Livelihood diversification: Its determinants and overall impacts on the rural poor

Rural livelihood diversification is defined as the process by which rural households construct an increasingly diverse portfolio of activities and assets in order to survive and to improve their standard of living. It is characterized by multiple assets and activities creating a number of opportunities.

There are various determinants of livelihood diversification which shape one’s livelihood diversification strategies. They are categorized as:-

A) Assets that act as livelihood platforms: They form the basis upon which households engage in the production process, labour markets and reciprocal exchanges with other households. Assets can be defined as capital stock utilising which directly or indirectly, households manage sustenance and well-being.

1.     Natural capital: It comprises of land, water and biological resources also categorised as environmental resources. They, if brought under the control of humans, get more productive. Land can be tilled to generate livelihood from farming. Similarly, fisheries can be another livelihood option if someone owns a water body.

2.     Physical capital: they refer to the producer goods, i.e. ones which are created by economic activities that result in a long-term source of output. Roads, canals, tools, machines and buildings are a few examples. Buildings can be used for cottage industries or renting rooms, thus generating livelihoods.

3.     Human capital: It is argued to be the only asset available to the poor many times. This refers to one’s own labour. One can engage in various kinds of activities such as working on other’s field, working in a factory or providing his/her labour in office works as manager by using one’s labour. Investment in terms of education, health and skilling can be done to make human capital more productive. Various skills serve as basic to livelihood diversification.

4.     Financial capital: They refer to the stock of capital one has. It can be in the form of cash, credits or livestock, gold, jewellery, food grains etc. It acts as a form of exchange (especially in the case of cash) and does not add to productivity directly.

5.     Social capital: It refers to the kind of connections one has due to his/her belongingness to a community or a kinship. They are based on mutual trust. Sometimes, central authority also keeps the social ties intact, as in the case of many tribes.

B) Social relations act as modifiers in accessing the assets: They refer to social position one has in the society determining his/her claim over the previously mentioned assets.

1.     Gender: Gender plays an important role as most rural women are limited in their access to resources like lands, vehicles etc. This is a social factor determining how she can access the resources. This further limits the options available for livelihood diversification.

2.     Class: It is a major factor determining the social relation. Class determines many times the assets under the control of a person. The affluent upper class has privilege in terms of access to more resources while the lower class is limited in terms of such access and ultimately suffering in terms of livelihood diversification options.

3.     Age: Age determines to a large extent how assets are controlled. Children and elderly people usually have less say upon their assets and are often more vulnerable to other factors affecting their livelihood options.

C) Institutions acting as modifiers in accessing the assets: They form the larger rules and regulation which constitutes major barriers upon someone’s use of an asset.

1.     Rules and customs: Legal boundaries determine how a particular resource can be accessed. For example, the private property of someone can’t be accessed by anyone else without permission from the owner. This is the most common legislation across the globe.

2.     Land tenure: It refers to the property right. They give a person rights over ancestral properties.

3.     Markets in practice: The market as institutions also play a major role in how one can access various resources. For example, if one doesn’t have any land and wants it can buy the same as per the market terms.

D) Organisations acting as modifiers in accessing the assets: Organisations are distinguished from institutions in the way that they are a group of individuals with some shared purpose. A few examples are Associations, NGOs, local administration, state agencies etc. they also modify the access of an individual over any resource.

E) Trends acting as the context in which the livelihood strategies are adopted: The interrelationship between assets, activities are modified by social relation, institution and organisation. The livelihood strategies are defined many times in the way an individual or a household can’t control. They are influenced by trends. Population, migration, technological change, relative prices, macro policy, national economic trends, world economic trends are few trends that determine how this interrelationship will play.

F) Shocks act as the context in which livelihood strategies are adopted: They represent the challenges to livelihood sustainability. They destroy assets directly in case of crop destruction due to pests, floods and droughts, houses in case of earthquakes and livestock numbers in case of animal diseases. Draught, floods, pests, diseases, civil war etc. are some examples of shocks. They heavily impact livelihood options.

The overall impact of livelihood diversification on the rural poor:

A) Livelihood security: the chances are that with increased diversification, the household can increase its overall income. The stability in income can be achieved. It can also save one from the impacts of seasonality. To take an example, agricultural labour can minimise the impacts of seasonality on his/her income by engaging in non-farm activities like fisheries, trade or any other thing in off-seasons. All combined can result in a reduced risk of various vulnerabilities. At the same time failing to diversify can result in increased vulnerabilities, especially in times of shocks it may happen that the households can’t survive.

B) Environmental sustainability: Soil quality, water, forests and biodiversity are affected by their intensive usage. To sustain them without affecting the livelihood of a household or an individual, it is required that livelihood is diversified. To give an example, consider a case when a large number of people are dependent on an area of forest for timber. If they are not diverted for alternative livelihood options and hence capability to buy other kinds of fuels, the forest area will soon deplete. It can be seen how important livelihood diversification becomes for environmental sustainability.

The livelihood diversification differs in a dynamic economy than in a sluggish economy. This happens in the way they become important in both kinds of economies. In the case of a dynamic economy, livelihood diversification is not even a choice but is a necessity. People are forced to diversify to cope with the existing risk factors. For example, due to sudden changes in the technologies used in a production process, an individual who hasn’t diversified himself/herself will be thrown out of the economic activities immediately, until he/she gets the required skills for the new technology. On the other hand, an individual having diversified his skillset will still survive with other livelihood options at hand. Here, the individual is forced to diversify and it a requirement for survival.

In the case of a sluggish economy, it is not about the immediate threat. People would rather diversify out of their choice. But considering long-term measures, it would be wise to have assets and institutional designs that would help in easy diversification. There are broader prospects for policy changes. A sound policy catering to future needs will be required in this case.

There are many determinants of livelihood diversification and so are its many impacts on the rural poor. These aspects will serve policy-makers on how to design a viable livelihood diversification policy. But diversification has to be embedded in the economic structure of society. For dynamic economies, diversification is not even a choice while for sluggish ones, it becomes the key to dynamism.