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Rural Households’ Livelihood and Well-Being:
Statistics on Rural Development and
Agricultural Household Income
Federico Perali
Statistics for Developing Countries
Collegio Santa Caterina da Siena - University of Pavia
26th February 2008
Organization
• Part I – Rural Development
– Definition of Rural
– Rural Indicators
– Rural Living Standard Measurement Surveys
• Part II – Income of a Household Enterprise
–
–
–
–
–
Definition of a Household Unit
Definition of a Household Enterprise
Shadow Wages
Disposable, Extended and Full Incomes
Income and Wealth
The Handbook on Statistics
on Rural Development and Household Income
• What is the Wye Group?
– UNECE (UN Economic Commission for
Europe), Eurostat, FAO, OECD, The World
Bank, National Bureau of Statistics (USDA;
STAT Canada, ...), University Economists
• Why a Handbook?
– Because rural development policies are
important and generate a strong demand for
qualified information
Motivation for the Handbook
• Why the emphasis on livelihood and wellbeing and agricultural household incomes?
• Rural development demands an integrated
approach encompassing the economic,
social and environmental dimension both at
the macro level of a territory and at the
micro level of the household
PART - I
Rural Development
Why rural development?
Poverty headcount, (share of population) (Percent)
Country
Albania
national
rural/urban
Algeria
national
rural/urban
Azerbaijan, Republic
national of
rural/urban
Bolivia
national
rural/urban
Brazil
national
rural/urban
Cambodia national
rural/urban
Cameroon national
rural/urban
China
national
rural/urban
Colombia
national
rural/urban
India
national
rural/urban
Mexico
national
rural/urban
1995
1996
1997
22.6
30.3 / 14.7
68.1
1998
1999
2000
2001
2002
25.4
29.6 / 19.8
12.2
16.6 / 7.3
49
42 / 55
63.2
77.3 / 53.8
23.9
54 / 15.4
62.7
81.7 / 50.6
22
51.4 / 14.7
36.1
40.1 / 21.1
53.3
59.6 / 41.4
6
7.9 / 2
60
79 / 48
35.9
40.1 / 13.9
40.2
49.9 / 22.1
4.6
4.6 / 2
64
79 / 55
28.6
30.2 / 24.7
37.1
52.4 / 26.5
20.3
34.8 / 11.4
Agriculture …
• The 2008 World Development Report titled ‘Agriculture for
Development’ says greater investment in agriculture in
transforming economies, most of which are in Asia, is vital to the
welfare of 600 million rural poor people living in those countries.
• The goal of halving extreme poverty and hunger by 2015 will not
be reached unless underinvestment in the agricultural and rural
sectors over the past 20 years is reversed.
• Rural poverty accounts for an extraordinary 82 percent of total
poverty in transforming countries. A greater focus on agriculture
is essential when considering population pressures, declining
farm sizes, water scarcity and environmental contamination ...
… and development
• In transforming economies such as China, India and Morocco,
agriculture contributed an average 7 % to growth in GDP
between 1995 and 2003, though the sector accounts for about 13
% of the economy and employs just over half the labor force.
• The report recommends that in these countries, where 2.2 billion
people live in the countryside, the agricultural agenda should
focus on reducing the disparity between rural and urban
incomes and raising the incomes of the rural poor.
• For the poorest people, GDP growth originating in agriculture is
about four times as effective in reducing poverty as GDP growth
originating outside the sector.
• The World Bank is committed to increasing its support for
agriculture and rural development, following a decline in
lending in the 1980s and 1990s.
Rural Development: a holistic concept
•
According to the report, the livelihoods of subsistence farmers can be improved by
increasing the productivity of staple crops in lagging regions, a move that would
require major investments in soil and water management and in agricultural
research. It also calls for an improved investment climate for agribusiness.
•
“Rapidly transforming economies must move from the green revolution to focus on
new high-value agriculture—with fast-growing urban incomes and demand for
high-value products in cities becoming the drivers of agricultural growth and
poverty reduction,” said Alain de Janvry, Co-Team Leader on the report.
•
For the poorest of the poor in rural areas, the report advocates improving the
investment climate for rural nonfarm business and job schemes in rural areas. Job
programs could entail building rural roads, planting trees in denuded areas, and
working to de-silt canals and ponds.
•
The challenge: how can STATISTICS capture the W-HOLE picture?
Definition of Rural
• Urban vs Rural: The criteria adopted for distinguishing between urban and rural areas
vary among countries. However, these criteria can be roughly divided into three major
groups:
–
–
classification of localities of a certain size as urban;
classification of administrative centres of minor civil divisions as urban
•
–
E.g.: French Communes 1500 inh/15 km2 , British District 118.000 inh/500 km2 , US County 80000
inh/3000 km2
classification of centres of minor civil divisions on a chosen criterion which may include type of
local government, number of inhabitants or proportion of population engaged in agriculture.
• In general, what is not “urban” or “agglomarated” is taken as rural:
rurality does not have its own statistical personality!
• Rurality in the North and in the South: two different matters!
– In the North of Italy we have a urban-rural continuum
– In the South markets and institutions are less developed
Definition of Rural
At the EU level a harmonised definition for „rural“ does not
exist. In use are:
 The “Degree of urbanisation“ concept: official spatial concept used
for the Labour Force Survey (LFS) and the EU-SILC survey
 OECD definition:
 A rural area is a local community with a population density below 150
inh. / km2 (500 in Japan …)
 Note that EUROSTAT adopts a threshold of 200 inh. If it used the OECD
threshold, over 50% of the Nomenclature of Territorial Units for Statistics at the
Level 3, used for stat data, (NUTS 3-1089 territories) would be excluded from
the analysis
 Definition based on land use
Degree of urbanisation
1.
Densely populated area:
contiguous set of local areas
(communes), density > 500
inh./km2 and total population
≥50,000.
2.
Intermediate area: contiguous set
of local areas (communes), density
> 100 inh./km2 and total
population ≥50,000 or adjacent to
1.
3. Thinly populated area:
contiguous set of local areas
(communes), not belonging to 1. or
2.
OECD typology
Land use approach
Municipalities with at least 90% of their territory classified as agricultural,
forestry or natural = rural municipalities
Rural Development Indicators
• Demographic data
– (issues: population changes, age structure changes)
• Indicators:
 Average total population
 Age specific migration
 Birth/death ratio
 Population density
 Age structure
Rural Development Indicators
• Employment and economic data
– (issues: forms of employment, importance of sectors, unemployment,
commuting)
• Indicators:










%age of self-employed
Employment in different sectors
%age of employment in public sector
Educational level of employees / self-employed people
Employment growth
Unemployment rate
Activity rate
Change in commuter figures
Business formation rate
Importance of tourism
Rural Development Indicators
• Infrastructure data
– (issues: accessibility, transport infrastructure, access to
services)
• Indicators:
 Road network, railway, airport
 Investments in transport network last 5 years
 Proximity to services
 Internet access, mobile phone cover
 Availability of land for industry and other businesses
Rural Development Indicators
• Welfare data
– (issues: deprivation, quality of life?)
• Indicators:
Dependence upon social aid
% age of people living in self owned property
Availability of medical care
Rural Development Indicators
• Agriculture and structural change
– (issues: pluriactivity, importance of forestry,
forms of employment)
• Indicators:
Non-farming activities
Importance of family labour
%age of part time farmers
%age of farms with forests
A Recent Proposal on
Agri-Environmental Indicators (PAIS)
• Less spatial criteria
• Net migration flows
• New business formation rates
• Share of workforce with Higher Education
qualifications
• Differential employment change
• Employment diversity index
• Percentage of workforce in the “new rural
economy”
Statistics for RD: The FAO Experience
•
FAOSTAT consists of an integrated core database and satellite databases
feeding and supporting it. The "FAOSTAT family" is organised in modules
around a core database that brings together and integrates the data contained in
thematic databases, such as agricultural production, consumption, trade,
prices and resources.
•
The current core of FAOSTAT contains a full matrix of integrated and
compatible statistics coverage of 200 countries, 16 years, and more than 200
primary products and input items related to production, trade, resources,
consumption and prices. FAOSTAT provides access to over 3 million timeseries and cross sectional data relating to food and agriculture.
•
The FAOSTAT has a complete global coverage, cross-domain integration, a
fully-refined user-interface and increased data transparency in order to meet the
specific needs of our diverse user groups for analysis and policy making:
– Individuals / Istitutions
– Researchers
– Experts in econometric and political economy models helping governments to make
better public decisions (the smallest user group with the highest impact!)
Faostat Data Flow
The FAOSTAT Core Food Module at
country/ region /province level
The World Bank Urban/Rural
Living Standard Measurement Survey Compared
Rural
HOUSEHOLD MODULES
DEMOGRAFIC DATA
CHARACTERISTICS OF HOUSING
EDUCATION
HEALTH
EMPLOYMENT
TIME USE
MIGRATION
AGRICULTURAL ACTIVITIES
NON
AGRICULTURAL
HOUSEHOLD
ENTERPRISE
EXPENDITURE ON FOOD
EXPENDITURE ON NON FOOD
FERTILITY
OTHER INCOME
SAVING AND BORROWING
ANTHROPOMETRIC
BEQUEST AND PREFERENCES ABOUT
CHILDREN
TECHNOLOGY AND ENVIRONMENT
INTRAHOUSEHOLD DECISIONS
INTRAHOUSEHOLD TRANSFERS
COMMUNITY MODULES
DEMOGRAPHIC INFORMATION
ECONOMY AND INFRASTRUCTURE
EDUCATION
HEALTH
AGRICULTURE
Rural/urban
LSMS SILC
X
X
X
X
X
X
X
X
X
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
X
x
x
x
x
x
x
for
not
using,
x
x
x
X
X
X
x
x
x
x
x
X
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
X
X
X
X
X
Agricultural
ARMS Rica/FADN
x
x
PRICE MODULE
SERVICES
access, need, reason
satisfaction, type use
x
x
Ismea
x
x
A Holistic Design
Part II
Income of a Household Enterprise
Why Household Income Statistics?
• International cooperation in developing statistics on the
income of agricultural households has highlighted the need
for agreement on certain aspects of the underlying
methodology.
• These include the choice of accounting framework,
definitions of a household, of an agricultural household
and of disposable income.
• The choice of definition can greatly influence the results
and usability within a policy context.
• International comparability of results requires national data
systems to be capable of generating results using these
standards as well as servicing national purposes.
Definition of Household Income
UNECE Handbook definition (different from Canberra)
• Net income from self employment
• Cash wages and salaries
• Property income received
• Social transfers received
• Other regular current inflows
• LESS current taxes on income and wealth and nondiscretionary social contributions
• = Net disposable income
Definition of Household Unit
•
On first examination the definition of a household is fairly straightforward. The SNA93
describes a household as follows (SNA93, para 4.132), with the addition in of a phrase
that appears in the version of the SNA that is applied in the EU – the European System of
Accounts [Eurostat, 1995]:
– A small group of persons who share the same living accommodation, who pool some, or all, of
their income and wealth and who consume certain types of goods and services collectively,
mainly housing and food. [The criteria of the existence of family or emotional ties may be
added].
•
The Canberra Group’s preference for the household defined as a dwelling concept is a
reflection of the main line of its interest – consumption, income distribution and poverty.
•
Problem: dwelling household may contain people who do not pool income and
expenditure: what is the role played by adult family members additional to the farmer and
spouse who live in the farm dwelling - usually grown-up children, parents, brothers and
sisters. These multi-generational and extended households are thought to be a particular
feature of the social structure of agriculture, even in many industrialised countries.
•
UNECE Handbook recommends the use of both the single budget household and the
dwelling household concepts where possible.
Definition of a Household Enterprise
• We share the view that a “satisfactory explanation of
behavior (and diversity) in agriculture should take into
account what is happening to the totality of the householdfirm.”
• As a consequence, agricultural statistics should be based on
the Household Enterprise which is the gateway connecting
agricultural and rural policy.
• The household enterprise, be it a farm or a firm, is the microlevel mirror image of the macro-economy. At the household
level, production and consumption decisions are non
separable. As far as information about domestic production
is available and modeled, urban households are household
enterprises as rural households do.
The North-South Question at the Household level
% = population share
Household Enterprise
Household 20%
Agriculture 5%
Home
Production 100%
Other Sectors 15%
Rural 15%
Off Household 80%
Agriculture/AgrInd 10%
Urban 85%
Other Sectors 70%
Rural 20%
Rural = (located in non urban areas)= 0.05 + (0.15*0.3) + 0.1 + (0.7*0.4) = 30%
Urban 80%
75
50
Urban
25
0
% = population share
Household Enterprise
Household 60%
Agriculture 40%
Home
Production 100%
Other Sectors 20%
Rural 70%
Off Household 40%
Agriculture/AgrInd 10%
Urban 30%
Rural 15%
Rural = (located in non urban areas)= 0.4 + (0.7*0.2) + 0.1 + (0.3*0.15) = 70%
Urban
Other Sectors 30%
Urban 85%
75
50
25
0
Individual vs Household Incomes
• A fundamental welfare question is to determine how
much money is needed to make each household member
as well off as they were before a change in living
conditions. Compensations should be defined on the
basis of individual rather than household welfare.
• This requires the knowledge of individual utilities that
are derivable from the identification of the rule
governing the intra-household allocation of resources.
Shadow Income and the Non Observed Economy
• It is unrealistic to assume that agricultural labour markets are competitive both in
developed and less developed countries.
• In the estimation of agriculture household income, the shadow evaluation of
“unpaid” family labor can be estimated using three different approaches:
– Accounting approach: the value of family income Y is obtained as a residual
subtracting from net income the remuneration of all other factors of production.
Individual labor income: Y/n. This criterion compensates both the physical and
intellectual labor as if they were the same for all family members.
– Objective market wage under competitive conditions: this approach evaluates a
hour of household labor at the market wage or “opportunity cost”. This wage
corresponds to the potential compensation that a farmer endowed with a specific level of
skills could have potentially obtained if she/he had found an off-farm employment.
– Shadow wage: family “unpaid” labor can be evaluated as the value of the marginal
productivity of labor corresponding to the subjective evaluation of the disutility
associated with an extra hour of work. This approach requires the estimation of a
production or a cost function, for both farm or home work. Shadow wages from
agricultural activities can be estimated on an individual basis if data are collected about
who does what in the farm.
Farm Household Income
Income
1.
Total Farm Household Income a.
 y
f
y y
o
nl
y
ii.
From Farm Self-Employment
Farm Income -
yf
From Imputed Rent for Owner-Occupied Dwellings
i.
ii.

Accounting

Market -
Opportunity Cost
Money Wage or Salary Income as Dependent Employees from
Off-Farm Income -
Off-Farm
c.
Evaluation Methods
tr
Net (pretax) Operating Income
i.
b.
y
m

Shadow Wage

Market Wage

As for 1.a

Market Price
yo
Agricultural and/or
Nonagricultural Activities and/or
Net Income from Nonfarm Self-Employment as Independent
Operators
d.
Other Cash Market Income
e.
(e.g., interests, dividends, rents, private pensions)
Social Transfers or Other Money Income
2.
In Kind Earnings (Home Own-Consumption)
3.
Taxes and Contributions – t
a.
Property Income Paid - (Farm Business Tax)
b.
Net Direct and Payroll Taxes - (Off-Farm Personal Tax)
c.
Social Contributions
Nonlabor Income -
Social Transfers -
y nl
y tr
ya
Disposable Farm
Household Income -
yn 
y
m

yn
 ya  t
Extended and Full Incomes
1. Value of Domestic Production -
yh
(e.g., food preparation, household chores, child care, etc.)
Extended Income - y
ye  yn  yh
e
 Market or
Opportunity Cost
Approach
 Shadow Wage
2. Value of Leisure -
yl
Full Income -
yF
y y y
l
F
(e.g., recreational activities, entertainment)
e
 Market or Shadow
Wage
TIME USE - WIFE (Ismea survey)
12% ON-FARM WORK, H/W
19% HOUSEWORK, H/W
38% REST TIME, H/W
30% PURE LEISURE, H/W
2% OFF-FARM WORK, H/W
Income and Wealth
• A proper definition of economic well-being should encompass, at least,
both the income and wealth dimension of the farm household.
• A recent study (Mishra, A., H. El-Osta, M. Morehart, J. Johnson, and J.
Hopkins “Income, Wealth, and the Economic Well-Being of Farm
Households,” Economic Research Service, U.S. Department of
Agriculture, Agricultural Economic Report No. 812, 2004) , defines the
economic well-being of farm-households based on the distance between
the measured levels of income and wealth for each unit with respect to
median income and wealth in the United States.
• This absolute index is used to classify farm households into four mutually
exclusive groups:
–
–
–
–
low income-low wealth;
low income-high wealth;
high income-low wealth;
high income-high wealth.
An expanded definition of economic well-being
• The authors conclude that “Using an expanded definition of
economic well-being, farm households as a whole are relatively
better off than the average U.S. Household”.
• The relative version of this index, rooted on Becker’s dynamic
theory of the household and of human capital formation,
combines current income to the annualized value of
household’s marketable wealth making it easier to understand
how farm households cope with risk and meet their
consumption needs.
• This measure should become of common usage, whenever
wealth is reliably measured. In fact, two farm-households with
comparable incomes may enjoy very different welfare
situations and opportunities if one owns little assets and the
other has substantial assets to make partly liquid (where capital
markets are developed) if and when they are in need.
A Life Cycle Perspective: Permanent Income
•
•
•
•
The Life Cycle-Permanent Income Hypothesis says that the marginal
propensity to consume is high in relation to the level of permanent income and
negligible in relation to the level of transitory income because individuals tend
to smooth consumption uniformly during the life cycle. Consumption choices
over the life-span are then based on the choice possibilities available in the
long run according to the personal expected income stream and level of
wealth.
For the life-cycle-permanent income hypothesis to work in developing
countries, credit markets needs to be sufficiently developed and must function
properly.
Within the context of the farm-household economy, the consumption-saving
behaviour during the life cycle takes a peculiar connotation. Wealth affects
both consumption and production decisions in the short and long run.
A farmer anticipates a higher income stream in the future if the farm grows
thanks to higher factor productivity and access to innovation and finance
opportunities or because more off-farm job opportunities become available in
the future.
Conclusions
A political economy comparison of income and wealth distributions in the
rural society and the rest of the society through time would be of great
policy relevance in order to
– understand the evolution of the accumulation of wealth permanent incomes
through the life-cycle both for the farm and the household statistical unit
(and related companies),
– gauge whether the existing measurement of wealth underscores the
importance of wealth as an indicator of well-being in order to identify
important causes of wealth inequality specific to different society’s groups.
• Another way to say that … in spite of the monumental effort of the Wye
group … statistics still face many challenges ahead!
• Data source development will depend on statisticians/economists
convincing users (especially policymakers) of the worth of this (theory
based) information to improving decisions, and for them to provide
resources.