IJERD – International Journal of Environmental and Rural Development (2013) 4-1

Research article
erd

Off-Farm and Non-Farm Activities Development in Rural
South-Eastern Bosnia
SINISA BERJAN*
Faculty of Agriculture, University of East Sarajevo, East Sarajevo, Bosnia and Herzegovina
Email: sinisaberjan@yahoo.com

HAMID EL BILALI
Mediterranean Agronomic Institute of Bari (CIHEAM-MAIB), Valenzano, Bari, Italy

BORKO SORAJIĆ
Faculty of Agriculture, University of East Sarajevo, East Sarajevo, Bosnia and Herzegovina

NOUREDDIN DRIOUECH
Mediterranean Agronomic Institute of Bari (CIHEAM-MAIB), Valenzano, Bari, Italy

ALEKSANDRA DESPOTOVIĆ
Biotechnical Faculty, University of Podgorica, Podgorica, Montenegro

JASMINA SIMIĆ
Cooperative Union of the Republic of Srpska, Banja Luka, Bosnia and Herzegovina
Received 15 December 2012

Accepted 30 January 2013(*Corresponding Author)

Abstract Agriculture represents about 9% of the Bosnian gross domestic product andemploys almost a fifth of the labor force. Agriculture is no more sufficient to ensure thedevelopment of Bosnian rural areas; where lives around 61% of the population.
Diversification issue can be considered in terms of resources (land, labor or capital),
location (on-farm or off-farm) and output (farm or non-farm). The paper aims at analyzing
income-generating activities diversification in rural south-eastern Bosnia with a focus on
motivations and barriers. It discusses the main factors affecting off-farm and non-farmactivities development, including policies, and provides some recommendations. The
paper is based on an extended secondary data analysis and semi-structured interviews,
conducted in March-April   2012,   with   104   households’   heads   from   Foca,   Rogatica,   Han  Pijesak, Vlasenica, Sekovici, Milici and Bratunac municipalities. Almost a half of thesurveyed households characterized themselves as mixed (46.1%), 41.3% as farm, and12.6% as non-farm. Income is generated mainly from agricultural products sale (76%),
off-farm activities (52.9%) and pensions (44.2%). Motivations for engaging in off- andnon-farm activities are not always purely financial and also reflect societal changes. In thelast five years, 21.6% of the households started new income-generating activities - mainly
related to services provision and on-farm processing - but gave up while 22.6% of themstill deal with new activities. The main barrier is the lack of financial resources (39.7%)
and time (12.1%). Weak business skills are also a limiting factor. Development of newactivities  raises  farmers’  income  and  contributes  to  a  healthy,  diversified  and  viable  rural  economy. Public institutions need to make sure that policies in place, whether sectoral or
broader, do not put obstacles in the way of diversification and improve rural planning andservices delivery. Creating an enabling environment for diversification requires the efforts
of many public and civil society actors.
Keywords non-farm, off-farm, motivations, barriers, BosniaⒸ ISERD

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INTRODUCTION
Agriculture share in GDP was 8.1% in 2011 (EC, 2012). According to the Labor Force Survey for
2012, the agricultural sector employs 167,000 persons i.e. 20.6% of the total labor force (ASBiH,
2012). Rural areas (81%) lag behind in terms of socio-economic development and still face many
problems. Around 61% of the total population can be classified as rural. Agriculture provides asource of income for about 50% of the total population of the country. The Agro-food processing
industry is recovering following a decade of under-investment and its share in GDP is increasing(about 8%) (Kurbanova et al., 2011).
Despite its declining gross value added, agriculture continues to have an important influenceon the rural economy (OECD, 2006). Generally speaking, as an economy grows the non-farmeconomy also grows in importance within the rural economy (Valdés et al., 2008).
It is clear that nowadays agriculture is not sufficient to insure the sustainable development ofrural  areas  that’s  why  rural  economy  should  be  diversified  (Antonelli  et al., 2009; Haggblade et al.,2007; OECD, 2006). The framework provided by OECD (2009) considers the issue of farmhousehold diversification by differentiating between activities in terms of resources (factors of
production: land, labor or capital), location (on-farm or off-farm) and output (agricultural or nonagricultural) (Fig. 1). The major row differentiation between activities is made on the basis of thelocation of the activities, either on-farm or off-farm. Within each location, diversification activities
are further differentiated as to the type of output, whether: agricultural production (e.g. growing
crops or raising livestock); continuation (e.g. processing of food or providing contracting services
to other farmers); or other (OECD, 2009).
OBJECTIVE
The paper aims at analyzing off-farm and non-farm activities development in rural south-eastern
Bosnia with a focus on motivations and barriers.

OFF-FARM

LOCATION

ON-FARM

FACTORS OF PRODUCTION
LAND

LABOR

CAPITAL

Within agriculture,including specialty
crops, organic andbiomass production

Agriculture-related
e.g. direct sales andcontracting (fencing,
crop harvesting, etc.)

Agriculture-related
e.g. processing offarm products
including cheese

Other e.g. forestry,wind-turbine,recreation, andaquaculture

Other e.g. handicraft,
farm tourism,
contracting (snowclearing, etc.)

Other e.g. biomassenergy generation,
wood processing

Agriculture e.g. land
rented to otherfarmers

Agriculture-related,
e.g. employment onanother farm

Agriculture, e.g.
purchase ofadditional farmland

Other e.g. land
rented to others forforestry, windturbineOther e.g. school
teacher, nurse,
government official

Other e.g.
investment income,pensions

Source: Adapted from OECD, 2009.

Fig. 1 A framework for classifying farm household income diversification activitiesⒸ ISERD

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IJERD – International Journal of Environmental and Rural Development (2013) 4-1

METHODOLOGY
The paper is based on an extended secondary data analysis and field research. The field survey
analyses the diversification of activities by farm households in Bosnia. Semi-structured interviews
were conducted in March - April  2012  with  104  households’  heads  randomly  chosen from seven
undeveloped and mid-developed municipalities: Foca, Rogatica, Han Pijesak, Vlasenica, Sekovici,
Milici and Bratunac. Semi-structured interviews (SSI) were conducted in local languages. The
checklist prepared for SSI included 40 questions dealing, among others, with types of households(farm, mixed, non-farm),  household  structure,  employment  and  income  for  households’  members,  microfinance and access to loans and diversification of income-generating activities.
The average age of households’   heads   is   46.9   (age   range:   29-67). Almost all interviewees(93.2%) were men. Average number of household members is 4.3. About a tenth of the household
members (8.5%) are illiterate while only 8.85% of them have high education. The highest
percentage of the surveyed households have income from 5,000-15,000 BAM (67.3%) while morethan 12% have good or quite good income (more than 15,000 BAM, Bosnian Convertible Marks).
The general poverty line in Bosnia and Herzegovina (BiH) is 2,857 BAM per capita and per year
(ASBiH, 2008). Taking into account this criterion, more than 50% of surveyed households are theunder poverty line.
The various factors enhancing or limiting farm household diversification into off- and nonfarm activities are discussed in this paper. In the light of available evidence on the role ofagriculture and farm household diversification in the Bosnian rural economy, some initial policy
implications are drawn and some recommendations provided to speed up the pace of Bosnian rural
economies diversification.
RESULTS AND DISCUSSION
Almost a half of the surveyed households characterized themselves as mixed households withdiversified income-generating activities. The livelihood strategy for about two fifths of thesurveyed households is focused on agriculture. The high percentage of mixed and non-farmhouseholds means that rural economy is diversified but the high percentage of farm households
clearly shows that agriculture is still important in livelihood strategies of the rural population insouth-eastern Bosnia. Mixed households have better education level compared with farm and nonfarm households. Furthermore, their members accept easier new technologies and other innovations
in rural areas and they are more engaged in social life within the community. In the case of mixed
and non-farm households, income is mostly provided from salaries of full time employees that deal
with the off-farm sector. Nevertheless, the percentage of households relying on income from farm
activities is quite high. In fact, a large number of households indicated primary agricultural
production as a main or an additional income (51.9%) while only 15.4% do not have any farmincome (Table 1). A large share of income from farm shows that agriculture is still the main
activity in rural areas of south-eastern Bosnia and it characterizes households with lower educationlevel and older members. This is at least to a certain extent due to the fact that because of the civil
war many big companies - that employed large number of people from rural areas of south-eastern
Bosnia - were destroyed or closed so that rural people are obliged to insure their subsistence
dealing with agriculture. For the same reason the percentage of pension income is high as many of
the rural people were retired after the civil war after engagement in army and also because almost athird of the surveyed household members (29.3%) are over 50 years.
Among the reasons for which many households did not start any new income-generating
activities can be mentioned the lack of financial resources or time and the difficulty to find suitable
markets. Other barriers include: high taxes, lack of experience, difficulties in finding partners,
complicated administration issues, etc. (Fig. 2).
The most frequent businesses that the surveyed households have tried out are related to wild
fruit and herbs collection (19.2%) and services provision on equipment and machines (15.4%).
Activities related to rural tourism are not enough developed. New processing and packagingⒸ ISERD

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activities regard dairy products, meat, strawberries and cereals. Other new farm income-generating
activities include: wood processing, piglet breeding, sheep breeding, beekeeping, dairy products
sale and raspberry growing.
Table 1 Types of households, income sources and new income-generating activities
Specification
Type of household
Income sources

New income-generating
activities in the last five
years

Percentage of the surveyed households
Mixed: 46.1%
Farm: 41.3%
Non-farm: 12.6%
Sale of agricultural products: 76%
Off-farm activities: 52.9%
Pensions: 44.2%
Other: wages, providing services on equipment and machines, social
programs and help, family and friends, renting land and property.
Did not develop any activity or start a new business: 55.8%
Started but gave up: 21.6%
Still deal with new activities: 22.6%

Fig. 2 Main problems and constraints faced by rural households in their attempts to develop
new farm, non-farm and off-farm income-generating activities
Financial reasons are key constraints in starting   up   households’   own   business   activities   and  diversification of livelihoods. Taking into consideration that money is the main problem, one way
to cope with this problem is to get a loan. Almost twenty eight percent (27.9%) of the surveyed
households have never applied for a loan mainly for the lack of collaterals. Others applied for loans
for many reasons: construction and maintenance of buildings (24.0%), buying animals (12.5%),
buying machines and equipments (11.5%), buying seeds and fertilizers (4.8%), etc.
Many factors influence the diversification of farm households into non-farm activities,
including government intervention. If governments want to foster diversification, they would needto make sure that policies in place, whether sectoral or broad, do not put unintended obstacles in
the way of diversification. Providing the services needed to foster business in rural areas - such as
telephone and internet coverage, training and information - also help to create an environment
conducive to diversification (OECD, 2009). Prerequisites for encouraging private investments
include improving the business climate, and providing business development and financial servicesⒸ ISERD

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suited to the needs of rural entrepreneurs. Acquiring a labor force with appropriate skills is crucial(IFAD, 2010).
As for human capital, the major part of respondents stated that they possess certain skills,
especially in food processing. Some of them mentioned also fruit production, beekeeping, organic
production and animal husbandry. Older members of households have more experience incollecting wild fruits and mushrooms and producing medicinal and aromatic plants. Strengthening
the  rural  people’s  capabilities  to  take  advantage  of  opportunities  in  the  rural  non-farm economy isessential. Education and skills are particularly important (IFAD, 2010).
Motivations for engaging in non-farm activities are not always purely financial, but also
reflect societal changes. In terms of the farm household, a financial motivation appears to be thestrongest driver for diversification in general, although social motivations are shown to beimportant for farm tourism. However, it appears that weak business skills are limiting the extent ofdiversification. Women play a more important role in the diversification of the farm into non-farmactivities than in the primary agricultural activities (OECD, 2009).
Differences also appear in terms of the size and type of farm operation. In general, off-farmdiversification activities are undertaken by smaller farms, for which they are more financially
important. A number of factors would explain this including the existence of less utilized farmresources and greater financial pressure. The location of the farm also plays an important role indetermining the extent of diversification activities. In general, the further a farm is away from aurban area, lower is the opportunity to diversify into non-farm activities (OECD, 2009).
The challenges of income diversification have a strong regional character or lie in thecharacteristics of the farm or farm household. According to the Working Group on Diversificationof the British Department for Environment, Food and Rural Affairs (DEFRA, 2007), key barriers tofarm diversification include validity of market research, capacity to develop a considered businesscase, quality of business skills and training, availability of appropriately skilled personnel andregulatory controls, and access to specialist business advice. Access to finance was also identified
as a potential barrier.
A range of policy measures have been introduced in various countries to assist farm household
diversification into non-farm activities. These measures involve grants, training and facilitation.
The diversity of measures reflects not only differences in policy objectives and country approaches
but also differences in terms of the barriers that the policy tries to overcome or correct. In somecountries, diversification activities appear to reduce access to some types of agricultural support.
Regulations governing tax, social security, land zoning and labour markets may complicate
diversification in countries where agriculture is not treated the same as other sectors. Farm
households, who engage in non-farm activities, may have to maintain two separate registration anddeclaration systems for tax and social security purposes, and may lose the benefits of being"farmers" (e.g. if there is preferential treatment in the social, tax system, or access to some farmsubsidies, such as investments) if the income they derive from non- farm activities becomes higher
than the income from agricultural activities (OECD, 2009).
The impact of labour regulations and the social security and tax systems on diversification
essentially depends on how agriculture is defined under those regulations/systems. Often a broad
definition of agriculture is used, allowing many forms of on-farm diversification activities to beclassified as agricultural or farming, and thus permitting a continuation of the status quo in terms ofadministration requirements and special concessions (OECD, 2009).
The heterogeneity of farm operators and the variety of non-farm activities mean that, at any
one time, there will be sets of circumstances that are highly favourable to diversification and others
where there are insuperable obstacles. This has a number of policy implications for countries
wishing to encourage farm diversification. The DEFRA Working Group on Diversification
recommends modifying rural actor skills as well rural development planning and service delivery
systems so that they do not pose such a substantial barrier to diversification (DEFRA, 2007).

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CONCLUSION
Rural economies in south-eastern Bosnia are quite diversified but agriculture is still the maineconomic activity for many households. Many households have started new income-generating
activities such as services provision and on-farm processing but they had to tackle many problems
and constraints such as the lack of financial resources. Harnessing farm diversification especially inthe non-farm economic activities requires improving the environment, thus strengthening
incentives and reducing risks for the actors. This involves improving rural infrastructure andservices as well as governance and the business climate to encourage private investment. Creating
an improved environment for farm activities diversification requires the efforts of many actors. The
roles of government actors are often critical.
Diversification of farm households into other activities on and off the farm affects the rural
economy, by raising the level of farm income and the viability of farms. However, household
livelihoods’   diversification   depends   on   the   existence   of   a   healthy   and   diversified   rural   economy,  which provides off-farm work opportunities as well as services. For rural policy to be more
effective, small fragmented programmes should be replaced by an integrated rural development
policy, that rural farm and non-farm households can benefit from, which requires a strong
horizontal coordination effort at all governance levels. In fact, it is necessary to reframe andredesign the rural development policy as agriculture is no more the only way to alleviate poverty
and to improve rural living standards. Fully exploiting rural economy diversification potential in
Bosnia   requires   also   improving   rural   governance,   upgrading   rural   people’s   human   capital,  strengthening rural social capital and improving physical capital as well as access of the rural
population to finance. That requires also a favourable and enabling legal and legislativeenvironment fostering farm activity diversification.

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