Directory UMM :Data Elmu:jurnal:UVW:World Development:Vol29.Issue3.2001:

World Development Vol. 29, No. 3, pp. 549±560, 2001
Ó 2001 Elsevier Science Ltd. All rights reserved
Printed in Great Britain
0305-750X/01/$ - see front matter

www.elsevier.com/locate/worlddev

PII: S0305-750X(00)00107-8

Nonfarm Employment and Poverty Alleviation of
Rural Farm Households in Honduras
RUERD RUBEN and MARRIT VAN DEN BERG *
Wageningen University, The Netherlands
Summary. Ð This paper analyzes the role of nonfarm income of rural farm households in
Honduras. It uses the national income and expenditure survey from 1993 to 1994. Income from
nonfarm wage and self-employment represents 16±25% of farm household income and is especially
important for middle and higher income strata. Nonfarm wage labor is geographically
concentrated in small rural towns and in the industrial free zones located in the Northern region,
while self-employment is particularly developed in the Southern region. Access to nonfarm wage
employment is con®ned to educated individuals that belong to large households, while female
members of wealthier households are mainly involved in self-employment. Food security is strongly

enhanced through the engagement in nonfarm activities. Moreover, nonfarm income enables
farmers to purchase external inputs for improving yields and labor productivity. Suitable policies to
enhance nonfarm employment include education, training, and technical assistance to reduce labor
intensity in agricultural production, as well as public investment and credit services to improve
access to nonfarm activities. Ó 2001 Elsevier Science Ltd. All rights reserved.
Key words Ð nonfarm employment, wage labor, self-employment, food security, input use,
Honduras

1. INTRODUCTION
Honduras is one of the few Latin American
countries where more than half of the
economically active population is still engaged
in agricultural activities. Poverty is widespread
in the Honduran countryside. Recent ®gures
state that 67% of the rural population live in
extreme poverty and 40% are illiterate (World
Bank, 1994). Rural underemployment is
calculated at 42% of the labor force (PREALC,
1986). Agricultural productivity is substantially
below the Central American average, and yields

stagnated during recent decades. Credit provision and technical assistance services only reach
a small segment of the rural population. Stateled poverty alleviation programs focus on the
provision of social safety nets and public works
as shelter against malnutrition, while nongovernmental organizations (NGOs) focus on the
promotion of low-external input practices
designed to also raise yields.
Farming represents, however, only a minor
share of peasants' household income, since
rural livelihood strategies have become
increasingly dependent on income generated
through engagement in o€-farm wage and selfemployment. According to ocial data, the
549

farm labor force comprises about 75% of ownaccount workers and family laborers, while
wage laborers represent only 25% of the labor
force (DGEC, 1988).
Most statistics tend, however, to neglect
nonfarm wage employment and self-employment activities, in which rural farm households
are increasingly involved, giving rise to a
portfolio of income sources. Moreover, the

importance of nonfarm employment has been
neglected in most rural development policies
and programs. Attention is usually focused on
income derived from agricultural production,

* This

paper is based on data from the Encuesta
Nacional de Consumo, Ingreso, Gasto y Nutricion 1993±
94 (CIENS94) that was made available by the Agricultural and Natural Resource Oce (ARDO) of the
USAID mission in Honduras (ARDO/USAID contract
# 522-8103-C-3315-00). We owe thanks to Dr. Mike
Wise for the permission to use this data base for research
purposes. Ir. Eelco Mol (currently working with FAO)
helped with preliminary processing of the data base. We
are grateful for comments on an earlier version of this
paper by Tom Reardon and two anonymous referees.
The authors remain responsible for the arguments and
the conclusions presented.

550

WORLD DEVELOPMENT

while options for improving household food
security or intensifying cropping systems
®nanced with nonfarm income receive little
attention. Recently, the potential role of
nonfarm employment has been emphasized,
looking for options to enhance household
expenditures and investment opportunities
through selective engagement in the labor
market (Lanjouw & Lanjouw, 1995; Reardon,
1997). Nonfarm employment is considered as
an important device for income diversi®cation,
consumption smoothing and risk management
(Rosenzweig & Wolpin, 1994). Farm income
changes can be compensated through labor
market participation (Maitra, 1996). Engagement in nonfarm employment can be helpful to
overcome credit market failures (Reardon,

Crawford, & Kelly, 1994; Jacoby, 1993).
Nonfarm income represents an important
sources to ®nance land acquisitions (Salgado,
1994) and the purchase of farm inputs and
food.
In this paper we analyze the importance of
nonfarm wage employment and self-employment for rural farm households' welfare. We
explore three questions: (a) What is the pattern
of income composition across regions and
income strata? (b) What are the relevant
regional, farm household, and individual
characteristics that give rise to engagement in
nonfarm activities? (c) How does nonfarm
income a€ect farm input use and food
consumption of the rural household? We focus
attention on farm households that own or rent
land and are located in predominantly rural
areas or small rural towns.
We consider the household as a complex of
the farm unit (combining inputs to produce

agricultural outputs), the consumer unit
(spending money to maximize welfare), and the
worker household (supplying farm labor and
earning nonfarm income). We de®ne nonfarm
income as the revenues from nonfarm wage
employment and self-employment.
The paper is structured as follows. Section 2
provides background on the evolution of agricultural development and rural employment in
Honduras. Section 3 presents evidence regarding the relative importance of farm and
nonfarm income in rural household income,
exploring di€erences over regions and income
strata. Section 4 examines the factors that
in¯uence the involvement of rural households
in farm wage employment, nonfarm wage
employment, and nonfarm self-employment.
Section 5 provides an analysis of the implica-

tions of nonfarm income for nutritional adequacy and farm input use. Section 6 concludes
with policy implications for enhancing agricultural productivity and food security based on
the linkages between nonfarm activities and

farm household expenditures.
2. AGRICULTURAL DEVELOPMENT
AND RURAL EMPLOYMENT IN
HONDURAS
A high level of land concentration and
limited market development generally characterizes the agrarian structure in Honduras.
Although the land reform program in the 1970s
favored the creation of agrarian cooperatives, a
large number of rural families remain landless,
and most small farmers face conditions of
severe un- and underemployment (Brockett,
1988; Ruben, 1999).
Nonfarm employment is important to guarantee additional income and can be used to
satisfy consumption requirements when farm
production is not sucient to safeguard food
security. Since access to formal ®nancial institutions is often limited by collateral constraints,
limited possibilities are available to improve
input use in agricultural production. The little
informal credit available can only be used to
®nance current operating costs. Consequently,

farmers rely on pre-harvest crop sales to
maintain consumption expenditures. Poor
development of rural roads results in high
transaction costs that make commercial farming less attractive. Additional income from
nonfarm employment can reduce these
compulsory sales and improve production and
marketing eciency.
The employment structure in the Honduran
countryside has several salient characteristics,
drawing on Baumeister (1996) and Salgado
(1994). Supply of labor is mainly dependent on
the quantity and quality of available land (i.e.,
farm size and soil quality) and the characteristics of the labor force (i.e., family size, age, and
education). Almost half of the rural population
operate farms with less than ®ve hectares of
land, considered as the minimum for a viable
family farm. The rural landless account for
another 27% of the rural economically active
population. Both categories require nonfarm
employment to complement meager farm sector

earnings. But also medium-size farmers and
members of the cooperative sector seek additional income sources, since most of their land

HONDURAS

can only be used in an extensi®ed manner and
agricultural support services (credit, technical
assistance) have been strongly restricted.
The main hirers of farm labor are mediumsize producers, land reform cooperatives, and
commercial largeholders, but even small farmers hire labor. The labor/land ratio declines
with farm size, however. Demand for farm
wage labor, particularly for harvesting,
strongly increased with the expansion of the
area under co€ee production from 80,000 ha in
1974 to 175,000 ha in 1993. This co€ee expansion has been facilitated by the land titling
program.
Nonfarm activities are usually underestimated in income surveys. Several studies report
that 28% of the Honduran rural economically
active population is engaged in nonfarm
employment (DGEC, 1988) and that income

derived from rural nonfarm activities in small
peasant households represents about 17% of
income (CADESCA, 1989). Opportunities for
nonfarm wage employment developed in the
Northern region, where joint-venture enterprises created in industrial free zones additional
employment for almost 50,000 people, mainly
young women (Perez Sainz, 1996). For part of
this workÐmainly in textilesÐsubcontracting
arrangements are established with local
communities.
Opportunities for self-employment arise in
particular in commerce and small-scale manufacturing. These are often related to agriculture
through the selling or processing of its produce
on local markets (i.e. fresh vegetables, tortillas,
baked bananas, fried meat) and the manufacturing of inputs for agrarian production
(production of hoes, repair shops, brick-making, etc.). An active system of local savings and
credit unions facilitates short-term credit for
commercial activities, while international
donor organizations ®nanced and provide
training for small- and micro-enterprises

(SME).
Compared to other Central American countries, cereal yields and farm labor productivity
are extremely low (PREALC, 1986). This
contributes to rural households not being able
to meet minimum food requirements and
purchase many external inputs. Increasing
fertilizer prices after the implementation of the
Structural Adjustment Program led to a
reduced application of yield-increasing inputs.
Roughly 80% of small-scale farming takes place
on hillsides, while the more fertile valleys are
used by large (inter)national producers devoted

551

to livestock production, sugar cane, bananas,
and palm oil cultivation (Ruben, 1999).
Food security strategies of rural farm
households are increasingly based on market
transactions. Land reform and former subsidized credit programs strongly enhanced the
incorporation of small farm households into
market production (Boyer, 1986; Brockett,
1987). Consequently, the proportion of maize
production for market exchange increased from
34% during the 1970s to almost 60% at the end
of the 1980s (Baumeister, 1996, p. 26). Most
peasant farms in Southern Honduras registered
a shift from a food surplus to a de®cit related to
the declining per capita availability of basic
grains. During the 1980s, real wages increased
more than farmers margins (Dõaz & Cruz, 1992;
World Bank, 1994). Taking into account rising
prices for consumer goods, income from
nonfarm employment becomes increasingly
important to ®nance food purchases.
Clear regional di€erences mark the development of nonfarm employment opportunities.
The Northern region covers 20% of Honduras
and consists of humid lowland areas suitable
for agro-export production (bananas, oil palm)
by international companies and land reform
cooperatives. Road and harbor infrastructure is
well developed and San Pedro Sula has became
an important industrial center. In the Southern
region, medium and large farms devoted to
livestock and rice production dominate the
landscape, and shrimp production is common.
This region has a high population density
around the capital city of Tegucigalpa and is
provided with a broad network of feeder roads
and services. The Western region consists of
two parts: the dry and rather infertile frontier
region with El Salvador devoted to basic grains
production, and the mountains close to the
border with Guatemala where small-scale co€ee
production takes place. This region has less
physical and social infrastructure than elsewhere in Honduras and su€ers from serious soil
erosion.
Rural development policies in Honduras are
mainly focused on agricultural export production, providing technical assistance and ®nancial services. Food supply is largely left to the
market, and cereal imports are increasingly
required to satisfy demand. Support services
for small-scale producers have been privatized
toward local NGOs that strongly favor laborintensive soil management and conservation
practices. Vulnerable groups receive additional
support in the form of food stamps and

552

WORLD DEVELOPMENT

food-for-work provided by the Honduran
Social Investment Fund. Nonfarm employment
is promoted through ®nancial support to SME
development, but international agencies limit
these facilities to (peri-)urban areas. Local
savings and credit unions have a long history
supporting small-scale commercial activities.
3. INCOME COMPOSITION OF RURAL
HOUSEHOLDS
For the empirical analysis, we used the
Encuesta Nacional de Comsumo, Ingreso, Gasto
y Nutricion 1993±94, a large and detailed data
base collected by the Agriculture and Resource
Oce (ARDO) of USAID-Honduras. The data
base covers 2,727 households located in rural
areas and small towns of Honduras. For our
analysis, we focused on farm households that
are engaged in agricultural production and
potentially diversify their activities into
nonfarm wage employment or self-employment. After elimination of outliers, our sample
consists of 2,584 economically active family
members and 818 farm households. We present
some descriptive statistics regarding the
importance of various economic activities for
the income composition and discuss di€erences
between regions and income strata.
(a) Regional patterns
Preliminary examination of the data indicates that farming is by far not the only activity
of Honduran rural households. Most persons
do not restrict themselves to a single activity
but receive incomes from various sources.
Farm households living in small rural towns
receive the highest average income and derive
more than half of their income from nonfarm
wage and self-employment. Within rural areas,
total per capita income in the Southern region
is more than twice as high as the average per
capita income in the Western region. Rural
poverty is most profound in the Western
region, especially the frontier departments with
El Salvador (Ocotepeque, Lempira, Intibuca,
and La Paz). Rural households in the Western
region receive relatively less public and private
transfers. Agricultural activities contribute a
minor income share in the Southern region,
where there is a major share of income derived
from nonfarm sources. Farm households located in richer regions have higher shares of
nonfarm income in total income. On average,

only about 50% of total income is derived from
agricultural (cropping and livestock) activities,
32% comes from (agricultural or nonfarm)
wage employment and 12% is from own-account activities (see Table 1).
Agricultural income is relatively more
important in the Western region where intensive small-scale production of basic grains and
co€ee takes place, whereas income from livestock production is mainly important in the
large haciendas located in the Southern region
(the departments of Olancho, Valle and
Choluteca). Agricultural wage employment is
almost equally distributed among the three
rural areas, but is substantially lower for people
living in rural towns. In the Northern region,
major opportunities for wage employment exist
with international banana companies and on
the oil-palm cooperatives, whereas in other
regions agricultural wage employment is
generally found with small and medium-size
producers engaged in commercial production of
co€ee, horticulture crops or irrigated rice.
Nonfarm wage employment is particularly
important in the Northern region, where
industrial free zones have been established
around the city of San Pedro Sula and close to
the harbor of Puerto Cortez. In small towns
and in other rural areas, nonfarm wage labor
is linked to small enterprises. Self-employment
is most common in the Southern Region
and includes own-account activities for the
supply of services, crafts, and processing, and
commerce. A sustainable market for these
activities usually requires a higher population
density. Exogenous income derived from
personal savings, pensions or government
assistance programs represents 5±8% of income.
Regional di€erences in the share of nonfarm
income in total income are related to speci®c
social and economic factors. Self-employment
in the South is mainly based on processing and
commercial activities linked to agriculture and
responds to increasing demands for high-quality goods and services by wealthier households.
Self-employment in small rural towns is more
commercially oriented. In the Northern and
Western regions, self-employment represents a
lower segment of nonfarm activities (repair
shops; fast food) that provide services to
middle-class and poor households.
(b) Patterns over income strata
The distribution of income is extremely
uneven in rural Honduras. We divided the

HONDURAS

553

Table 1. Total farm household income, income shares and wage rates per region (N ˆ 818)a
Small towns
(N ˆ 76)
Total income per capita per year (Lps)b
Income composition
Livestock activities
Cropping activities
Agricultural wage
Nonfarm wages
Self-employment
Capital income, pensions and aid
Wage rates
Farm wage (Lps/h)
Nonfarm wage (Lps/h)
Self-employment (Lps/h)
a
b

North and rest
(N ˆ 215)

West
(N ˆ 300)

South
(N ˆ 227)

3453.93
(5316.34)

1400.83
(2113.23)

1067.29
(2172.62)

2355.11
(5695.23)

0.06
(0.22)
0.36
(0.37)
0.16
(0.25)
0.23
(0.33)
0.12
(0.26)
0.07
(0.16)

0.05
(0.22)
0.44
(0.37)
0.22
(0.30)
0.12
(0.27)
0.09
(0.21)
0.08
(0.19)

0.05
(0.22)
0.52
(0.38)
0.23
(0.32)
0.06
(0.22)
0.10
(0.21)
0.05
(0.12)

0.08
(0.27)
0.36
(0.38)
0.23
(0.33)
0.10
(0.25)
0.16
(0.30)
0.08
(0.19)

1.92
(2.17)
3.14
(3.09)
5.55
(8.84)

1.62
(1.00)
2.62
(3.21)
4.02
(7.57)

1.09
(0.50)
2.31
(2.79)
3.25
(4.30)

1.93
(1.76)
2.98
(3.16)
4.98
(6.69)

Standard deviations in parentheses.
Incomes are registered in lempiras (Lps); 1 US$ ˆ 6.5 lempiras (1994).

sample into four farm household income categories and included income data from rural
landless households to enable a comparative
analysis of di€erences in income composition
(see Table 2). Average income of landless
households is comparable to the higher categories of farmers' income. Nonfarm income

sources represent almost 60% of the income of
the landless. Some landless still maintain cattle
grazing along the roads.
Despite the importance of income diversi®cation, still 32% of all rural individuals only
have income from farming activities, 14% are
exclusively dependent on farm wage labor, and

Table 2. Total income and shares of income sources per income group …N ˆ 1666†a
Farm households

Landless

(N ˆ 848)
Total income per capita (Lps)
Livestock
Crop
Agricultural wage
Nonfarm wages
Self-employment
Capital income, pensions and aid
a

2206.61
(2771.37)
0.03
(0.09)
0.00
(0.06)
0.24
(0.39)
0.34
(0.41)
0.24
(0.36)
0.15
(0.29)

Standard deviations in parentheses.

< 500 Lps/
(cap year)
(N ˆ 295)
254.21
(526.56)
0.00
(0.22)
0.52
(0.41)
0.28
(0.35)
0.06
(0.22)
0.08
(0.21)
0.07
(0.18)

500±1000 Lps/
(cap year)
(N ˆ 225)
700.07
(140.36)
0.04
(0.16)
0.42
(0.34)
0.25
(0.31)
0.10
(0.24)
0.14
(0.26)
0.06
(0.17)

1000±2000 Lps/
(cap year)
(N ˆ 155)

> 2000 Lps/
(cap year)
(N ˆ 143)

1389.00
(289.12)
0.10
(0.22)
0.36
(0.32)
0.21
(0.30)
0.13
(0.27)
0.13
(0.25)
0.07
(0.18)

6787.89
(7330.53)
0.18
(0.31)
0.41
(0.40)
0.06
(0.18)
0.18
(0.31)
0.13
(0.27)
0.04
(0.10)

554

WORLD DEVELOPMENT

25% are fully specialized in nonagricultural
activities (Ruben & van den Berg, 2000, p. 199).
While poor households try to diversify their
income within the agricultural sector, higher
income strata seem to be better able to guarantee income diversi®cation across economic
sectors.
The share of nonfarm income in total income
increases from 14 to 31% as household income
rises. Higher income strata receive substantially
more income from livestock production,
nonfarm
wages,
and
self-employment
compared to lower income strata. Notably,
self-employment is taking a substantially higher
share among higher income strata of both
landless and farm households. Poor households
rely strongly on cropping income (52%) and
farm wage employment income (28%).
Wage rates di€er markedly over activities, as
shown in the lower part of Table 1. Urban
nonfarm wages are 5±10% above the highest
rural wages. Average wages for farm labor and
nonfarm employment are respectively 75% and
30% higher in the Southern region compared to
the West, while wages in the Northern region
are 14±19% below the average wage in the
South. This may be due to the fact that
competition in the labor market and demand
for more quali®ed labor are substantially
higher in the South. The wage gap between
farm and nonfarm employment is, however,
largest in the Western region. Nonfarm wages
are between twice as high (in the West) or half
as high (in the South) as farm wages. Hourly
returns on self-employment are 2.6±3 times
higher than farm wages, with the Southern
region having a 50% higher rate than the
Western region.
4. DETERMINANTS OF OFF-FARM
EMPLOYMENT
We used a Logit regression to determine the
probability that an individual becomes engaged
in agricultural wage employment, nonfarm
wage employment, and/or self-employment as a
function of the following: (a) regional characteristics (with the Northern region as the
benchmark); (b) individual characteristics such
as age, gender, education; and (c) farm household characteristics related to farm size, soil
quality, land use, availability of family labor,
and access to credit or technical assistance (see
Table 3). The model predicts participation in
farm wage employment with 83%, nonfarm

wage employment with 92%, and self-employment with 80% accuracy.
Individuals with smaller farms and more
hillside land are most likely to be engaged in
farm wage labor. Farmers who are less engaged
in livestock production, which requires
constant care, are better able to undertake
agricultural wage employment. With respect to
individual characteristics, age, gender, and
education a€ect participation in the farm
labour market. Access to the local labor market
increases with age, but for the elderly this e€ect
declines in importance, probably because while
experience increases access, health problems
decrease it. Farm wage labor is primarily a
male activity and requires almost no formal
education. It is therefore highly accessible to
the poor and illiterate. Engagement in farm
wage labor declines with access to private
transfers (i.e., remittances from family
members abroad) and is more likely for those
bene®tting from government assistance
programs. Our data do not permit further
disaggregation of agricultural wage employment into seasonal and permanent activities, or
according to the type of farm work. Baumeister
(1996) notes, however, that landless laborers
are more engaged in permanent wage employment, while small farmers and members of land
reform cooperatives seek employment during
their o€-season on other farms in the same
region. While land preparation and sowing are
usually performed by men, women weed and
harvest. The substantial increase of the co€ee
area during the last decade generated demand
for co€ee harvesting, where women have an
advantage.
Participation in nonfarm wage employment is
positively related to farm size and is mainly
undertaken by individuals that possess some
irrigated land (where mechanization reduces
farm labor needs), especially in the Northern
region where most industrial free havens have
been established. Nonfarm wage labor in smallscale industrial and service establishments is
particularly important in rural towns. Households with more (female) adults can participate
more in nonfarm wage labor, since other family
members can take care of farms and animal
husbandry. Both men and women can ®nd
nonfarm wage employmentÐmen mainly in
construction, transport, and heavy manufacturing, and women mainly in domestic services
(housekeeping), administrative work, and textile
processing. Access to nonfarm employment is
particularly strong for the middle-aged with

HONDURAS

555

Table 3. Logit estimation for participation of o€-farm employment by type (N ˆ 2584)
Region
West
South
Small towns
Agricultural resources
Farm size
% ¯at land
% irrigated land
Technical assistance (yes ˆ 1)
Number of cattle
Number of pigs
Number of horses
Family composition
Number of adults
Women/adults
Children/adults
Nonearned income
Credit use (yes ˆ 1)
Capital income and pensions
Government assistance
Individual characteristics
Age
Age squared
Can read and write (yes ˆ 1)
Secondary school (yes ˆ 1)
Sex (male ˆ 1)
Constant

Farm wage employment

Nonfarm wage employment

Self-employment

)0.193
(0.159)
)0.152
(0.167)
0.264
(0.234)

)1.178
(0.243)
)0.217
(0.203)
0.464
(0.236)

0.041
(0.136)
0.254
(0.142)
)0.137
(0.202)

)0.058
(0.018)
)0.546
(0.146)
)0.558
(1.188)
0.354
(0.216)
)0.166
(0.040)
)0.081
(0.030)
0.001
(0.015)

0.015
(0.008)
0.065
(0.174)
2.058
(0.750)
)0.413
(0.220)
)0.014
(0.012)
)0.055
(0.040)
)0.186
(0.081)

)0.007
(0.006)
)0.013
(0.107)
)0.942
(1.020)
)0.102
(0.154)
0.000
(0.005)
0.017
(0.011)
0.002
(0.003)

)0.002
(0.041)
)0.039
(0.420)
0.203
(0.090)

0.150
(0.046)
2.005
(0.541)
)0.237
(0.137)

0.144
(0.032)
1.854
(0.331)
)0.245
(0.083)

)0.372
(0.269)
0.000
(0.000)
0.002
(0.001)

)0.747
(0.371)
0.000
(0.000)
)0.002
(0.002)

)0.090
(0.204)
0.000
(0.000)
0.000
(0.001)

0.055
(0.020)
)0.001
(0.000)
)0.137
(0.078)
)0.813
(0.201)
3.907
(0.236)
)4.844
(0.667)

0.060
(0.035)
)0.001
(0.000)
)0.221
(0.101)
0.453
(0.098)
0.284
(0.169)
)2.969
(0.828)

)0.072
(0.016)
0.001
(0.000)
)0.059
(0.058)
)0.011
(0.088)
)1.394
(0.112)
)0.003
(0.499)

*

Signi®cant at 10% level.
Signi®cant at 5% level.
***
Signi®cant at 1% level.
**

secondary education. Engagement in nonfarm
wage employment is usually not dependent on
formal credit, since search and entry costs can be

®nanced from capital income and pensions.
Income from nonfarm employment can be used
as a substitute for formal credit.

556

WORLD DEVELOPMENT

Self-employment is particularly well developed in the Southern region, where microenterprises and service providers can count on
relatively good market outlets. Participation in
self-employment is rather independent from
farm size or land use. Young women, sometimes without education, undertake most ownaccount activities. This sector includes a range
of activities that rely on experience, such as
bakeries, tortilla making, market stands, sewing
workshops, photocopy services, repair shops,
and restaurants. Interestingly, start-up funds
are usually not ®nanced from capital income,
remittances, or (formal) credit sources. This
points to the importance of access to savings
and informal credit. Rural microenterprises still
maintain important linkages with the agricultural sector either through the provision of
inputs (backward linkages), the delivery of
outputs (forward linkages),or for the distribution of their produce to rural consumers (®nal
demand linkages).
For agricultural wage employment, age and
experience are the most important entry criteria. For nonfarm activities, education is
particularly relevant. Self-employment is
mainly undertaken by women, independent of
their education.
The general picture that emerges is of farm
wage labor as mainly an income stabilization
strategy for poor farm households that maintain traditional production systems primarily
oriented toward self-consumption and with few
other possibilities. Nonfarm employment is
important as an income diversi®cation strategy
when sucient resources are available to
replace better-endowed family members that
can earn higher incomes outside agriculture.
Self-employment can be characterized as a
strategy for income growth and accumulation
based on ®nal demand linkages. In practice, the
latter two strategies are mutually exclusive,
since members of households with commercial
self-employment activities are less inclined to
enter wage employment, indicating that
substitution possibilities are limited.
Some other factors are likely to in¯uence
access to wage labor or self-employment
opportunities. Physical infrastructure and
public services are underdeveloped in the
Western region and therefore self-employment
tends to be restricted to the local market. Land
reform and subsequent land sales have been
particularly important in the Northern region,
where former cooperative members are better
quali®ed to enter nonfarm wage employment.

Finally, almost no signi®cant relation was
found between credit use and access to wage or
self-employment. Search and transport costs
for ®nding nonfarm wage employment are
mainly ®nanced from private savings and
transfers, while public assistance programs
seem to facilitate engagement in farm wage
employment.
5. EFFECTS OF NONFARM
EMPLOYMENT ON FOOD SECURITY
AND FARM INPUT USE
(a) Consumption e€ects
Food adequacy is computed by dividing
household food consumption by the daily
calorie and protein requirement for the entire
household. The result is an index of nutritional
adequacy that should be higher than one to
guarantee food security. We focused on calorie
consumption because it is a major determinant of health and it varies over households, while most households report adequate
protein.
To analyze the consumption e€ects of
nonfarm employment, we regressed the calorie
intake adequacy ratio on household income
sources to yield a modi®ed Engel curve where
consumption is dependent on the level and
composition of income. We include regional
dummy variables to account for price di€erences, as well as some other variables related to
the availability of near-liquid assets and
borrowing as an indication of the household's
capacity for consumption smoothing. Finally, a
number of farm household characteristics are
included to account for preferences.
Farm income is most important for food
security: a 10% rise in farm income improves
nutritional adequacy by 0.8%. This is not
surprising, since our consumption measure
includes home production. In addition, the
e€ect of nonfarm income is signi®cant: an
improvement of 0.3% in food adequacy is the
result of an increase of 10% in nonfarm income.
The e€ect of agricultural wage income on food
consumption is not signi®cant. Therefore, a
separate estimation was made with a subsample
of households that are engaged in farm wage
labor.
For households with access to wage income,
farm income is unimportant for food security
(Table 4, third column), while an increase of
10% in wage income causes an improvement of

HONDURAS

557

Table 4. 2SLS estimation of caloric adequacy at the household level (dependent variable ˆ ln (calory consumption/
calorie needs))
All househods (N ˆ 768)
Region
West
South
Small towns
Food requirements
Ln (calorie needs)
Income
Ln (farm income)b
Ln (agricultural wages)b
Ln (nonagricultural income)b
Smoothing capacity
Ln (owned land with title)
Ln (livestock value)
Credit use (yes ˆ 1)
Preferences
Sex household head (1 ˆ male)
Females/adults
Constant

)0.13991
(0.03945)
)0.01464
(0.04041)
0.07248
(0.05608)

)0.26429
(0.08417)
)0.06314
(0.06341)
0.244271
(0.09330)

)0.17124
(0.03442)

)0.16603
(0.11235)

0.07618
(0.02017)
0.00165
(0.00496)
0.02444
(0.00559)

0.05232
(0.04202)
0.02395
(0.01412)
)0.01784
(0.11630)

0.02277
(0.00708)
0.21648
(0.05896)
0.06264
(0.02181)

0.38625
(0.22421)
0.02365
(0.01186)
0.43291
(0.15328)

)0.03535
(0.04892)
0.20021
(0.09554)
3.65477
(0.16859)

0.03978
(0.07932)
0.04685
(0.21968)
3.87816
(0.87237)
0.10382
(0.11564)
0.08

Lamdba
Adjusted R2

Households with farm wages
(N ˆ 320)a

0.09

a

Sample selection model.
Instruments used: number of literate adults, number of adults with secondary education, number of cattle, number
of dairy cows, number of horses, cultivated area, number of adults.
*
Signi®cant at 10% level.
**
Signi®cant at 5% level.
***
Signi®cant at 1% level.
b

0.2% in food security. For households with
farm wage labor, the contribution of nonfarm
income disappears, indicating that the activities
are to some extent substitutes.
Availability of assets (titled land, cattle)
substantially improves food security. Credit use
also improves food adequacy, and the e€ect is
stronger for households engaged in agricultural
wage employment. Income from wage
employment seems to be considered as adequate collateral for lending. Ceteris paribus, a

change from not participating to participating
in the credit market implies an improvement in
the food security ratio with a factor 1.0 for all
households and with a factor 1.5 for households with agricultural wage employment.
All else equal, adding female members to a
household increases household caloric adequacy. ``Region'' also in¯uences household
food security, in that Western region households have poorer caloric intake due to poor
agroclimatic and labor market conditions. By

558

WORLD DEVELOPMENT

contrast, households in small rural towns have
more caloric intake.

Table 5. Tobit regression of the use of external inputs in
crop production (N ˆ 798)
Coecient

(b) Production e€ects
Use of family labor o€-farm reduces labor
available to the family farm. This can lead to
extensi®cation and productivity loss. Hiring-in
farm labor can compensate the loss, but there is
a tradeo€ due to supervision costs. Nonfarm
income can, however, be used to buy farm
inputs that increase yields (such as fertilizer) or
replace labor (such as herbicides). We explore
this latter e€ect in Table 5 with a Tobit
regression where the cash value of external
inputs (including hired labor) per hectare is
regressed on nonfarm income and transfers and
several other variables. We used Tobit regression because, a substantial number of farmers
do not use external inputs.
The results show that use of external inputs is
related to farm size, although economies of
scale can be realized on larger farms. Moreover, input use is higher for permanent crops
(mainly fertilizer for co€ee production). Input
intensity is not related to access to technical
assistance. Surprisingly, farmers in the Western
region spent relatively more on external inputs.
This is partly because hillside areas are
increasingly used for small-scale co€ee
production, while in more marginal areas
farmers undertake nonfarm activity and replace
family labor with hired labor. Moreover,
maintaining yields in hillside farming requires
lots of agrochemical inputs. Production function estimates suggest that the elasticity of
output with respect to external inputs is highly
signi®cant and close to 0.1 (Ruben, van den
Berg, van Wijk, & Heerink, 1997). Note also
that farmers residing in small rural towns rely
on input-intensive production systems. No
clear relations were observed between input use
and legal land titles, indicating that titling has
only limited demand e€ects (Salgado, 1994).
Access to credit has the largest single e€ect on
input use, and thus ownership titles might be
important as collateral for borrowing.
As for the e€ect of various income sources on
farm input use, only nonfarm income contributes signi®cantly to higher input use. This may
be because nonfarm income is used as cash for
input purchases or because such income is
considered collateral by banks and informal
lenders. Household laborers can be considered
as a ®xed factor; its e€ect on external input use

Region
West
South
Small towns
Fixed production factors
Cultivated area
(Cultivated area)2
Share of permanent crops
Share of ¯at land
Family composition
Number of adults
Children/adults
Women/adults
Eciency
Sex household head (1 ˆ male)
Technical assistance (1 ˆ yes)
Liquidity
Owned land with title
Credit use (1 ˆ yes)
Nonfarm incomea
Livestock incomea
Agricultural wagesa
Constant
Sigma

217.443
(125.168)
131.159
(131.902)
744.635
(181.313)
223.848
(22.2102)
)3.50855
(0.72174)
1360.36
(215.881)
94.6277
(93.3212)
)59.1823
(32.2074)
)58.9480
(59.2239)
570.321
(302.129)
20.4162
(153.461)
)28.2793
)181.740
(127.458)
1235.68
(197.430)
0.02914
(0.00706)
0.00383
(0.00444)
0.02854
(0.02273)
)930.500
(274.737)
1265.98
(34.8018)

*

Signi®cant at 10% level.
Signi®cant at 1% level.
a
Joint exogeneity was not rejected at the 10% level.
***

is signi®cant and negative due to the possibility
of input substitution.
6. CONCLUSIONS AND POLICY
IMPLICATIONS
Several conclusions emerge. First, 68% of
Honduran rural adults are involved in some o€-

HONDURAS

farm activity. Farm wage employment
contributes 22% to the average farm household
income, nonfarm wage employment represents
6±12% (and is particularly important in the
Northern region), and income derived from
nonfarm self-employment constitutes 9±15% of
household income (and is particularly important in the Southern region). The landless and
the residents of small rural towns tend to
participate most intensively in nonfarm activities.
Second, the main type of nonfarm activity
varies over income strata. Poor families gravitate toward farm wage employment, middleincome households toward nonfarm wage
employment, and higher income households
toward nonfarm self-employment activities
such as small and medium enterprises. While
most households maintain a substantial
involvement in own farming, some of their
members work exclusively in nonfarm activities. Females are most likely to be involved in
self-employment, while better-educated persons
tend toward nonfarm wage employment. The
corollary is that ®nancial barriers for covering
entry and start-up costs as well as scarcity of
family labor to cover farm operations are major
constraints to rural households' increasing
engagement in nonfarm employment.
Third, income from nonfarm employment
proved to be particularly important for
enabling rural households to buy food and

559

farm inputs. Food security is clearly enhanced
for poorer households through their engagement in agricultural wage employment, while
nonfarm income contributes most to food
security for the middle and richer strata.
Income from farm wage labor and nonfarm
activities can be considered as collateral for
borrowing, thus improving the capacity for
consumption smoothing. Even more important
is that nonfarm income can be used to ®nance
the purchase of yield-increasing (fertilizers) or
labor-substituting (contracted wage labor)
external inputs, especially when credit
constraints are e€ective.
Fourth, at the policy level major attention
should be given to education and training
programs that facilitate entrance to nonfarm
activities. Public social assistance programs are
not very e€ective for enhancing participation in
nonfarm employment. Current food-for-work
programs in rural areas may be e€ective in
addressing the needs of poorest households, but
they prevent other rural households from
entering nonfarm activities. Finally, further
incorporation of rural households into
nonfarm employment requires development
and promotion of input-intensive agricultural
technologies that enhance agricultural yields
and reduce labor demands for production. Low
external-input technologies as favored by some
local NGOs are generally too labor-intensive to
permit engagement in nonfarm employment.

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