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BRIEF: Latin America’s Rural Family Farmers: Evolutions in Access to Markets and Rural Income Structure

BRIEF: Latin America’s Rural Family Farmers: Evolutions in Access to Markets and Rural Income Structure

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Published by ELLA Programme
In order to understand Latin America’s current experience with small-holder farming, it is helpful to understand two key changes in the region’s rural areas that have been evolving mainly over the past two decades: farmers’ increased access to markets and diversification of their income sources. This Brief takes a closer look at these two key evolutions, assessing the impact on small farmers and some of the driving forces, in particular by analysing the liberalisation policies of the 1990s and 2000s that played a strong role in driving forward these changes. It concludes by presenting some of the present policy priorities as well as some lessons learned based on the Latin American experience.
In order to understand Latin America’s current experience with small-holder farming, it is helpful to understand two key changes in the region’s rural areas that have been evolving mainly over the past two decades: farmers’ increased access to markets and diversification of their income sources. This Brief takes a closer look at these two key evolutions, assessing the impact on small farmers and some of the driving forces, in particular by analysing the liberalisation policies of the 1990s and 2000s that played a strong role in driving forward these changes. It concludes by presenting some of the present policy priorities as well as some lessons learned based on the Latin American experience.

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ELLA AREA: ECONOMIC DEVELOPMENT|ELLA THEME: SMALLHOLDER FARMERS AND RURAL DEVELOPMENT
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ELLA Area: Economic DevelopmentELLA Theme: Smallholder Farmers and Rural Development
In order to understand Latin America’s current experience withsmall-holder arming, it is helpul to understand two key changesin the region’s rural areas that have been evolving mainly overthe past two decades: armers’ increased access to marketsand diversiication o their income sources. This Brie takes acloser look at these two key evolutions, assessing the impact onsmall armers and some o the driving orces, in particular byanalysing the liberalisation policies o the 1990s and 2000s thatplayed a strong role in driving orward these changes. It concludesby presenting some o the present policy priorities as well assome lessons learned based on the Latin American experience.
SUMMARY
Policy Brief
Over time, the rural reality in Latin Americahas changed, with family farmers now more
integrated in markets and signifcantly
less dependent on agriculture forincome. What does this mean forfamily farmers today?
LATIN AMERICA’S RURAL FAMILYFARMERS: EVOLUTIONS INACCESS TO MARKETS ANDRURAL INCOME STRUCTURE
INTRODUCTION
In Latin America, the share o amily arming in both domestic and external markets has increased since the 1990s. Changestook place in land and labour productivity, total production, physical inrastructure and institutional settings, induced by macroand sectorial policy changes. International trade increased along with globalisation, regionalisation and trade agreementsamong countries. Domestic markets have experienced incremental consumption increases stemming rom income changesand gains in wages. Rapid urbanisation, modications in ood demand and eects o supermarket usion changed marketconditions or amily armers.The Latin American rural sector has experienced several changes associated with agricultural technology and labour use.Non-arm rural activities have multiplied and income rom those activities tends to be higher than agricultural wages, but ruraldynamism and labour skills are associated with non-arm employment. Additional income sources rom remittances andtransers to vulnerable rural groups have contributed to changing rural income composition.In this Brie’s next two sections, we describe the two key changes that took place in Latin America’s rural areas: amily arming’sincreased access to markets, and diversication o rural amilies’ income sources. The Brie then continues by looking deeperinto some o the policies over the last two decades that have led to these changes, and some o the continent’s current policypreerences and characteristics.
 
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ELLA AREA: ECONOMIC DEVELOPMENT|ELLA THEME: SMALLHOLDER FARMERS AND RURAL DEVELOPMENT
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Livingstone, G., Schonberger, S., Delaney, S. 2011. 
. Proceedings o the Conerence on NewDirections or Smallholder Agriculture, Session 3: The State o Small Scale Farming in the Developing World, January 2011. IFAD, Rome.
2
World Bank. 2007.
.World Bank, Washington, DC.
3
Thapa, G. 2010. 
.Paper presentedat the International Conerence on Dynamics o Rural Transormation in Emerging Economies, April 14-16, 2010, IFAD, New Delhi.
4
World Bank. 2007, above n 2.
5
Ibid.
INTEGRATING FAMILY FARMING INTO AN OPENECONOMY
Economic liberalisation and policy ormulation to insert theamily arming subsector into markets are seen as strategicelements to promote amily arming development in LatinAmerica, Arica and Asia,
1
with the World Bank arguing thatmarket access, export subsidies and domestic supportare the three main types o instruments distorting trade.
2
 Insertion o amily arming into local and external marketshas been viewed as a signicant bottleneck. The challenge isseen to come rom problems o competitiveness, productioninrastructure services, physical inrastructure, policy stimuliand restrictions, and the general national and regionaldevelopment strategies in place in most Latin Americancountries.In the 1990s and 2000s, deregulation o wholesale marketsgained momentum in Latin America in order to allowgreater entry and competition. In the 1990s, private, small-and medium-sized processing companies grew due toliberalisation in the processing sector and a rapid increasein consumption o processed oods associated with risingincomes, urbanisation and an increase in the number owomen working outside their homes. At the same time,a transormation o the agro-ood industry, includingprocessing, wholesale and retail, took place.
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Some amily arming products had a competitive advantagebeore the deregulation, enabling participation in internationalmarkets ostered by a number o trade agreements signedby Latin American countries or through regional countryblocks. Their comparative advantage came rom either thelabour-intensity required, or the eciency o their small-scaleelds, such as berries, others ruits, structural small armingproducts such as coee or cocoa, vegetables, lowers andornamental plants. Programmes to provide production andcommercialisation services, both public and private, weredeveloped and put into operation.At the same time, a number o macroeconomic policieswere implemented in order to: control inlation, stabiliseexchange rates, promote the construction industry, distributecredit or medium- and large-scale industry, provide publicservices development and introduce technological change.These policies created attractive urban spaces, increasedemployment opportunities, improved real salaries anddrove economic fows in national economies. Consequently,demand or amily arming shited or both tradable and non-tradable goods, opening opportunities to increase productivityand production, and acilitating integration in national andinternational markets.
CHANGES IN COMPOSITION OF RURAL INCOMES
Between 45% and 60% o the rural labour orce is engaged inboth the agricultural labour market and the rural non-armeconomy in Latin America. Simultaneously, agriculturalwages and labour use have experienced signicant changes.
4
 In Latin America, the segment o the population in whichpoverty reduction has been most widespread benets is thesame one earning both agricultural and non-agriculturalsources o labour income. The poverty trend in this groupo households is notable: producers in seven o the ninecountries in which poverty declined in the 2000s (Brazil,Colombia, Costa Rica, Dominican Republic, Ecuador andUruguay) adopted diversication o income into agriculturaland non-agricultural sources as a strategy to reduce poverty.Most income diversiers were able to do so either becauseo their socio-demographic composition, meaning they hadmore than one income earner, or because the rural labourmarket oered non-agricultural job alternatives.Though agriculture remains the pillar o most rural economies,rural employment is diversiying out o agriculture. Ruralnon-agricultural activities in some Latin American countriesgrew at more than 10% per year between 1980 and the early2000s. In Chile, or example, non-agricultural work rose rom25% o total rural employment in 1960 to 49% by 2002, and inBrazil rom 14% to 31%.
5
In large part, these changes acrossthe region were inspired by rapid urbanisation, ampliyingo social networks, diversiying production activities and theintroduction o technical change in product transormation.
 
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ELLA AREA: ECONOMIC DEVELOPMENT|ELLA THEME: SMALLHOLDER FARMERS AND RURAL DEVELOPMENT
Source: Schejtman, A. 2008.
Alcances Sobre la Agricultura Familiar en  América Latina (Scope of Family Farming in Latin America) 
. Rimisp, SanSalvador.Note: Author translation o chart.
Table 1: Composition of Income by Type of Family Farming
Currently, wages are higher in the rural non-arm sector thanin agriculture, mostly because o skill dierences. In Mexico,the average wage in non-agriculture is 56% higher than inagriculture. Both sectors requently exhibit a bimodal wagedistribution, revealing dualism. At the same time, there isevidence that agricultural wages have been declining acrossmany Latin American countries. Temporary workers in Brazil,or example, have lost a third o their income over the last 30years. In Mexico, between 1988 and 1996, temporary workerslost 30% o their purchasing power and have not recovered it.
6
Overall, the diversity o activities in rural areas has led toa corresponding diversiication in income sources. Thecomposition o rural amily income has changed, moving awayrom dependency on agricultural earnings rom revenues andwages, to diversied income sources in which non-arm ruralwages, rural non-arm activities, remittances and transers,at least or speciic low-income groups, have a share. O-arm work in agriculture and non-agriculture currentlyemploys 47% to 49% o adult males in Latin America andthe Caribbean.
7
The ollowing graph illustrates the cases oMexico, Chile, Ecuador and Nicaragua, grouped by subsistenceamily arming (SFF) and consolidated amily arming (CFF),using data or 2007.
6
Ibid.
7
Ibid.
8
De Janvry, A., Key, N., Sadoulet, E. 1997.
. AgriculturalPolicy and Economic Development Series – 2. FAO, Rome.
KEY POLICY DRIVER OF CHANGING RURALREALITIES
During the 1990s, most countries in Latin Americaexperienced proound social and economic transormations.Perhaps the most signicant driver o these two key changesexperienced by Latin America’s amily armers comes romthe package o policies largely linked with the region’s eortsat economic liberalisation. With International Monetary Fundand World Bank assistance, countries in Latin America - asin most developing country regions - designed austerityprogrammes, which included large reductions in centralgovernment expenditures; government budget decits ellrom a continental average o 5.5% o GDP in 1988 to 1.8%in 1995. These programmes also included decreases inthe growth o the money supply, exchange rate devaluationand wage repression. Structural adjustment loans weretied to economic reorms that included the removal o tradebarriers and impediments to oreign investment, inancialliberalisation, privatisation o state enterprises, deregulation,and reorms o the tax system and property rights laws.Because o the Washington consensus, the neoliberalexport-orientated approach to development translated intoa widespread adoption o ree market-ree trade policies inLatin America.
8
The inluence o these policies on the Latin Americanagricultural sector can be broken down into our trends:
•
Market liberalisation brought signiicant changes inrelative prices, which aected production costs o dierentagricultural products in a variety o ways.
•
Development o private sector activities across theeconomy, including a signicant expansion o commercialagriculture.
•
Asigniicant low o external direct investments in anumber o economic activities, including the agro-industryin larger and better endowed countries such as Brazil andArgentina.
•
Ina number o countries, but not all, an explicit policy oreducing the size and cost o the public sector in general andthe rural sector in particular. This included the privatisation
Own productionSalaryRemittancesTransers
100%100%80%60%40%20%0%90%70%50%30%10%SFFSFFSFFSFFSFFCFFCFFCFFCFFCFFChileColombiaEcuadorMexicoNicaragua

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