217 0.254
(0.167) (0.203) (0.142)
Small towns 0.264 0.464
)0.137
(0.234) (0.236) (0.202)
Agricultural resources
Farm size )0.058 0.015 )0.007
(0.018) (0.008) (0.006)
% ¯at land )0.546 0.065 )0.013
(0.146) (0.174) (0.107)
% irrigated land )0.558 2.058 )0.942
(1.188) (0.750) (1.020)
Technical assistance (yes1) 0.354 )0.413 )0.102
(0.216) (0.220) (0.154)
Number of cattle )0.166
)0.014 0.000
(0.040) (0.012) (0.005)
Number of pigs )0.081 )0.055 0.017
(0.030) (0.040) (0.011)
Number of horses 0.001 )0.186 0.002
(0.015) (0.081) (0.003)
Family composition
Number of adults )0.002 0.150 0.144
(0.041) (0.046) (0.032)
Women/adults )0.039 2.005 1.854
(0.420) (0.541) (0.331)
Children/adults 0.203
)0.237 )0.245
(0.090) (0.137) (0.083)
Nonearned income
Credit use (yes1) )0.372 )0.747 )0.090
(0.269) (0.371) (0.204)
Capital income and pensions 0.000 0.000 0.000
(0.000) (0.000) (0.000)
Government assistance 0.002
)0.002 0.000
(0.001) (0.002) (0.001)
Individual characteristics
Age 0.055 0.060
)0.072
(0.020) (0.035) (0.016)
Age squared )0.001 )0.001 0.001
(0.000) (0.000) (0.000)
Can read and write (yes1) )0.137 )0.221 )0.059
(0.078) (0.101) (0.058)
Secondary school (yes1) )0.813 0.453
)0.011
(0.201) (0.098) (0.088)
Sex (male1) 3.907 0.284
)1.394
(0.236) (0.169) (0.112)
Constant )4.844 )2.969 )0.003
(0.667) (0.828) (0.499)
*Signi®cant at 10% level.
**Signi®cant at 5% level.
***
Self-employment is particularly well devel-oped in the Southern region, where microen-terprises and service providers can count on relatively good market outlets. Participation in self-employment is rather independent from farm size or land use. Young women, some-times without education, undertake most own-account activities. This sector includes a range of activities that rely on experience, such as bakeries,tortillamaking, market stands, sewing workshops, photocopy services, repair shops, and restaurants. Interestingly, start-up funds are usually not ®nanced from capital income, remittances, or (formal) credit sources. This points to the importance of access to savings and informal credit. Rural microenterprises still maintain important linkages with the agricul-tural sector either through the provision of inputs (backward linkages), the delivery of outputs (forward linkages),or for the distribu-tion of their produce to rural consumers (®nal demand linkages).
For agricultural wage employment, age and experience are the most important entry crite-ria. For nonfarm activities, education is
particularly relevant. Self-employment is
mainly undertaken by women, independent of their education.
The general picture that emerges is of farm
wage labor as mainly an income stabilization
strategy for poor farm households that main-tain traditional production systems primarily oriented toward self-consumption and with few other possibilities. Nonfarm employment is important as an income diversi®cationstrategy when sucient resources are available to replace better-endowed family members that can earn higher incomes outside agriculture. Self-employment can be characterized as a strategy for income growth and accumulation based on ®nal demand linkages. In practice, the latter two strategies are mutually exclusive, since members of households with commercial self-employment activities are less inclined to
enter wage employment, indicating that
substitution possibilities are limited.
Some other factors are likely to in¯uence access to wage labor or self-employment
opportunities. Physical infrastructure and
public services are underdeveloped in the Western region and therefore self-employment tends to be restricted to the local market. Land reform and subsequent land sales have been particularly important in the Northern region, where former cooperative members are better quali®ed to enter nonfarm wage employment.
Finally, almost no signi®cant relation was found between credit use and access to wage or self-employment. Search and transport costs for ®nding nonfarm wage employment are mainly ®nanced from private savings and transfers, while public assistance programs seem to facilitate engagement in farm wage employment.
5. EFFECTS OF NONFARM EMPLOYMENT ON FOOD SECURITY
AND FARM INPUT USE
(a) Consumption eects
Food adequacy is computed by dividing household food consumption by the daily calorie and protein requirement for the entire household. The result is an index of nutritional adequacy that should be higher than one to guarantee food security. We focused on calorie consumption because it is a major deter-minant of health and it varies over house-holds, while most households report adequate protein.
To analyze the consumption eects of nonfarm employment, we regressed the calorie intake adequacy ratio on household income sources to yield a modi®ed Engel curve where consumption is dependent on the level and composition of income. We include regional dummy variables to account for price dier-ences, as well as some other variables related to the availability of near-liquid assets and borrowing as an indication of the household's capacity for consumption smoothing. Finally, a number of farm household characteristics are included to account for preferences.
Farm income is most important for food security: a 10% rise in farm income improves nutritional adequacy by 0.8%. This is not surprising, since our consumption measure includes home production. In addition, the eect of nonfarm income is signi®cant: an improvement of 0.3% in food adequacy is the result of an increase of 10% in nonfarm income. The eect of agricultural wage income on food consumption is not signi®cant. Therefore, a separate estimation was made with a subsample of households that are engaged in farm wage labor.
0.2% in food security. For households with farm wage labor, the contribution of nonfarm income disappears, indicating that the activities are to some extent substitutes.
Availability of assets (titled land, cattle) substantially improves food security. Credit use also improves food adequacy, and the eect is stronger for households engaged in agricultural
wage employment. Income from wage
employment seems to be considered as ade-quate collateral for lending. Ceteris paribus, a
change from not participating to participating in the credit market implies an improvement in the food security ratio with a factor 1.0 for all households and with a factor 1.5 for house-holds with agricultural wage employment.
All else equal, adding female members to a household increases household caloric ade-quacy. ``Region'' also in¯uences household food security, in that Western region house-holds have poorer caloric intake due to poor agroclimatic and labor market conditions. By
Table 4. 2SLS estimation of caloric adequacy at the household level (dependent variableln (calory consumption/ calorie needs))
All househods (N768) Households with farm wages (N320)a
Region
West )0.13991 )0.26429
(0.03945) (0.08417)
South )0.01464 )0.06314
(0.04041) (0.06341)
Small towns 0.07248 0.244271
(0.05608) (0.09330)
Food requirements
Ln (calorie needs) )0.17124 )0.16603
(0.03442) (0.11235)
Income
Ln (farm income)b 0.07618 0.05232
(0.02017) (0.04202)
Ln (agricultural wages)b 0.00165 0.02395
(0.00496) (0.01412)
Ln (nonagricultural income)b 0.02444
)0.01784
(0.00559) (0.11630)
Smoothing capacity
Ln (owned land with title) 0.02277 0.38625
(0.00708) (0.22421)
Ln (livestock value) 0.21648 0.02365
(0.05896) (0.01186)
Credit use (yes1) 0.06264 0.43291
(0.02181) (0.15328)
Preferences
Sex household head (1male) )0.03535 0.03978
(0.04892) (0.07932)
Females/adults 0.20021 0.04685
(0.09554) (0.21968)
Constant 3.65477 3.87816
(0.16859) (0.87237)
Lamdba 0.10382
(0.11564)
AdjustedR2 0.09 0.08
aSample selection model.
b
Instruments used: number of literate adults, number of adults with secondary education, number of cattle, number of dairy cows, number of horses, cultivated area, number of adults.
*Signi®cant at 10% level.
**Signi®cant at 5% level.
***
contrast, households in small rural towns have more caloric intake.
(b) Production eects
Use of family labor o-farm reduces labor available to the family farm. This can lead to extensi®cation and productivity loss. Hiring-in farm labor can compensate the loss, but there is a tradeo due to supervision costs. Nonfarm income can, however, be used to buy farm inputs that increase yields (such as fertilizer) or replace labor (such as herbicides). We explore this latter eect in Table 5 with a Tobit regression where the cash value of external inputs (including hired labor) per hectare is regressed on nonfarm income and transfers and several other variables. We used Tobit regres-sion because, a substantial number of farmers do not use external inputs.
The results show that use of external inputs is related to farm size, although economies of scale can be realized on larger farms. More-over, input use is higher for permanent crops (mainly fertilizer for coee production). Input intensity is not related to access to technical assistance. Surprisingly, farmers in the Western region spent relatively more on external inputs. This is partly because hillside areas are
increasingly used for small-scale coee
production, while in more marginal areas farmers undertake nonfarm activity and replace family labor with hired labor. Moreover, maintaining yields in hillside farming requires lots of agrochemical inputs. Production func-tion estimates suggest that the elasticity of output with respect to external inputs is highly signi®cant and close to 0.1 (Ruben, van den Berg, van Wijk, & Heerink, 1997). Note also that farmers residing in small rural towns rely on input-intensive production systems. No clear relations were observed between input use and legal land titles, indicating that titling has only limited demand eects (Salgado, 1994). Access to credit has the largest single eect on input use, and thus ownership titles might be important as collateral for borrowing.
As for the eect of various income sources on farm input use, only nonfarm income contrib-utes signi®cantly to higher input use. This may be because nonfarm income is used as cash for input purchases or because such income is considered collateral by banks and informal lenders. Household laborers can be considered as a ®xed factor; its eect on external input use
is signi®cant and negative due to the possibility of input substitution.
6. CONCLUSIONS AND POLICY IMPLICATIONS
Several conclusions emerge. First, 68% of Honduran rural adults are involved in some
o-Table 5. Tobit regression of the use of external inputs in crop production (N798)
Coecient
Small towns 744.635
(181.313)
Fixed production factors
Cultivated area 223.848
(22.2102) (Cultivated area)2
)3.50855 (0.72174) Share of permanent crops 1360.36
(215.881) Share of ¯at land 94.6277 (93.3212)
Family composition
Number of adults )59.1823 (32.2074)
Sex household head (1male) 20.4162 (153.461) Technical assistance (1yes) )28.2793
Liquidity
Owned land with title )181.740 (127.458) Credit use (1yes) 1235.68
(197.430) Nonfarm incomea 0.02914
(0.00706) Livestock incomea 0.00383
(0.00444) Agricultural wagesa 0.02854
(0.02273)
Constant )930.500
(274.737)
Sigma 1265.98
(34.8018)
*Signi®cant at 10% level.
***
Signi®cant at 1% level.
farm activity. Farm wage employment contributes 22% to the average farm household income, nonfarm wage employment represents 6±12% (and is particularly important in the Northern region), and income derived from nonfarm self-employment constitutes 9±15% of household income (and is particularly impor-tant in the Southern region). The landless and the residents of small rural towns tend to participate most intensively in nonfarm activi-ties.
Second, the main type of nonfarm activity varies over income strata. Poor families gravi-tate toward farm wage employment, middle-income households toward nonfarm wage employment, and higher income households toward nonfarm self-employment activities such as small and medium enterprises. While
most households maintain a substantial
involvement in own farming, some of their members work exclusively in nonfarm activi-ties. Females are most likely to be involved in self-employment, while better-educated persons tend toward nonfarm wage employment. The corollary is that ®nancial barriers for covering entry and start-up costs as well as scarcity of family labor to cover farm operations are major constraints to rural households' increasing engagement in nonfarm employment.
Third, income from nonfarm employment
proved to be particularly important for
enabling rural households to buy food and
farm inputs. Food security is clearly enhanced for poorer households through their engage-ment in agricultural wage employengage-ment, while nonfarm income contributes most to food security for the middle and richer strata. Income from farm wage labor and nonfarm activities can be considered as collateral for borrowing, thus improving the capacity for consumption smoothing. Even more important is that nonfarm income can be used to ®nance the purchase of yield-increasing (fertilizers) or
labor-substituting (contracted wage labor)
external inputs, especially when credit
constraints are eective.
Fourth, at the policy level major attention should be given to education and training programs that facilitate entrance to nonfarm activities. Public social assistance programs are not very eective for enhancing participation in nonfarm employment. Current food-for-work programs in rural areas may be eective in addressing the needs of poorest households, but they prevent other rural households from entering nonfarm activities. Finally, further
incorporation of rural households into
nonfarm employment requires development and promotion of input-intensive agricultural technologies that enhance agricultural yields and reduce labor demands for production. Low external-input technologies as favored by some local NGOs are generally too labor-intensive to permit engagement in nonfarm employment.
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