The Link Between Non-Farm Labor and Market Participation: Evidence from Ghana

In developing countries, rural non-farm labor is rapidly catching up with agriculture in socioeconomic importance. By engaging in non-farm labor—activities like handicrafts, small-scale manufacturing, construction, mining, quarrying, repair, transport, and petty trading—farmers can earn additional income outside of their farms. This income can in turn can be invested in household food security and in productivity-enhancing agricultural inputs. A study in Ghana published in Food Security also finds that participation in non-farm labor can also lead to greater participation in crop markets. Despite these benefits, however, rural participation in non-farm labor often remains low in developing regions.

Ghanaian policymakers have recognized the important role that rural nonfarm labor can play in reducing poverty and enhancing food security, the paper says, and have prioritized initiatives to increase nonfarm labor opportunities for rural households. These initiatives include the Medium-Term Agriculture Sector Investment Plan (METASIP II) (2014–2017), METASIP III (2018–2021) the Planting for Food and Jobs initiative, the Planting for Export and Rural Development initiative, and the One-District-One Factory program, all of which aim to promote livelihood diversification and increase farm productivity and agricultural commercialization. A better understanding of the link between nonfarm labor participation and market participation will help policymakers make initiatives like these more effective for reducing poverty and hunger.

The Ghana study examines household-level data from the Ghana Living Standards Survey collected between October 2012 and October 2013 to determine what drives market participation among farmers who engage in nonfarm labor and to estimate the impact of nonfarm labor on crop sales. The dataset is composed of 16,772 nationally representative rural households; the survey collected demographic data and data regarding nonfarm activities and access to financial services. A significant number of farmers in the dataset cultivated maize (4,437), groundnuts (1,730), rice (1,157), beans (1,371), and sorghum (997).

The study found that farmers’ participation in non-farm labor is low at 32.9 percent. The authors suggest that this is likely not because farmers view agriculture as more profitable; rather, they likely lack opportunities to engage in non-farm labor. Poor infrastructure and a lack of key services may also play a role. The study found that only 16.4 percent of surveyed farmers lived in areas with agricultural extension services, only 29 percent lived in areas with market infrastructure, and only 5.6 percent lived in areas with access to banks.

Of the farmers surveyed, an average of 61.1 percent sold at least one crop in the market. For farmers who participated in non-farm labor, this average was 60.3 percent, compared to 61.5 percent of farmers engaged solely in farm labor.

Among the determinants of engagement in non-farm labor, average age of household members, years of education, larger household size, price/kg for crops, access to good roads, availability of public transportation, and availability of and access to banking all increased the probability that a household will engage in non-farm labor.

Factors that appear to increase the probability that households—both those that participate in non-farm labor and those that do not—will engage in markets include larger farm size, price/kg for crops, availability of a market in the area, access to good roads, availability of public transportation, and radio ownership.

After controlling for all observable characteristics, the study found that households engaged in non-farm labor were 50.5 percent more likely to participate in crop markets. At the crop level, market participation increases with non-farm labor engagement by 37.7 percent for maize farmers, 10.7 percent for groundnut farmers, 23.1 percent for rice farmers, 28 percent for bean farmers, and 8.8 percent for sorghum farmers.  

The authors suggest that that non-farm labor increases crop market participation by providing farm households with more liquid cash to invest in their farms, thus increasing their marketable output. Farmers who participated in non-farm labor were more likely to purchase fertilizer (60.3 percent), seed (44.6 percent), insecticides (72.2 percent), and herbicides (87.1 percent).

And these increased investments yield results: the study found that non-farm participants saw yields 193 kg/ha greater than farmers who do not participate in non-farm labor. Thus, increasing non-farm labor opportunities can not only benefit individual farming households but can also enhance agricultural productivity throughout Ghana and play an important role in reducing hunger and food insecurity.

The study concludes that the Government of Ghana (and governments in other developing countries in the region) should look at ways to approach non-farm labor participation and market participation simultaneously rather than addressing them through piecemeal policies. This could include encouraging private sector investment in rural industrialization, thus increasing non-farm labor opportunities, and programs to encourage farmers to engage in non-farm labor and invest earnings back into their farms, thus helping them move from subsistence agriculture to commercial market participation.