Sustainable Livelihoods: Diversity and Diversification1

1 Compiled by Ravi Shanker for National Workshop on Watershed Management, Ahmedabad.2004. CRD Gandhinagar. Ministry of Rural Development. Government of Gujarat.

Short Notes Ravi Shanker

Sustainable Livelihoods: Diversity and Diversificationi Diversification is a process (if planned) for example growing new crop varieties, value crops, small enterprises, casual labor etc where economic status of household could improve. Diversification implies increased output from manufacturing (value addition) and services sectors and visible declining share from primary activities (eg: traditional cultivation). Diverse livelihoods imply a person relying on different, multiple activities with in a year. They could be

• Land based and non-land based activities • Self-employment or labor • Rural employment or out-migration (temporary)

Diversification and Specialization: As local economy keeps changing, individuals may become specialized in new sectors. For example a darji could open a cloth store, a traditional carpenter opening a furniture store etc. In some cases such change could occur without changes in the local economy. This is out of individuals needs; aspirations and conditions exist at local level. Various paan shops on roadside in villages are examples of this type of diversification. Lack of capital, skills restricts some families to retain or modify the traditional livelihoods.

• If the new economic activities provide higher returns than a traditional activity it is called ‘pull’ or ‘positive’ diversification. As a result the household accumulates assets, live better.

• If new options provide lower returns than usual, they are termed as

coping strategies in response to shock. This is called ‘push’ or negative diversification. As a result the household get pushed in impoverishment cycle.

Patterns of diversification For majority of poor, diversification into many low return and non-farm activities was both a response to crisis (excessive debt) and strategy to stay above destitution. Better off often diversified into high-return activities. Causes of diversification Households adopt diversified portfolios for one or the other reason.

Very poorest- constrained into single activity Lack labor (husband, son), =goat, some agri.labor, =often can’t migrate

Insecure poor- diversify to make enough work days

Marginal land, lower castes, =each member diversified, =relay on migrant agri. and non-agri labor, goats, =out-dated caste activity

Secure poor- diversify to mitigate risk

Irrigated land, =each member specialized, =son in regular job, business or Modernized caste occupation, =milch cow

Rich- diversify to get rich

Irrigated land, capital, education, FCs, =hiring, trading, money –lending, Salaried jobs and politics

Very richest- specialize in commercial agriculture Large land, machinery, =specialized commercial Soya bean, wheat,

Horticulture and dairy

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Diversification options in MP and AP by caste and livelihood class • The rich households had capital, skills, resources and networks to enter into

money lending, hiring out tractors and agri.equipment, setting up business like poultry, dairy, aquaculture etc. They diversified for accumulation.

• The middle income groups able to access capital and build on their previous trade or services and micro-enterprises such as ice-cream making, groceries, increased livestock etc. They diversified to mitigate risk

• The poorest groups have little to draw on but their own labor so tend to diversify into casual labor in construction, road building, collecting non-timber products, keeping goats and rickshaw pulling. These diversify to cope with underemployment.

• Diversification through caste modernization occurred when a caste group adapted its role –barber to hairdresser, carpenter to furniture shop.

1. Spreading risk: Working in different activities helps to spread risk and manage uncertainities for poor. For example a familiy depending on own land,agri-labor, migration etc.

2. Coping with insufficiency Diverse activities may be undertaken to meet shortmcomings in main activity or contingency. For example: failed harvest, loss of job or medical/funeral bills. 3. Seasonality Some primary activities-collecting fruits, nuts, mushrooms depend on seasons. Crafts are also seasonal. Off-season activites (though lower in returns) are prefered to outmigration or unemployment. 4. Compensating for failures in credit markets Other low return actvities undertaken to fund the main activity/favored activity (Paddy crop) in may rural areas. This is prevelent when access to credit is not in place, or is on exorbitant terms. Such income is used as input for main activity-buying fertilisers, seeds etc. 5. Gradual transition to new activity Change to new activity is incremental when returns are higher. It is an addition to existing activities rather a substitute. Over time, if high returns are stable, it becomes specialisation. Initially they likely to be driven by necessity. 6. Building on complementarities Some diversified activities may build on existing skills, experiences and information. Thus home based part-time work may complement part-time domestic chores. Services, salons, dry-clean shops, cloth-trade etc are result of diversification. Here change depends on previous conditions and experiences.

Diversification Reopened business Aminma is a muslim widow, aged about 60. When her husband died, her bangle shop closed for 4 years. Though she has land that lies outside project area hence not treated. She joined the Sangha Akkamahadevi. ‘With 2 successive loans of Rs.5000 I have been able to reopen my store. During festivals and marriages bangles are sold again. After repaying the loans, I have made a profit of Rs.4000’.-Aminma, Doddahalla village, KAWAD.

Differences in access, opportunities and market returns Those at the bottom of the wealth, caste and class system have little other than their own labour, and generally unskilled and assetless. Thus poor being trapped by their initial lack of assets in low return activities that continue to prevent them from accessing the assets to escape poverty. Even when the poor participate in activities and markets, the encounter least favorable terms. Economic poverty and political disadvantage goes hand-in-hand and gets poor share in policy entitlements. How the poor get trapped into low returns Dynamics of exclusion In Andhra Pradesh and Madhya Pradesh both poor and well off farmers practice sharecropping, agriculture labor and borrowing. But the better-off households can access high-return productive land, well paid labor opportunities and much more like to get formal sector credit at modest rates of interest. By contrast, the poor access only low return land, get low paid jobs, and invariably rely for credit on moneylenders or large farmers charging higher interest rates. As poor have no savings to fall back on, often forced to enter markets at the least favorable times (selling crops immediately after harves when prices are low). They also pay more for services such as credit and get lower returns (in sharecropping). Powerful patron can be helpful in times of shock but also set exploitative terms in serveral markets-credit, land and labor. The policy challenge was to establish forms of representation or awareness that incresed the political negotiating ability fo the marginalised. Understanding livelihoods in rural India: diversity, change and exclusion. Manage June 2003. Compiled by Ravi Shanker for National Workshop on Watershed Management, Ahmedabad.2004. CRD Gandhinagar. Ministry of Rural Development. Government of Gujarat.

Few assets Few economic Only skilled labor options available Cash-flow deficit Consumption needs exceed income Dependence on rich Borrowing on poor terms Patron client relationship High moneylender rates established Contractual agreements in other markets

on poor terms eg. Commitment of labor for low wages,

land rental at high cost etc.

Tied into low returns In different activities and markets