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2. THE IMPORTANCE OF RURAL INDUSTRIES TO

NATIONAL ECONOMICS AND RURAL DEVELOPMENT
Before analysing the relative importance of rural industries to national economics and rural
development you have to define what the term “rural industries” means and what kind of different
products or raw materials are processed within these rural industrial activities.

With reference to the Expert Consultation on the Use of Wood Fuels in Rural Industries, held in Rome
on 3–5 December, 1986 (35), rural industrial activities can be divided into the following three
categories:

small-scale cottage activities,

medium-scale village enterprises, and

large-scale rural industries.

This classification can be carried out on the basis of the following criteria:

location,

ownership,

labour source and organization,

complexity of technology used,

scale of production,

regularity of production,

form of organization, and

flexibility of energy source and use.

Criteria for assessing the significance of rural processing activities using fuelwood are:

fuelwood consumption,

employment and income development,

food production and security,

nutrition and health, and

impact on the environment.

2.1 COTTAGE ACTIVITIES

Typical small-scale cottage activities are food processing, e.g. baking, parboiling of rice, preparation of
noodles, fish smoking, preservation of fruits and vegetables, meat grilling, street food preparation,
brewing of beverages, beer and wine, drying of grain and spices and roasting of coffee. These activities
are of particular importance to women who usually tend to both own and manage them. This is due to
the fact that much of this processing actually takes place within or very close to the household itself,
and is closely related to food preparation for domestic consumption. The amount of fuelwood used by

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this sector is not wellknown, but the very large amount of these activities means that it is likely to be
considerable. S. Burne (20) reports that the cottage industry sector in Ghana, for example, accounts
for 20–25 % of fuelwood consumption in some rural areas, the main users being palm oil, white sugar,
pito brewing, fish smoking and baking.

As stated in the BEST report (19), the economic importance of these activities to the rural economy as
a whole, and to women in particular, is enormous. In many countries, and especially in some parts of
Africa, population growth, shifts in agricultural practices, diminishing land resources and continued
urban migration, mean that there tend to be fewer income generating opportunities, and that many
rural households are headed by women. There is an increasing need for the off-farm cash generating
activities, and this is crucial if dependence on the declining agricultural base is to be avoided. For
women, these activities must be compatible with the household duties and needs, child care and other
responsibilities which the women bear. One of the advantages of many small activities is that the
production can easily be stopped over planting and harvesting periods if necessary, so that they
provide income in the off-season. With these income generating activities, the women can pay for
school and hospital fees, and the food and beverages they produce are used both within the household
and by other families in the local community, and in many cases are also carried outside the
immediate community, the demand for which is increasing both as a result of shortages of fuel for
domestic cooking and because of increasing population.

An indication of the scale of these activities is also given in the BEST report. In Nepal, 13 % of the
total household income comes from the food preparation and processing activities of women; in the
Philippines 30 % of household expenditure goes on street food in the city of Iloilo. In the Dangbe
district of Ghana, 69 % of mothers are engaged in trade, and of these, 70 % prepare food or drinks for
sale. In Burkina Faso 70 % of women in one village had independent economic activity, 70 % of them
in food processing with a high energy input. Many Asian women undertake small-scale rice parboiling
outside the mills for cash generation. Gordon (21) reports that food stoves in villages around Ibadan,
Nigeria, use three times more wood than the average household to cook food for sale.

2.2 VILLAGE ENTERPRISES

Typical medium-scale village processing activities include breweries, bakeries, dairies, restaurants,
blacksmithing, potteries, lime processing and brick manufacturing. There are significant differences
between household level processing and village enterprises, as stated by S. Joseph (19). The village
enterprises may be owned by a group of people, an extended family, a cooperative or an entrepreneur,
who employs others. Processing usually takes place in a separate building or site, away from the
household. The manager is usually a man, and the fuel, usually wood, is mostly purchased. The capital
investment is higher, and the furnace, stove or kiln more complex. The operation is often run on a
more continuous basis, and some enterprises have reliable local or regional markets. In some cases
the owners have a considerable business skill, although most small enterprises are run by people with
little schooling or experience outside their own village.

Some village enterprises are registered and come under cottage industry boards, which provide
financial, marketing, technical and management assistance, whilst other enterprises operate in the so-
called informal sector. Many of the latter enterprises have problems with survival. They often have to
compete with the more capital-intensive urban or larger-scale rural industries and have very
insignificant working capital to offset the vagaries of the weather and of the market. They must pay
high interest rates for credit, they have little access to extension services or assistance from technical
research institutes, they must compete for raw materials with larger enterprises and withstand
competition from more modern products, e.g. the replacement of ceramics with metal for cooking
pots.

Some enterprises, e.g. the production of non-crystalling sugar in Bangladesh, rely on wealthier
entrepreneurs for the hire of equipment and technical input.

Many of these medium-scale village enterprises do not seem to be very profitable from a pure
economic point of view, but the number of people involved in the business is high and their importance
to the rural development, as employers of unpropertied rural low-income population, is indisputable.
There are only a few figures available. However, Gandi (19) estimated for India that there are 15 000
brick kilns in the country, the majority being small-scale and most located in peri-urban or rural areas.
1.5 – 2.25 million people are employed by the Indian brick industry. In Indonesia there are more than

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90 000 brick factories, the majority being very small production units operated by small and
subsistance farmers with non-irrigated lands, to provide cash income during the dry season. This
small-scale brick sector employs approximately 200 000 people. As reported by Koopmans (9),
approximately 1.9 million m3/y of lime is produced mainly by small-scale producers in Indonesia, and
0.1 million tons of lime is produced by 155 enterprisers in Thailand, as reported by Chomcharn (10).
The studies carried out by S. Burne (20) in Sri Lanka and Kenya and by S. Joseph (19) in Nepal
indicate that many small pottery producers do not actually cover their costs. This is due to the
replacement of transitional tableware by mass-produced metal and ceramic products and to the policy
of the Government to support the modern ceramics industry at the expense of the traditional industry.

2.3 RURAL INDUSTRIES

It is not easy to make a very clear distinction between medium-scale village enterprises and larger-
scale rural industries. In addition to the scale of production, other characteristics of the rural industrial
sector are more or less regular production, formal activity, employed labour on contract basis, higher
level of process technology, which in many cases is imported, and a relatively good fuel flexibility.

This category includes the processing of such typical cash crops as tobacco, tea, coffee, cocoa, copra,
and rubber, which are also important export products with a high impact on the national economy.
Their proportion in the GNP of the country is significant.

The importance of these cash crops to the national economy has clearly been indicated and analysed
by TEAM (18), which states that more than 90 % of the production volume of these aforementioned
commodities is accounted for by developing countries. Latin America accounts for 64 % of the world
coffee production, followed by Africa (22 %), Asia and Oceania (together 13 %). Africa, in turn, is the
major cocoa producer with 57 % of the world total, followed by Latin America's 34 % and a low 9 % of
Asia. Of the other four commodities, the highest production levels are found in Asia and Oceania, with
88 % of copra, 87 % of natural rubber, 55 % of tea and 22 % of tobacco world productions,
respectively.

For example, tea is the main export product of Sri Lanka and accounts for over 30 % of its exports,
almost 8 % of its GNP and over 16 % of its exports. The corresponding values for Kenya are 3 % and
14 %, respectively.

Although Brazil is definitely the largest coffee producer and exporter in the world, coffee is not of the
same significance to its national economy: in fact it amounts for less than 1 % of Brazil's GNP and only
9 % of its total exports. For most other coffee producing countries coffee is an extremely important
commodity in national economy as a source of foreign exchange. In Uganda coffee exports account for
an outstanding 95 % of its total exports. The proportion of coffee in the exports are also very large in
Ethiopia (61 %), E1 Salvador (57 %), Colombia (50 %), Guatemala (32 %), Costa Rica (28 %) and
Kenya (25 %).

The largest cocoa producers in the world are the Ivory Coast (25 % of world total), Ghana (12 %),
Nigeria (10 %), and Cameroon (7 %), Brazil (21 %) and Malaysia (6 %). With the exception of Brazil
and Nigeria, cocoa is also one of the most important export crops of these countries, accounting for a
great share of the national GDP. Further processing of cocoa beans to cocoa powder, paste and butter
is, however, undertaken by more industrialized countries, for example, by F.R. Germany and the
Netherlands.

The largest tobacco growing countries in the world are China, India, Indonesia and Thailand in Asia;
Mexico and Cuba in Central America, Brazil in South America, and Zimbabwe and Malawi in Africa. For
the national economy of Malawi, tobacco production is of utmost importance, accounting for 75 % of
the country's export earnings. Its importance as an export crop is less significant in other countries.

The Philippines and Indonesia are the main producers of copra in the world. These two countries alone
account for almost 60 % of the world total production, followed by India, 10 %, Malaysia, 6 %, Papua
New Guinea, 4 %, and Mexico and Sri Lanka, 3 %. Except for Papua New Guinea, where copra
accounts for 2.3 % of the exports, most of the production is consumed on the home market. In fact,
only 10 % of the world coconut production is actually processed into copra.

Malaysia is the major producer of natural rubber, accounting for over 35 % of the world production and
for over 43 % of the world exports. It is followed by Indonesia with more than 27 % of both the world
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production and exports, and by Thailand with more than 13 % and 16 %, respectively. These figures
indicate that most of the production is exported and natural rubber has a significant share in national
economics, confirming thereby its importance as a cash crop to such countries as Liberia, Sri Lanka,
Malaysia, and Thailand.

In addition to the importance of these cash crops to national economics and their relatively large share
in the GNP of the countries, a very high number of people are employed by the industries. For
example, in Sri Lanka the number of people officially employed by the tea, rubber and coconut
industries is 540 000, which is roughly 10 % of the national labour force. In addition to this, many
people are involved in the supply of fuelwood to these industries. These three industrial branches
consume annually some 560 000 tons of fuelwood, as reported by Nanayakkara (16). The socio-
economic aspects of rural industries using wood fuels will be discussed in more detail in a separate
chapter.

Characteristics of the three different stages of rural processing activities, as defined by the Expert
Consultation in Rome on 3–5 December 1986 (35) are summarized in Table 2.1.

TABLE 2.1 - CHARACTERISTICS OF THE THREE DIFFERENT STAGES OF RURAL

PROCESSING ACTIVITIES (35)
COTTAGE RURAL
VILLAGE ENTERPRISES
ACTIVITIES INDUSTRIES
LOCATION Household Village vicinity Vicinity/ Outside
Extended family Cooperative
OWNERSHIP Women/ Family Enterpreneurs
enterpreneurs
Villagers/ not
LABOUR Family Extended family Villagers
villagers
Non - wage Shared
ORGANIZATION Non wage - wage Rud. Spec. Wage Spec. contract
tasks
TECHNOLOGY Low Medium High, imported
SCALE Very small Small Medium
REGULARITY Non regular Regular
FORMALITY Informal Rudimentary formal Formal
FUEL
Low High
FLEXIBILITY

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