Solution Cluster 4.3.4

Promoting Economic Diversification and Economic and Social Inclusion

If countries are to promote equitable livelihoods for the smallholders and other, often marginalised, stakeholders in the food system, ensuring access to social protection and promoting gainful employment by leveraging the potential for diversifying into non-agricultural activities in value chains and peripheral sectors must be key objectives. Doing so will require, along with other possible activities, strengthening the economic inclusion of the rural populations, supporting the rural informal sector, fostering sustainable natural resource management practices, promoting women entrepreneurship in rural areas, and promoting off-farm economic activities, such as agritourism. In addition, direct support to poor and marginalised populations’ livelihoods will be necessary. Economic inclusion programmes play an important role in mitigating the social marginalisation of extreme poor and marginalised groups such as women, youth, migrants, and indigenous populations. This is true particularly for women where such programmes have transformative potential towards women’s economic empowerment, building agency, skills, and bargaining power as well as mitigating stressors induced by social, political, and market systems, which reinforce inequalities.

Implementing such an approach must take place in the framework of territorial policies aimed at strengthening rural-urban linkages through the promotion and development of the service functions of small cities and country towns, often neglected in favour of larger metropolitan cities. At the same time, direct support to livelihoods (urban or rural) in the territory and support to productive sectors feed into each other. Transfers or school feeding programmes supplied by local producers or processors will have ripple effects on the productive sectors. Likewise, cash transfers alleviate liquidity constraints and can be ploughed into productive investments.

About this Solution Cluster

The transformation of food systems will not be effective and its full potential contribution to the achievement of key SDGs will not be fulfilled if not inclusive of the rural poor and vulnerable groups such as gender, youth, and the elderly. Eighty percent of the extreme poor live in rural areas, and around 4.5 billion people depend on food systems for their jobs and livelihoods. The rural economy encompasses a diversity of livelihoods; it is not limited to the agricultural sector and production of primary goods. Thus, non-farm sector activities are highly heterogeneous, including manufacturing, utilities, construction, commerce, tourism, transport, as well as financial, personal, and government services.

While pro-poor growth starts in agriculture, reducing rural poverty also requires creating off-farm jobs, fostering economic diversification, and investing in human capital, health, education, access to social protection, and infrastructure. Agricultural upgrading and rural economic diversification are interdependent and reinforce each other. As well as helping to absorb surplus labour displaced by agricultural upgrading, increasing non-agricultural production creates employment and incomes and the demand for food. It translates into a virtuous cycle. It also gives farming households opportunities to generate off-farm income to pay for agricultural inputs and equipment. For instance, agritourism, which is now a popular source for farmers’ livelihoods diversification in developed countries, and in some middle-income countries, is not yet widely promoted or supported in many other countries where it would have the potential to help advance equitable livelihoods amongst small-scale food producers.

However, generation of productive employment and incomes through diversification is not enough: direct support is needed in the form of transfers (conditional and unconditional cash transfers, pensions, and assistance to vulnerable groups) and is an essential component of an inclusive transformation. Ensuring that social protection programmes, including social insurance, reach rural areas, small cities, and towns is key. Such programmes can be linked to agri-food systems in the territory such as the procurement of nutritious food from local farmers and processors and create a positive feedback loop by increasing demand and incomes of local producers of goods and services. Securing sustainable, resilient, and universal school feeding programmes and procurement to promote equitable livelihoods will then have multiple benefits. Similarly, cash transfers of all sorts will translate into increased demand but also increased investments as they alleviate credit constraints. Making social protection programmes more resilient to shocks and nutrition-sensitive, which achieves both short- and long-term objectives.

A great deal of analytical and policy work by the Food and Agriculture Organisation of the UN (FAO) and World Bank advances compelling evidence that demonstrates the impacts of economic inclusion and diversification policies in advancing equitable livelihoods in rural areas. It also demonstrates the power of social transfers in catalysing income diversification and positive multiplier effects when linked to agricultural policies and/or livelihoods interventions and financial inclusion programmes. There is clearly increasing political support for scaling up economic inclusion programmes where social protection programmes are the entry point. The diversification of the rural economy has become an important, recurrent theme of integrated territorial development strategies in the EU (especially in the context of LEADER,[1]Liaison entre actions de développement de l’économie rurale (Links between actions for the development of the rural economy) one of the EU’s most important rural development strategies). There are countless examples of proven positive outcomes of rural economy diversification linked to tourism, ranging from the adoption of agritourism in Georgia in the context of ENPARD,[2]European Neighbourhood Programme for Agriculture and Rural Development to trekking tourism in Nepal, to the tours to coffee plantations in Guatemala or Costa Rica. In all these contexts, agritourism has proven profitable, improving the lives of the rural families. FAO work has demonstrated the power of cash transfer programmes in supporting and increasing investments in productive agri-food related assets, both farm and off-farm. 

Strengthening the economic inclusion of the rural populations, particularly the rural poor, to advance equitable livelihoods. Economic inclusion is one key pillar of poverty eradication, but it is central to fostering more equal societies and to reducing disparities between urban and rural areas. Social protection programmes (including school feeding), when coupled with livelihoods interventions or local and inclusive food procurement policies, for example, can promote the economic inclusion of local smallholder farmers through improved market access, as well as benefit vulnerable groups including schoolchildren and their families. The programmes can have economic and social (such as health and nutrition) outcomes for those who supply the food, those who receive and consume the food, and the wider community. To ensure these programmes achieve these multiple outcomes, they need to be embedded in food systems-related policies, moving away from standalone and sectoral interventions towards a more integrated approach, which also ensures access to basic services, direct income support and infrastructure. Economic inclusion programmes support, specifically, a greater access to markets through two key interventions:

  • Linking extremely poor and vulnerable populations, especially women, to cooperatives and producer networks. In Argentina, for example, the Socio- Economic Inclusion in Rural Areas Project promotes strong linkages between small family producers and larger cooperatives and producer networks to form strong and long-term cooperative arrangements.
  • Developing value chains by promoting purchase from smallholder farmers. In Cote d’Ivoire, a pilot to integrate economic inclusion into a rice value chain applies an explicit jobs lens by contracting buyers to purchase from small holder farmers. This aims to achieve sustainability, cost-effectiveness, and scalability while improving employment for the most vulnerable.

Supporting the rural informal sector: Informal household enterprises are central to both household income and to risk management in rural areas and functionally linked small towns; yet to date, this sector has been virtually invisible to policy makers and development agencies in many least developed countries. Governments must focus on removing obstacles to household enterprises, support their effort to meet standards and rules, and simplify procedures. There is a need to recognise and value household enterprises as a central part of the local economy; understand and remove barriers to their operation; and understand and support the links between the formal and informal enterprise sectors operating in rural areas and functionally linked small towns and secondary cities.

Promoting agritourism to advance small-scale food producers’ equitable livelihoods: Agritourism can transform a farmer into a price-maker rather than a price-taker and has the potential of adding value to farmers especially during off-season. Agritourism also adds value to local products, due to the increase in demand for natural or handcrafted regional agricultural products. Its development can increase farm revenue, reduce farmers’ economic dependence on their agricultural activities, and provide them with a risk reduction tool. Agritourism can also create opportunities for employment for women in areas once dominated by male employment, reduce female outmigration, and raise women’s incomes. Promoting agritourism will require implementing specific policies to monitor agritourism activities, developing agritourism resource centres, assisting farmers and farmer associations to source financial and technical support towards developing agritourism investments, and providing capacity building for agritourism.

Promoting women entrepreneurship in rural areas: women in rural areas, often with limited opportunities for economic activity due to their traditional role in unpaid household and care work, are a potentially important force for diversifying rural economies. Translating women’s increased productive potential into higher incomes is essential to complete a virtuous circle of economic and human development, because increased time in work and productive potential can generate additional income, further improving nutrition, health, and education. Sectors likely to merit support can include food processing for the local market, food preservation and packaging, clothing, tailoring to meet increasing local demand as incomes rise, wood- and metalworking, ceramics, and commercial and marketing activities.

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