Rural Poverty in Latin America

Poverty in most of Latin America is still more rural than urban. In Mexico, Central America and the Andean countries, more than 60 per cent of the poor live in rural areas, and their poverty is deeper than that in urban areas. Paradoxically, however, the most influential analysis on poverty has a strong urban orientation — leaving a big gap in understanding the nature and magnitude of rural poverty. The heterogeneity of the region’s rural poor — in education, per capita income, access to services, security of land tenure — makes this gap a big detriment when designing a strategy to alleviate rural poverty.

Because 70 per cent of the population is urban and urban slums are so extensive, it is often assumed that poverty in Latin America and the Caribbean is mainly an urban phenomenon. This is partly due to the fact that the large and relatively urbanized countries dominate the regional statistics, and partly because urban poverty in the region has been better studied and is better documented. Surprisingly little is known about the nature and extent of rural poverty, but some striking facts of interest include the following:

Empirical evidence clearly suggests that rural poverty disproportionately affects indigenous people and women throughout Latin America. However, there is considerable debate on the variables that explain this heightened vulnerability to poverty, as well as on the likely impact of market expansion and/or economic growth on these groups. This chapter reviews the available empirical evidence, analyzes the key debates surrounding the topic and identifies the mechanisms that appear most significant in explaining the phenomenon.

The rural poor have few resources and economic endowments with which to generate their livelihood. Ironically, the resources they do have, especially labor, are often underutilized. Direct access to land can be critical as a means to fully employing labor resources, especially when other sources of employment and income are weak.

This chapter discusses how the labor market allows workers in rural areas to access a greater spectrum of work opportunities, and at the same time allows the expansion of labor-intensive activities in sparsely populated areas. There is no doubt that the labor market, broadly defined, offers rural families an opportunity to generate cash income, diversify sources of income, allocate time during slack periods, or simply increase income when the marginal productivity of labor in own-farm activities is very low. It is also true that farm activities are often marked by seasonality, generating sharp variations in labor demand throughout the year, and difficult trade-offs for workers and employers. Naturally, a key ingredient that would reconcile the development of modern agriculture, labor absorption, and poverty alleviation in rural areas of Latin America is an active market for labor services.

There is a perception that much of the progress achieved in Latin America in recent years in terms of economic stabilization, the resumption of investment, and the return to economic growth could be undermined if society remains polarized between those who can participate in the growth process and those who are left out. The sectoral composition of poverty is a matter of some debate. With high rates of urbanization, poverty in Latin America is rapidly acquiring an urban complexion alongside its more historical rural one, with some arguing that most of the poor now reside in urban areas (see for example, Morley, 1994). But there are many reasons for focusing also on rural poverty. First, reliable data are scarce, so that any conclusion regarding the distribution of the poor between urban and rural areas must remain somewhat tentative. Second, countries within the region vary sharply in the sectoral composition of their populations, even if the region as a whole is becoming increasingly urbanized. Third, the typical definition of ‘urban’ encompasses both major conurbations and other small and medium-sized towns. In fact, the bulk of what are termed ‘urban’ households are found in the latter category, and these are more closely tied to the rural economy.¹ Finally, there is little doubt that the greatest degree of deprivation is still found in the countryside in most Latin American countries.

Improving the performance of rural financial markets in terms of increasing access to financial services is often seen as an important tool in attacking rural poverty, partly because rural financial markets may help rural entrepreneurs deal with transitory income shocks, and partly because profitable projects exist that could raise income. The purpose of this chapter is to analyze empirically if and how the performance of rural financial markets affects the levels of poverty and the distribution of income among rural entrepreneurs in Mexico. As in other countries, the poor performance of Mexican rural financial markets is based on three factors. First, the large majority of disadvantaged rural entrepreneurs operate their businesses in financial autarky. Second, when they do have access to rural financial markets, rural entrepreneurs receive credit only under very negative conditions. Third, a low per centage of rural entrepreneurs place their savings in financial instruments. These factors induce rural entrepreneurs to choose low-risk and low-return investment strategies that in the long run are likely to widen the income distribution gap and to maintain poverty levels.

The main purpose of this chapter is to investigate the influence of rural poverty on resource degradation in Latin America. The main trends in resource degradation that will be examined are rural households’ decisions to degrade rather than conserve land resources, and the expansion of frontier agricultural activity that contributes to deforestation. In addition, the influences of recent policy changes on poverty—environment linkages will be explored.

The incidence and severity of poverty in Chile is much higher in rural areas than in urban areas (World Bank, 1994b), and it is estimated that more than 34 per cent of the rural population in Chile live below the poverty line.

The objective of this chapter is to provide insights into the quantitative importance of the various factors affecting poverty among small farmers and landless rural households in Colombia. We present a profile of rural poverty, first based on household characteristics of the total survey population across income quintiles, then by separating households according to whether they are primarily agricultural, landless agricultural or rural non-agricultural. The second part of the analysis involves an econometric estimation of the determinants of income for each of these groups. Both analyses are based on the CASEN² 1993 household survey data.

Poverty in Latin America is much more concentrated in rural areas than in urban centers, and Honduras is no exception in this respect (World Bank, 1995e). According to a recent study, Honduras has one of the worst income distributions in Latin America (Londoño, 1995), and one of the lowest per capita incomes in the continent, estimated at US$600. A very high proportion of the farmers in Honduras are below what is considered the extreme poverty line in the region, US$180 annual per capita income. The highly biased income distribution, combined with an extremely low per capita income, makes Honduras one of the worst cases in terms of both the incidence and severity of poverty in all of Latin America.

Almost 50 per cent of the population of El Salvador are considered rural, and the extent and intensity of poverty has been shown to be much worse in rural areas than in urban ones (World Bank, 1994f). Although this poverty assessment provided an excellent characterization of both rural and urban poverty in El Salvador, there is very little quantitative understanding of the determinants of rural poverty. What is the role of demographic characteristics, education and access to land and capital in determining rural household income? How does rural infrastructure affect the potential income of rural households? How responsive is household income to greater participation in the labor force by women and children? These are important questions, the answers to which may have significant policy implications.

The objective of this chapter is to provide a systematic assessment of rural poverty in Peru and to study the most important factors that determine per capita income and expenditures of rural households. This chapter consists of three parts. The first part is devoted to a descriptive analysis of the evidence for rural Peru based on the Living Standard Measurement Survey (LSMS) of 1994. The emphasis here is in characterizing the main groups in the rural sector of Peru: farmers, agricultural workers and non-agricultural workers. It is shown that these three groups are quite different from each other in terms of their levels of poverty, asset endowments, demographic characteristics and sources of income. The main implication of this is that an effective rural poverty alleviation strategy needs to explicitly consider the idiosyncrasies of each group in targeting and designing policy instruments.