Rural-Urban Relations, Household Income Diversification and Agricultural Productivity

Abstract

Does rising income from agriculture drive the growth of nonfarm activities, or does increased income from nonfarm activities spur the growth of agriculture? This paper looks at the role of nonfarm income in enabling smallholders to raise agricultural output and productivity. Based on data from a sample of farm households near Kutus town in the Kirinyaga district of Kenya, it examines these issues by looking at the use of resources for farm production, the risks attached to alternative ways of raising output and productivity, and the household's propensity to accept risk as a function of the extent to which it is able to draw on liquid assets or diversified sources of income. The authors argue that nonfarm income provides households with a form of insurance against the risks of farming, and thus enables them to adopt new production methods and raise output. They argue further that a key factor in creating opportunities for rural households to earn nonfarm income is the presence of vibrant small towns nearby.