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Chapter 1

Employment in rural development

1.1 Introduction

The role of employment in poverty-reduction programmes in developing countries has received considerable attention worldwide, in development strategies and policies. Many new employment opportunities in many developing countries are created in the informal sector whose rate of growth may be higher than that of the formal sector. For example, in Kenya, according to a recent economic survey (GoK, 2001) the informal sector has been growing at over 10 percent in the last decade and its share of total employment, excluding employment in small-scale farming activities, was estimated at 70 percent in 2000. In contrast, the number of wage employees in the formal sector has remained static.

Despite continued rural to urban migration, a large proportion of the population in many developing countries still lives in rural areas and are mainly poor with over 30 percent overall classified as poor (UNDP, 2001). Kenya, Bangladesh and Ghana are typical cases. The rural population in the three countries accounts for over two-thirds of the population and the rural labour force is growing at about 3 percent annually in each country (Lanjouw and Lanjouw, 1995; Bangladesh's Fifth Five Year Plan, 1997 - 2002; GoK, 2001). This increasing labour force in developing countries may not be absorbed productively in on-farm work given the limits to arable land, and increases in agricultural labour productivity through technology that reduces demand for labour. Employment opportunities in rural areas may have to rely on strengthening the ability of non-farm agricultural activities to absorb the labour. Diversification into non-farm activities constitutes on average about 45 percent of rural incomes in developing countries and the "push and pull" factors driving this diversification are bound to persist (Barrett and Reardon, 2000). Push factors include changes in technology in agriculture that require less labour, creating labour surpluses and reducing agricultural labour opportunities, and pull factors include job creating in urban areas from industry that raise wages and employment opportunities there.

Dairy markets offer good opportunities for non-farm rural and urban employment. The perishable nature of milk, as well as the wide range of products that it can be transformed into, presents opportunities for value addition through the use of labour. Its relatively high unit value makes the use of labour for handling and processing economically viable. This may particularly be true in informal milk markets, which rely less on modern milk processing equipment, and more on traditional labour-intensive technologies[1].

The case studies described here shed some light on the nature and quantity of employment created through small-scale dairy marketing and processing, most of which occur in the informal sector. Kenya, Bangladesh and Ghana are chosen for the case studies because they represent a range of market-oriented dairy production systems, market channels, and of traditional dairy product consumption habits from the developing world. The cases thus provide an opportunity to gain strategic insights into how small-scale dairy marketing and processing can contribute significantly to rural and urban employment, and into the policies and training activities needed to support that process. The broad macroeconomic indicators of the three countries are given in Tables 1 and 2. They show that in all three countries, although GDP is growing, it remains low at between US$300 and 400 in 1999. The proportion of people reported unemployed ranges from 20 percent in Ghana to 50 percent in Kenya. Furthermore, most of those people are apparently located in rural areas.

The analyses are mainly based on data collected in April and May 2001, as well as on data gathered in previous milk market studies by ILRI and national partners in 1999 and 2000, through the Smallholder Dairy Project in Kenya (SDP), and the Milk Marketing, Processing and Public Health Project in Ghana.

Table 1 Annual GDP growth and GNP per capita for Kenya, Bangladesh and Ghana: 1995-1999


Index description







GNP growth (annual %)






GNP per capita, Atlas method current (US$)





36 0


GNP growth (annual %)






GNP per capita, Atlas method current (US$)





37 0


GNP growth (annual %)






GNP per capita, Atlas method current (US$)





40 0

Source: World Bank (2001)

Table 2 Human development indices in Kenya, Ghana and Bangladesh


Unemployment rate (%)

Population below poverty line (%)

National rural population (%)

National labour force (million)

Human development index (max=1)



















Sources: National reports; World Bank (2001) and UNDP (2001)

In the next sections, a conceptual framework depicting the linkage between employment, poverty and food security is presented, and then a framework for analysis of employment effects. This is followed by a description of dairy marketing and processing in Kenya, Ghana and Bangladesh within their respective historical contexts; the types of small-scale dairy marketing and manufacturing enterprises; survey results; and, policy recommendations for the future based on the findings.

1.2 Conceptual framework for employment generation

The use and value of employment in targeting poverty is neither new nor is it restricted to any one region. Historically, the Poor Employment Act of 1817 in Great Britain represented a major milestone in the development of economic policy to reduce poverty through employment and development (Braun, 1995). That Act and similar public interventions in later years in various countries have been largely based on the recognition that small firms are important generators of employment (Hobbs, 2000). Hughes (2000) in interpreting the job-generating role of the small enterprises emphasizes the extreme skewness and volatility of the individual small business growth patterns, and the low quality and sustainability of the many jobs created by the mass microenterprises. He observed that a relatively few firms exhibiting rapid and sustained growers account for the bulk of sustained job generation in small firms. This is especially so for the developing world where economic reforms are recent and hurried, and availability and access to market information is not uniform and assured. Those small enterprises that are better placed to access resources including information and technology thrive and offer sustained jobs while their disadvantaged contemporaries fizzle out.

The development and growth of small enterprises is pegged to the existence of some level of entrepreneurial climate or enterprise culture amongst the people (Figure 1). While entrepreneurial skills exist in all cultures, they may vary in degree according to traditions, environment, and history. Such skills and motivations should be supported by a well-defined institutional structure that is understood by the participants, and which includes formal rights and protections to physical and other property. Access to resources in the form of capital, labour and infrastructure will then lead to the development of small enterprises participating in marketing and/or processing of farm produce. As Reardon et al. (2001) point out, household members will redirect their labour away from land-based activities with the existence of: (i) pull factors such as higher incomes in the non-farm sector relative to the farm sector; and (ii) push factors such as increase in agriculturally sourced risk (farming that cannot ensure year-round income and consumption).

The main goal behind enterprises is to generate income for the entrepreneurs and their families. In the case of marketing enterprises, that requires that goods have to be sourced, transported, transformed, and marketed. The physical assets involved need to be acquired, serviced and repaired. All these activities require human labour fully or in part, depending on the level of business sophistication and technology employed. Human labour has a price, whether it is family labour (referred to as self-employment) or non-family labour (wage employment). The remuneration received by family members is critical to a household's ability to access basic needs, improve livelihoods and create assets.

Figure 1 Conceptual framework for employment creation

Source: Barrett, and Reardon (2000).

As explained in a recent World Bank publication (Pfeffermann, 2001), the role of private enterprise in poverty reduction has long been neglected by development planners, researchers, and governments. This is supported in the article by several studies, showing first that economic growth has consistently led to reduction in poverty, and secondly that the engine to economic growth is private enterprise. The key to poverty reduction is thus demand for employment driven by economic growth.

Employment is categorized here in two broad categories: agricultural and non-agricultural. Agricultural employment is mainly rural/land based crop and livestock farming, including fish culture, and rural employment generated thereof in marketing and processing. Non-agricultural employment on the other hand is defined as the mainly urban based largely encompassing service subsector employment, formal and informal manufacturing and large-scale enterprises. There is often a close linkage between the two broad categories especially in developing countries where non-agricultural activities play a major role in complementing the activities of agricultural marketing and processing enterprises (Figure 2). Employment generated by agricultural marketing and processing incorporates those labour-using activities that procure, process and market farm produce. With regard to dairy marketing and processing, the agents involved comprise raw milk traders, dairy processors and traders in processed dairy products. It should be noted, however, that these agents also hire services from others to repair their equipment, provide transport, etc., which in turn provides indirect employment from the dairy enterprise.

As indicated in the countries being addressed, much of the employment created in processing and in marketing occurs in the informal sector, whether rural or urban. Data on the informal sector compiled by the International Labour Organization (ILO) indicates that for the poorer economies of the world, the informal sector provides more than 50 percent of total employment (ILO, 2001). Among the countries with the highest proportion of informal sector employment are two included in this study, Kenya and Ghana, with more than 50 percent and 70 percent, respectively, of informal employment as share of total employment (Figure 3). Further, in nearly all those countries where data were available, 17 countries including Kenya, the share of employment in the informal sector grew during the 1990's. The key point here is that any attempt to increase employment must include emphasis on the informal sector, largely made up of individual entrepreneurs or small-scale enterprises.

In the case of milk and dairy products, the existence of large informal markets for raw milk or traditional products is based on several key factors: the unwillingness of resource-poor consumers to pay the additional costs of pasteurization and packaging, and the preference for traditional products, including raw milk.

Figure 2 Employment for poverty reduction and food security

Adapted from: Joachim von Braun (1995)

Figure 3 Share of employment in informal sector as percent of total employment, for selected countries.

Source: ILO, 2001

1.3 Approach to analysis of employment generation

As a beginning point for the analysis of employment generation in milk markets, we are taking as given that government policy approaches to economic growth in the case study countries include emphasis on employment generation. This differs from an emphasis on growth simply through increased outputs and potentially exports. The latter may often rely on large-scale production and capital intensive technology. Assuming then that employment generation is a policy goal in itself, our aim in analysis will be to assess the relative employment generated in the dairy market activities. This differs from traditional measures of benefit typically employed, such as cost-benefit analysis (CBA), which is based on a discounted stream of net income/benefits. Instead, we will use employment-based analysis (EBA), first proposed by Taylor (2001). This is simply a tally of the number of jobs created by some economic activity per some defined units. Taylor uses a measure of jobs created over a given period of time. For the purposes of evaluating contribution of milk markets however, we will use jobs created per unit of milk handled on a daily basis, which fits closely to standard measures of flow and capacity in the milk industry. We will use a quantitative analysis, in which what constitutes a full-time job will be defined by local standards (Taylor, 2001). Further, we will include both direct employment and indirect employment generated through purchase of secondary services by milk market agents.

The analysis is based on very simple unstructured interviews with a small number of market agents in the three case study countries, and is limited to the main urban areas. Thus, data are not available to understand the broader sector-level employment generation effects of the overall milk market, but only employment examples within certain selected market channels. For example, adequate data were not available in these largely unregulated markets on the proportion of milk which is made into processed products, versus that sold unprocessed, differentiated into urban and rural areas. Total employment for the sector, differentiated into type and location, cannot thus be estimated. The results nevertheless are indicative of the level of employment generated at the individual enterprise level, for the types of market activities being studied.

[1] Informal dairy markets are loosely defined as those markets that handle raw milk and traditionally processed dairy products, such as fermented milk, local cheese, milk sweets, etc. While agents in such markets may operate outside the main regulatory environment in terms of dairy product quality control, they may also pay municipal taxes, etc, and so in that sense are partially "formal".

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