Farm household surveys in the 1970s and 1980s showed that nonfarm activities
provide an important share of household income, contrasting with the conventional
image of rural African households as deriving their food entitlement almost
exclusively from the land (e.g., Matlon; Collier and Lal; Low; Reardon et al.;
Haggblade et al.). Much of this literature on nonfarm income has concentrated on (1)
quantifying the share of nonfarm in total income, (2) identifying the factors driving
households to diversify outside of agriculture, and (3) examining the equity and food
security implications.
These studies have shown the range of roles played by nonfarm activities in
the household economy. Nonfarm activities can be an important source of cash
income which can potentially improve farm productivity if it is used to finance farm
input purchase or longer-term capital investments. Nonfarm activities can also
provide income during periods other than harvest time; help reduce the variance of
overall household income in cases of imperfect covariance between farm and nonfarm
income; and help mitigate risk and improve food security by allowing the household
to buy food in cases of food production shortfall, thus smoothing income
interannually. If opportunities to earn nonfarm income are weak where agriculture is
weak, income from migration and other activities not dependent on agriculture will be
especially important to finance farm investments or to compensate for poor harvests.