DamianiO_WBRuralDevtFrmATerritorialPerspective.pdf

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BACKGROUND PAPER  
FOR THE WORLD DEVELOPMENT REPORT 2008 
 
 
 
RURAL DEVELOPMENT FROM A 
TERRITORIAL PERSPECTIVE 
CASE STUDIES IN ASIA AND 
LATIN AMERICA 
 
Octavio Damiani 
 
 
 
 
 
The findings, interpretations, and conclusions expressed in this paper are entirely those 
of the authors. They do not necessarily represent the views of the World Development 
Report 2008 Team, the World Bank and its affiliated organizations, or those of the 
Executive Directors of the World Bank or the governments they represent. 
 
 
 
 
 
 
 
 
 
 
RURAL DEVELOPMENT FROM A TERRITORIAL PERSPECTIVE 
CASE STUDIES IN ASIA AND LATIN AMERICA
 
 
 
 
 
 
Octavio Damiani 
 
 
 
December, 2006 
 
 i 
 
Executive summary 
 
This paper reviews the contribution of agriculture and rural development to poverty reduction by 
examining the transformation of five territories in four countries of Asia (Malaysia and People‘s 
Republic of China) and Latin America (Brazil and Peru) that have experienced substantial 
reductions in poverty.  While the four countries fall into three distinct groupings based on national 
statistics on the importance of agriculture and the growth of Gross Domestic Product, the five 
territories included in the study were among the poorest in their respective countries.  At the same 
time, all five have experienced great reductions in poverty during the last two decades--a 
transformation that they achieved by taking substantially different paths that implied different roles 
of agriculture. 
 
The cases included were: a) Petrolina-Juazeiro in Brazil, a 55,000 km2 territory that has turned into 
the main exporter of high value fruits in Brazil since the mid-1990s; b) the Sichuan Province in the 
People‘s Republic of China, characterized by great migration of the rural population to cities in the 
coastal provinces where the industry has been growing rapidly; c) the Southern of the Yunnan 
Province in the People‘s Republic of China, a poor province dominated by ethnic minorities and 
low migration of its rural population that has experienced a rapid expansion of high value crops 
since the mid-1990s; d) the Terengganu Province in Malaysia, a province that went from producing 
basically rice, oil palm, and rubber until the mid-1980s to becoming the country‘s main producer of 
oil  and gas, experiencing a substantial decrease in the weight of agriculture and rapid rural-urban 
migration since the early 1990s; and e) the Puno-Cusco Corridor in Peru, a region characterized by 
the dominant presence of native populations that has experienced progress in poverty reduction 
since the mid-1990s, based on the modernization of agricultural and non-agricultural activities. 
 
The objectives of the study were the following: (i) to analyze the transformation of the five 
territories, focusing mainly on identifying the dominant strategies that rural households 
implemented to exit out of poverty; (ii) to understand the relative importance of different ‗assets‘ 
(human, physical, financial, natural, and social capital) in the successful adoption of ‗exit roads‘ 
from poverty; (iii) to analyze the role of agriculture and other economic activities in rural poor 
households to exit from poverty;  and (iv) to analyze the role of government, identifying the 
connections between the ‗exit roads‘ of poor people and policies, projects, and other government 
interventions and evaluating their contributions to different ‗assets‘.    
 
The main conclusions from the case studies are the following: 
 
a)  All five territories experienced great reductions in rural poverty, but taking different paths that 
imply different roles of agriculture and other economic activities. The dominant strategies of rural 
households to exit out of poverty since the early 1990s varied with the territory.  In Petrolina-
Juazeiro, the dominant strategies of rural households to exit out of poverty were small farmers‘ 
intensification and diversification of production focused on high value crops for export and the 
domestic market (table grapes, mango, banana, coconut, and others) and working as wage workers 
in irrigated agriculture—about 60% of workers in irrigated agriculture were permanent and 40% 
were small family farmers in dryland areas working seasonally as wage workers.  The 
diversification of agricultural production into high value crops (mainly tobacco and tea) was also 
the dominant strategy to exit out of poverty adopted by rural households in Yunnan (China).  In 
contrast, most rural households in Sichuan (China) and Terengganu (Malaysia) since the early 
1990s exit out of poverty by the migration of the young household members to cities, where they 
worked in industry and sent back remittances to the family members who stayed in the villages. In 
the Puno-Cusco Corridor, the dominant strategies were seasonal migration to work as wage workers 
in mining and agriculture, agricultural intensification, and diversification into non-agricultural 
 
ii 
 
activities, with the most frequent situation being for poor households to migrate seasonally to 
complement their incomes and save to invest in improving agriculture and starting non-agricultural 
activities, later focusing on them once they started to provide higher revenues.   
 
b)  Agriculture played a key role in poverty reduction in all the cases studied, though  this role 
changed over the years. Although migration was the main strategy of rural households in Sichuan 
(China) and Terengganu (Malaysia) during the 1990s and 2000s, as explained above, agriculture 
was key in poverty reduction in both cases during the late 1970s and the 1980s, a time period during 
when both territories experienced substantial poverty reduction. In the case of Sichuan, rural 
households took advantage of policy reforms that the Chinese government implemented in the late 
1970s, turning collectives into family farming and liberalizing agricultural prices and marketing.  In 
the case of Malaysia, rural households participated in land development settlements implemented 
by government agencies in public lands during the 1970s and 1980s, which provided not only land 
to landless households, but also technical assistance, training, and credit around plantations of oil 
palm and rubber.  
 
c)  The role of agriculture in the reduction of rural poverty depended on several factors, including: 
(i) the availability and potential of the natural resources; (ii) the access of the poor to land, which in 
turn depends on land tenure structure, population growth, and population density; (iii) the context of 
industrial growth, which determines the existence of opportunities for the rural poor to find 
availability jobs out of agriculture;  this relates—but it not explained solely—to the stage of 
economic transformation of the country/region; and (iv) the existence of barriers to rural-urban 
migration, such as government regulations or incentives aimed at restricting migration, high costs of 
migration, or language barriers faced by potential migrants.   
 
d) The stage of each country‘s economic transformation was one of the key factors in the role of 
agriculture in poverty reduction, as it determined the existence of opportunities for rural poor 
households to exit out of poverty by working in other economic sectors.  Between the late 1970s 
and during the 1980s, agriculture represented a large share of the China‘s and Malaysia‘s GDP and 
industrialization was still in its early stages.  Thus, the industry did not offer substantial 
employment opportunities, so migration was low and the main strategy that rural households 
adopted to exit out of poverty consisted of agricultural intensification and on diversification of 
agricultural production.  In the 1990s, as industrialization grew  rapidly and the share of industry in 
GDP became increasingly higher, the industry became an important source of employment, 
attracting migrants from rural areas who were unable to find an exit road out of poverty based on 
agriculture.  In contrast to China and Malaysia, Brazil and Peru did experience industrialization and 
rural-urban migration.  However, the pace of industrialization was not high enough to generate 
employment for the cities‘ population and the  migrants from rural areas.  Thus, migration was not 
the main strategy for poverty exit.  To sum up, agriculture played the main role in poverty reduction 
when rural households faced few possibilities of employment out of agriculture, either because the 
industrial sector is not growing fast enough to absorb surplus labor (e.g. in Brazil and Peru), or 
because the economy was at an early stage of the economic transformation, with the industrial 
sector not being large enough to absorb the surplus labor available (e.g. China in the 1970s, 
Malaysia until the late 1980s, as well as other Asian countries today like Cambodia, Laos, and 
Vietnam).   
 
e)  Population density and population growth were important variables influencing the potential role 
of agriculture in the reduction of rural poverty, as they influenced the access to land of the new 
generations in rural households. This was one of the main factors explaining the dominant strategy 
to exit out of poverty that rural households implemented in Sichuan, as the rural population had 
grown so fast during the 1990s that the area of farmland per household became very low, as the new 
 
iii 
 
generations received part of the land when they got married. With such small farm areas, it was 
clear for most rural households in Sichuan that it would be impossible for both the older and the 
younger generation to live on the land. In Terengganu, the area of land available to rural households 
was also too small for the new generations to live on the same land, so they had to look for 
opportunities elsewhere. In contrast, in Petrolina-Juazeiro and Yunnan and in some communities of 
the Puno-Cusco Corridor, low population density and population growth made it possible for 
households to live from agriculture in the average landholdings area available.   
 
f)  The characteristics of the natural resources available also influenced greatly the role of 
agriculture in the reduction of rural poverty.  The increasing demand and prices for fresh fruits, 
vegetables, and other crops and animal products have created new opportunities for small farmers in 
regions with natural resources of the characteristics required for producing them (climate, altitude, 
etc.).  With the exception of Sichuan, the natural resources and climate of all the other territories 
studied here were exceptional to produce high value crops for export and the domestic market, 
creating possible exit roads out of poverty based on agriculture. 
 
g) The experience of the Puno-Cusco Corridor shows that projects based on community-driven 
development may have great positive results in reducing rural poverty.  When they are based on a 
real participation of communities in decision-making, giving them power to manage funds, select 
service providers, and implement small income generation and infrastructure projects, community-
driven projects can have substantial impacts on human and social capital.  
 1 
 
 
 
1 Introduction 
 
The decreasing weight of agriculture in GDP and employment in the process of economic 
transformation and the experience of countries of East and Southeast Asia, in which 
industrialization and urbanization have been accompanied by extraordinary achievements 
in poverty reduction, has frequently led analysts and policymakers to question or neglect 
the role of agriculture in poverty reduction.
1
 Rural development projects and programs have 
also been long criticized for their disappointing results in terms of poverty alleviation. 
Rural elites frequently took the most advantage of projects, credit, and technical 
assistance.
2
 Little attention was paid to building local institutions that could coordinate 
rural development efforts.
3
 Rural development programs were also often plagued by 
implementation problems because they are too complex and difficult to coordinate.
4
 In 
addition, the sole focus on agriculture of traditional approaches of rural development has 
been criticized for ignoring the relevance of non-agricultural rural activities in the 
livelihood of rural households, the relations between rural and urban areas (especially mid-
size towns and cities), and the increasing role of local governments and local institutions in 
rural development—which partly relates to the relevance of decentralization policies in 
many developing countries.
5
    
 
In contrast to these critical views, other analysts have stressed that agriculture plays a key 
role in reducing poverty due to the large proportion of the poor living in rural areas and the 
strong linkages of agriculture with the rest of the economy. In addition, agriculture (and 
non-agricultural rural activities as well) has an important role to play in countries that have 
not yet developed an industrial sector in urban areas that generates employment for 
potential large numbers of rural migrants.
6
 Thus, policies that promote broad-based 
productivity growth among small farmers and lower prices of staple foods to consumers are 
expected to generate pro-poor growth. 
 
These opposing views suggest a need for a better understanding of the role of agriculture in 
poverty reduction, especially in terms of its contribution and role in different country and 
regional contexts.  This is important because poverty continues to be high in developing 
countries, and poverty is disproportionately concentrated in rural areas, with the gap 
                                                     
1
  Coincidently with an increase in the importance of industry and services, the relative weigth of agriculture 
in the Gross Domestic Product, employment, and exports have fallen dramatically in most Asian countries.  In 
East and Southeast Asia, the share of agriculture in GDP fell from 35 to 14 percent in the three decades to 
2000, and in South Asia it went down from 45 to 24 percent.  Among others, see Byerlee and others (2005).   
2
 For a detailed account of these problems in World Bank-funded agricultural projects in the Brazil's 
Northeast, see Tendler (1993a and b).  
3
 See Donaldson (1991). 
4
  For example, see Grindle, Merilee (1981 and 1986). 
5
 For studies about non-agricultural activities and their relevance in generating incomes among rural 
hhouseholds, see Haggblade and others (2002), Reardon and others (1998), etc.  
6
 Even in the Asian region, where the attention often tends to focus on the economic transformation of 
countries like Malaysia, People‘s Republic of China, and Viet Nam, others like Azerbaijan, Cambodia, 
Kazakhstan, Kyrgyztan, Lao, Myanmar, Sri Lanka, and Uzbekistan, have not yet developed an industrial 
sector and largely based on agriculture. 
 2 
 
between rural and urban poverty widening over time. Thus, an approach to rural 
development has been emerging that focuses on the territory as the central unit of analysis, 
incorporating the wide range of actors, economic activities (both agricultural and non-
agricultural), and institutions.
7
   
 
This paper reviews the contribution of agriculture and rural development to poverty 
reduction by examining the experience of five territories in four countries of Asia 
(Malaysia and People‘s Republic of China) and Latin America (Brazil and Peru).  While 
the four countries fall into three distinct groupings based on national statistics on the 
importance of agriculture and the growth of Gross Domestic Product, the five territories 
included in the study were among the poorest in their respective countries.  At the same 
time, all five have experienced great reductions in poverty during the last two decades--a 
transformation that they achieved by taking substantially different paths that implied 
different roles of agriculture. 
 
The objectives of the study were the following: (i) to analyze the transformation of the five 
territories, focusing mainly on identifying the dominant strategies that rural households 
implemented to exit out of poverty; (ii) to discuss the role of agriculture in the different 
cases; and (iii) to analyze the type of government interventions that played the main role in 
poverty reduction. 
 
The report is organized as follows. After this introduction, section 2 describes the 
conceptual framework and methodology; section 3 focuses on the main exit roads out of 
poverty adopted by rural households in each of the territories, analyzing the characteristics 
of the territories, the institutional and policy context, and the main strategies adopted by the 
rural poor to exit out of poverty and the role of government and other factors; section 4 
analyzes conclusions that emerge from the comparison of the cases, which relate to the role 
of agriculture and the type of government policies and other interventions that led to good  
results in terms of poverty reduction.  
 
2 Conceptual framework and methodology 
 
The conceptual framework used to analyze the key factors that led to poverty reduction in 
each of the territories draws heavily from the Sustainable Livelihoods (SL) approach, 
which applies a multidimensional view of poverty that encompasses not only material 
deprivation derived from income, but also low levels of education and health and the 
vulnerability and exposure to risk.   The SL framework originates in the literature on food 
security and famines, which studied vulnerability based on an integrated view of how 
people make a living.
8
  It later evolved to identify and analyze different strategies of the 
poor to deal with poverty and vulnerability, the existence of different ‗exit roads‘ out of 
poverty, and the influence of policies, projects, and institutions.
9
   
 
                                                     
7
 Among others, see Shejtman and Berdegue (2004), De Janvry and Sadoulet (2004). 
8
 See Sen (1981) and Swift (1989). 
9
 Among others, see Carney (1998), Bebbington (1999), Ellis (2000a and 2000b, 2003), and Scoones (1998). 
For applications to specific case studies, see Bagchi et al (1998) and Murray (2001).  
 3 
 
In brief, the basic ideas of the SL approach are the following: (i) poverty is viewed not only 
as material deprivation derived from low income, but also as a scarcity of assets or 
resources (physical, financial, natural, human, and social capital) that determines the 
capacity of households to generate income; (ii) the historical, political, economic, social, 
and policy context in which poor households live is key in their capacity to find exit roads 
out of poverty; (iii) poor households implement strategies to rise from poverty based on the 
resources that they have and the context that they face.  Possible strategies include 
agricultural intensification and diversification, wage employment in agricultural or non-
agricultural activities, non-agricultural rural enterprises, and migration. (iv) the outcomes in 
terms of poverty reduction results from the evolution of the context, its influence on 
resources available to poor households, and the strategies implemented by poor households. 
In addition, a key feature of the approach is that it transcends the boundaries between 
conventionally discrete sectors (urban/rural, industrial/agricultural, formal/informal, etc.).     
 
The methodology consisted of case studies of five territories in four countries that have 
experienced substantial reductions in poverty: a) Petrolina-Juazeiro in Brazil, a 55,000 km2 
territory that is part of the Northeast region (the poorest of the country) that has turned into 
the main exporter of high value fruits in Brazil in the 1990s; b) the Sichuan Province in the 
People‘s Republic of China, one of the poorest but at the same time fastest growing 
provinces of the country, characterized by great migration of the rural population; c) the 
Southern of the Yunnan Province in the People‘s Republic of China, a province dominated 
by ethnic minorities and low migration of its rural population characterized by the rapid 
development of high value crops since the mid-1990s; d) the Terengganu Province in 
Malaysia, one of the poorest of the country that went from producing basically rice, oil 
palm, and rubber to becoming the  main producer of oil  and gas, experiencing a substantial  
decrease in the weight of agriculture and rapid rural-urban migration; and e) the Puno-
Cusco Corridor in Peru, a region characterized by the dominant presence of native 
populations that has experienced progress in poverty reduction based on the modernization 
of agricultural and non-agricultural activities 
 
The objectives of each case study were: a) to understand the main strategies that poor 
households implemented to exit out of poverty; b) to understand the relative importance of 
different ‗assets‘ (human, physical, financial, natural, and social capital) in the successful 
adoption of ‗exit roads‘ from poverty; c) to analyze the role of agriculture and other 
economic activities in rural poor households to exit from poverty;  and d) to analyze the 
role of government, identifying the connections between the ‗exit roads‘ of poor people and 
policies, projects, and other government interventions and evaluating their contributions to 
different ‗assets‘.   In addition, the different cases are compared in order to identify 
common characteristics that run across them, as well as specific conditions and 
characteristics that help explain their positive outcomes.  
 
The collection of information included both fieldwork and desk review of background 
information and historical record of government policies in each territory.  In Petrolina-
Juazeiro, a great deal of the information was collected during 16 months in 1997 and 1998, 
with an additional visit of one week in September 2006 to update information and evaluate 
changes that had taken place in the last few years.  The cases of Sichuan (China), southern 
Yunnan (China) and Terengganu (Malaysia) were visited for three weeks each between 
 4 
 
December 2004 and September 2005,  and the Puno-Cusco Corridor was visited for three 
weeks in March 2006. 
10
  
 
Fieldwork was based on qualitative methods, including mainly interviews to rural 
households, leaders of rural villages and grassroots organizations, representatives of firms‘ 
and workers‘ association, owners, managers and employees of agricultural firms and non-
agricultural enterprises, policy makers and technical staff at government agencies both at 
national and local levels, and politicians at central and local levels.  The main objective of 
the interviews with rural households was to identify the main strategies that they adopted to 
exit out of poverty and what interventions (especially government policies and programs) 
helped them find and implement an ‗exit road‘ from poverty, especially through their 
contribution to their different types of ‗assets‘. The objectives of interviews with policy-
makers and government officials were to obtain relevant data about the economic 
transformation of the territories and the evolution of poverty, as well as to identify and 
understand the main policies and projects that influenced poverty reduction.  
 
All the interviews were open-ended and lasted between half and hour and two hours, 
depending on the person interviewee, and they were based on an outline of questions that 
depended on the specific informant.  Many of the interviews with farmers also included 
field visits to the crops and farm facilities.  In all cases, visits to firms to interview wage 
workers were separate from those to interview owners or managers, agronomists, and small 
farmers, so that workers could be interviewed without the presence of supervisors and 
managers.  Desk review involved mainly reconstructing the historical record of government 
interventions in each of the territories, including a revision of published articles, books, and 
reports from government, universities, international agencies, and other sources.  Finally, 
interviews with policy-makers and technical staff of government agencies during the 
fieldwork also served to improve the understanding of specific government policies and 
other interventions. 
 
3 Analysis of exit roads out of poverty 
 
This section focuses on the analyzes of the cases, including: a) the most relevant assets of  
each territory (natural resource base, characteristics of the physical, financial, human, and 
social assets) and the access of the poor to them; b) the institutional and policy context and 
their influence in the selection and adoption by rural households of specific exit roads out 
of poverty; c) the strategies adopted by poor households to exit from poverty, considering 
the assets that they had available and the context that they faced; and d) the identification of 
the key factors leading to poverty reduction. 
 
                                                     
10
 Fieldwork in Malaysia and China was carried out as a part of a Special Evaluation Study implemented by 
the Operations Evaluation Department of the Asian Development Bank.  Results of this study are presented in 
ADB (2005) and can be found in http://www.adb.org/Documents/SES/REG/Rural-Poverty-Targeting/ses-
rpt.pdf. In the Puno-Cusco Corridor, fieldwork was part of an interim evaluation carried out by the 
International Fund for Agricultural Development (IFAD) to the Project for the Development of the Puno-
Cusco Corridor, funded by IFAD and the Government of Peru. In Petrolina-Juazeiro, it was part of 
dissertation fieldwork whose results are presented in Damiani (1999).   
 5 
 
Petrolina-Juazeiro (Brazil) 
 
Petrolina-Juazeiro is a 53,000 km2 and 510,000 inhabitants area in the states of Bahia and 
Pernambuco that is part of the São Francisco River Basin in Northeast Brazil, including the 
municipalities of Petrolina, Santa Maria da Boa Vista, and Lagoa Grande of the state of 
Pernambuco and Juazeiro, Casa Nova, and Curaçá of the state of Bahia.  In contrast to the 
Northeast of Brazil, a 1.5 million km2 region (18% of the country‘s area) with a semiarid 
climate and periodic droughts that is the poorest of the country, Petrolina-Juazeiro is a great 
contrast of dynamic irrigated agriculture, agro-processing industries and services (input 
supplying, banking, consulting, commerce, medical services, commerce), well-known in 
Brazil as the most important producer and exporter of high quality fruits in the country.   
 
In the late 1960s, Petrolina-Juazeiro was no different than most of the rural areas in Northeast 
Brazil.  Its economy was based on a backward agriculture, dominated by the production of 
cotton, livestock, and subsistence crops (mainly corn and beans). By the mid-1990s, it had 
experienced a great reduction of rural poverty based on the emergence of the irrigated 
production of high value crops, including mango and table grapes mainly for export and a 
range of crops mainly for the domestic market (mainly sugarcane, guava, banana, coconut, 
and others).  By 2005, the total exports of grapes and mango from Petrolina-Juazeiro 
reached close to USD 110 million, which represented around 40 per cent of the total 
exports of fruits from Brazil. Petrolina-Juazeiro accounted for 98 percent of Brazil‘s 
exports of grapes and 92 percent of mango. Irrigated agriculture contributed to a great 
proportion of GDP in the territory and became the most important source of rural 
employment since the 1980s.  Small tenants not only grew a wide range of high-value 
crops, but also they increasingly focused on high-value, perennial crops and decreased their 
areas with annual crops. In addition, the production of high value crops increased the 
demand for wage skilled labor, it promoted the upskilling of labor, and it was accompanied 
by increasing wages and improvements of working conditions. These developments 
attracted migrants from rural areas in Northeast Brazil and even from the southeast of 
Brazil—an opposite outcome to the usual out-migration from the rural areas of the semiarid 
Northeast region. 
 
Assets available. The natural resource base in Petrolina-Juazeiro is characterized by poor 
soils and a semiarid climate, with an average annual rainfall of 450 millimeters and 
periodic droughts that used to force the out the migration of large numbers of the 
population. Until the 1960s, the land was concentrated in landowners who produced mainly 
a low productivity livestock, while landless tenants living in landowners‘ land produced 
cotton and subsistence crops (mainly corn and beans) under sharecropping relations.  While 
sharecroppers cultivated cotton usually interplanted with corn and beans, landowners grew 
cattle in natural pastures and in the cotton leftovers from the harvest. Sharecroppers usually 
received land and inputs in exchange for a share (usually 50 per cent) of the production.
11
  In 
addition, they were often dependent on the landowners to cover essential needs, such as 
                                                     
11
 For more information about the traditional social and economic organizations typical of Petrolina-Juazeiro and 
the Northeast region in general, see Hirschman (1963), Robock (1957), Kutcher & Scandizzo (1981), and 
Barreira (1992).  For specific analysis about sharecropping relations, see Johnson (1971).    
 6 
 
medicines and medical treatment.  More than 70 percent of the adult population in rural 
areas was illiterate.    
 
As it will be explained later, this situation changed dramatically since the early 1990s, 
partly due to heavy investments in irrigation infrastructure carried out by federal 
government agencies.  Irrigation led to a great increase  in the productivity of land, with 
high  value crops for export and the domestic market replacing the traditional production of 
livestock, cotton, corn, and beans.  In addition, irrigated agriculture was accompanied by 
great economic and social changes, including the establishment in the territory of 
agricultural firms from other regions of Brazil that brought about entrepreneurs with views 
different from those of  the traditional local elites.  These new actors promoted the creation 
of growers associations that became relevant not only in solving production problems, but 
also in signaling government agencies what were the key problems of the territory.  
Furthermore, the high demand for wage labor of irrigated agriculture led to the 
strengthening of  rural  unions.   
 
Institutional, economic, and policy context. The economic and social transformation of 
Petrolina-Juazeiro was characterized by a strong role of the federal government, which 
created since the late 1940s several agencies to promote the development of the São 
Francisco River Basin.  The most important one was the São Francisco Valley Commission 
(Comissão do Vale do São Francisco, CVSF), created in 1948, later transformed into the 
São Francisco Valley Superintendence (Superintendencia do Vale do São Francisco, 
SUVALE) in 1967 and into the São Francisco Valley Development Agency (Companhia de 
Desenvolvimento do Vale do São Francisco, CODEVASF) in 1974. While they initially 
promoted small-scale irrigation and basic infrastructure in medium-size cities, these 
agencies focused from the late 1960s on large-scale irrigation projects in which they not 
only constructed water reservoirs, pumping systems, and delivery canals, but also 
expropriated lands appropriate for irrigated agriculture and created ―irrigation perimeters,‖  
each of which served to irrigate between 3,000 and 20,000 hectares of land.  In these 
irrigation perimeters, they divided the land into plots, built on-farm irrigation infrastructure 
(internal pumping, pipelines, sprinklers, and drainage systems), social infrastructure 
(schools and health posts), and housing.  Once they finished with these works, they leased 
the developed land to producers and carried out the operation (water distribution and 
collection of water fees) and maintenance of the projects.  
 
By 2006, CODEVASF had built six irrigation projects in Petrolina-Juazeiro with close to 
46,000 hectares of irrigated lands including more than 200 agricultural firms, about 2,200 
small farmers, and more than 100 professionals specialized in agriculture.  Growers out of 
the government-sponsored irrigation projects had developed an additional area of 77,000 
hectares of irrigated lands, making a total of 120,000 hectares with irrigation.
12
  A 
proportion of the total land was allocated to small farmers who were selected among 
landless families from the region.  Small farmers had about 6 hectares of land each in the 
public projects, and by 2006 they accounted for 45.2 percent of the total irrigated area.  
They received free training and extension services financed by CODEVASF, and they had 
                                                     
12
 Information provided by CODEVASF 
 7 
 
access to subsidized long and short term credit from public banks, mainly the Bank of the 
Northeast.   
 
Irrigated agriculture led to a great increase in the demand for wage labor, which in turn had 
a positive influence in rural workers unions in Petrolina-Juazeiro, which increased 
substantially their membership and fees collection, as well as your capacity to negotiate for 
better wages and working conditions with employers.  In addition, pressures from the 
unions led to a more active role of the federal Ministry of Labor in monitoring labor 
contracts in the region.   
 
Poverty exit strategies. The interviews to rural households in Petrolina-Juazeiro showed 
that the main strategies that they implemented to exit out of poverty were wage 
employment in irrigated  agriculture and small farmers‘ diversification of production into 
high-value crops. 
 
a)  Wage employment in irrigated agriculture.  As it was explained above, the irrigated 
production of high value crops in Petrolina-Juazeiro led to a great rise in the demand for 
labor, especially workers with specific skills that were in short supply in Northeast Brazil.  
In fact, in contrast to the previously dominant products—beef cattle and dryland production 
of crops like manioc, beans, and corn—irrigated crops are intensive in the use of labor 
because they involve a technology that requires workers to perform a large variety of tasks, 
such as handling irrigation equipment, plowing the lands with tractors, making treatments 
against pests and diseases, and harvesting production.  In addition, irrigation not only 
allows to increase yields, but also to grow crops in the dry season, when the land is idle 
under dryland agriculture, thus obtaining several harvests per year, and to substituting high-
value for low-value crops.  By 1996, irrigated agriculture in Petrolina-Juazeiro employed 
nearly 40,000 wage workers (30% of the rural labor force in the region), out of which 
29,000 (72%) worked in the two main non-traditional export crops, namely table grapes 
and mango.  By 2006, the number of wage workers employed in irrigated agriculture in the 
region had reached more than 100,000.  An unusually high proportion of 60% of the labor 
force directly involved in agricultural production was permanent and 40% of it comprised 
women.    
 
Most of the rural households that exit out of poverty by working as wage workers had been 
sharecroppers growing subsistence crops who had started working part time in irrigated 
agriculture and eventually ended up leaving their work as farmers, as they were able to 
obtain higher and more stable incomes. Thus, they left the lands and moved to cities like 
Petrolina, Juazeiro, and Santa Maria da Boa Vista. Those who had worked for a longer time 
had been able to receive training and thus  were able to get permanent jobs and higher 
wages.  In addition, I found that many of the households diversified their incomes because 
women had started to work as wage laborers (in fact, about 60 per cent of the workers in 
table grapes production were women). 
 
Rural workers in Petrolina-Juazeiro (both in crops for export and the domestic market) 
were able to obtain substantial benefits, some of them unusual among rural workers in 
Brazil.  First, they received wages substantially higher than the legal minimum wage in 
Brazil and than the average wage of most Northeast rural workers. The first contract 
 8 
 
between the rural workers‘ unions and the growers association (Valexport) was signed in 
1992, establishing a minimum wage 10% higher than the legal minimum wage in Brazil.  
Annual contracts signed during the 1990s included further improvements (the contract 
signed in 1998 established a minimum wage 21.7% higher than the legal minimum).  
Because the federal government in Brazil approved significant increases in the minimum 
wage between 2002 and 2006, the premium agreed over the legal minimum became less 
important, decreasing to 10% in 2006.  In addition, it is important that growers frequently 
paid their workers higher wages than the minimum agreed in the labor contracts plus 
additional benefits, in order to keep their skilled their workers and reduce the transaction 
costs involved in searching and training new workers. 
 
In addition, most workers received higher wages for overtime and night work (50% and 
80% respectively) and, in contrast to most Northeast rural workers, were registered and 
received fringe benefits (social security and medical insurance) that represented about 50% 
on top of the wage.
13
  Two thirds of the workers were trained in a variety of skills, 
including managing irrigation equipment, fruit packing, pruning trees, among other tasks, 
and they receive premiums for productivity.   Lastly,  rural wage workers in Petrolina-
Juazeiro had gained a number of important improvements in labor conditions, such as the 
right to have bathroom facilities and clean drinking water in the workplace and 
transportation within the farm and from the workplace to their homes.  
 
Improvements in wages and labor conditions led growers to introduce some labor-saving 
technologies, but this was limited by the difficulties of introducing mechanization in crops 
like table grapes and mango.  Such favorable conditions in employment, wages, and labor 
conditions attracted substantial numbers of farmers to work at least part time in irrigated 
agriculture, as well as landless workers from both the Petrolina-Juazeiro territory and all 
over the Northeast of Brazil who migrated to the region, turning it into one of the few 
territories in the Northeast with a net rate of in-migration rather than out-migration.
14
 
 
b)  Small farmers‘ introduction of irrigated high value crops.   About 2,200 landless 
households in Petrolina-Juazeiro were able to exit from poverty by producing in lands that 
they received in the government-sponsored irrigation projects.  As it was explained above, 
public irrigation projects included a mix of agricultural firms and small farmers who were 
selected among landless families in the Petrolina-Juazeiro region.  These small farmers 
initially produced mainly traditional crops (mainly beans) that they knew because they had 
grown them in dryland conditions.   However, they were slowly able to introduce high 
value crops that led to an increase in their income.  By 1996, small farmers already grew a 
large proportion of the areas with irrigated high-value crops in Petrolina and had increased 
their yields to levels frequently higher than those obtained by agricultural firms.  
 
Vulnerability. The strategies adopted by rural households to exit out of poverty also tended 
to help reduce their vulnerability to shocks. As explained earlier, most rural poor 
                                                     
13
 Rural workers‘ unions in Petrolina-Juazeiro have been been able to negotiate wage increases over the 
Brazil‘s legal minimum every year since 1994, year in which they obtained a 10 percent premium over the 
legal minimum. 
14
 While the population of Petrolina-Juazeiro more than doubled between 1970 and 1990, it increased by 50.1 
percent in the states of Pernambuco and Bahia as a whole. 
 9 
 
households used to depend on subsistence crops that suffered from extreme climate 
conditions. The average annual rainfall of 450 mm in Petrolina-Juazeiro is very 
concentrated in a few months that are those when farmer cultivate their crops.  However, 
variability over the years is high, which leads to some good years but some very bad ones  
with total losses for these farmers.  In contrast, irrigation allows producers to control the 
amount of water used, reducing dramatically their vulnerability to climate variations.   This 
was highly beneficial both for households that became small irrigators and those that left 
agriculture to become wage workers in irrigated agriculture.   
 
Irrigated agriculture did face risks related mainly with price variations in the international 
market.  As a result, many small irrigators did experience losses and left the government 
irrigation sponsored.  Interviews with CODEVASF and water user associations estimate 
that about 40% of the original households established in the government-sponsored 
irrigation projects had turned their lands to other producers.  Most of  them, however, did 
not fall back into poverty because they became wage workers in irrigated crops.  In fact, I 
interviewed several wage workers who had been producers earlier on, and most of them 
stressed that their income was higher and more stable as wage workers than when they 
depended on agriculture. 
 
Key factors in poverty reduction.  This section focuses on the key factors, in particular 
government interventions, that influenced the type of poverty exit strategies selected by 
rural households and their capacity to implement them successfully.  The most important in 
Petrolina-Juazeiro were: 
 
a) Government interventions that facilitated the access of poor households to land, new 
technologies, and marketing, including: 
 
(i) 
Provision of land in government-sponsored irrigation projects. CODEVASF—
the federal government agency in charge of building large-scale irrigation 
projects in Petrolina-Juazeiro—included landless households as beneficiaries 
that were selected based on a set of criteria.  Each of the selected households 
received an area of between 6 to 12 hectares of land appropriate for irrigated 
agriculture, as well as farm-level infrastructure (pipelines, sprinklers, and 
drainage system) and housing.  While the on-farm infrastructure was given for 
free, the land was expected to be paid.  However, CODEVASF started to 
enforce payments fifteen years after project construction—a period in which 
inflation was high—so small farmers ended up paying highly subsidized prices.  
In addition, the agency provided small farmers with subsidized water for 
irrigation and a whole set of free services, including training in crop and 
irrigation technologies and agricultural extension.    
 
(ii) 
Promotion among small farmers in irrigation projects of a sequence of different 
crops over time.  CODEVASF implemented in Petrolina-Juazeiro two different 
strategies over time:  (i) from the late 1960s to the early 1980s, it pushed small 
farmers to grow annual crops other than beans, it attracted tomato-processing 
firms from São Paulo to establish in Petrolina-Juazeiro, and it promoted contract 
farming in tomato in collaboration with the Bank of Northeast Brazil, which 
 
10 
 
provided short-term credit to small farmers; and (ii) starting in the mid 1980s, 
CODEVASF promoted the introduction by small farmers of perennial crops, 
mainly banana, mango, and grapes, through programs that provided technical 
assistance, training, and subsidized credit for investment through the Bank of 
Northeast Brazil.  This deliberate strategy implied supporting a sequence of 
crops over time, starting with crops with simpler technology and marketing and 
less investment and working capital (notably annual crops like melon, 
watermelon, and industrial tomato for the domestic market), and later shifting 
gradually to diversification through the introduction of crops with more 
complex technologies and marketing and higher requirements of capital 
(perennial crops like table grapes and mango for export).  Such a sequence 
allowed small farmers to learn about irrigation technology, to obtain revenues to 
maintain their families while growing at the same time crops whose first 
revenues required three years, and to capitalize their farms. 
 
(iii) Attracting processing industries and promoting contract farming with small 
farmers.  CODEVASF encouraged backward linkages from tomato-processing 
industries to agriculture, assuming a negotiating role to attract firms from São 
Paulo to open facilities in Petrolina-Juazeiro.  The agency successfully 
negotiated with two large tomato-processing firms (CICA and ETTI) in 1975-
1976 to establish in Petrolina-Juazeiro, promising them that it would encourage 
small farmers through its extension agents to grow industrial tomato.  In 
addition, it negotiated with the Bank of Northeast Brazil for this agency to 
create a new credit line for working capital to small farmers who grew industrial 
tomato and signed contracts with processing firms.  The tomato industries 
turned into important actors in the modernization of small farmers‘ agricultural 
production because they not only purchased their tomato, but also provided 
inputs and disseminated new production technologies among them.  In addition, 
the cultivation of industrial tomato was a key stage that played a crucial role in 
small farmers learning how to produce irrigation crops and that allowed them to 
start growing perennial crops. 
 
(iv) Agricultural research in the crops appropriate for small farmers.  Government 
agencies (CVSF in the 1950s, SUDENE in the 1960s, and CODEVASF in the 
1970s and 1980s) invested heavily in agricultural research, including large 
studies on the characteristics of the natural resources and the potential of soils 
for different crops  with irrigation.  The results of agricultural research carried 
out in Petrolina-Juazeiro were instrumental in attracting agricultural and agro-
processing firms to the region.  Another important research program was carried 
out as a result of an agreement between CODEVASF and the Agricultural 
Research Institute of Pernambuco (Instituto de Pesquisa Agricola de 
Pernambuco, IPA-PE), an agency of Pernambuco‘s state government that had 
carried out research on tomato and other crops since the 1930s.  This program 
led to the generation of varieties of industrial tomato in the early 1980s that 
became the best and most well-known in Brazil, and were key to attract the 
tomato-processing firms that established in Petrolina-Juazeiro in the late 1970s.   
 
 
11 
 
(v) 
Intermediating in the transfer of technology from firms to small farmers.  The 
Bank of Northeast Brazil played an instrumental role in providing not just 
credit, but intermediating in the transfer of technology between agricultural 
firms and small farmers.  Both small farmers and firms applying for investment 
credit had to present project proposals that detailed, among other things, the 
technology to be applied.  When assessing proposals, technicians of the Bank of 
Northeast Brazil not only required from small farmers‘ projects the same 
technological standards than from firms, but also made them apply the same 
new technologies proposed by the firms‘ proposals--many of which were 
unknown even by government research stations and extension agencies. 
 
b) The strengthening of rural workers unions.  With the emergence of irrigation, the 
local rural unions in Petrolina-Juazeiro, which were previously dominated by small 
farmers without irrigation, experienced important changes in their membership.  
Most small farmers in irrigation projects signing up as members of the local unions 
and becoming the majority of the membership. Several of these new members 
became leaders of the unions and brought with them a number of new issues.  For 
example, negotiations of the unions with CODEVASF for lower water fees or for 
extensions in the payment of these fees in years of poor harvests became common 
until the late 1980s. During the second half of the 1980s, further changes occurred 
in the composition of the local rural unions in Petrolina-Juazeiro as a result of the 
establishment of commercial firms engaged in irrigated agriculture, which hired 
large numbers of wage workers.  As a result, membership of the rural unions in 
Petrolina-Juazeiro started to change as wage workers became members, with unions 
increasing dramatically their number of members and fees collected.   
 
c) Government agencies (state and municipal offices of the federal Ministry of Labor) 
that facilitated the relationship between growers and workers, participating as 
mediators in contract negotiations and monitoring growers‘ compliance with labor 
contracts. 
 
Sichuan Province (People’s Republic of China) 
 
Located in the southwest of China, Sichuan is still one of the poorest provinces in China.  
Its economy has grown at similar rates to China as a whole since the early 1990s (over 10 
per cent each year), with an important growth of the industrial sector and a decrease in the 
share of agriculture in GDP.  Although agriculture still employed over 60 per cent of 
Sichuan‘s labor force in the mid-1990s, it only accounted for a little more than a quarter of 
its GDP, with industry accounting for 42 per cent and services 32 per cent.  Sichuan is also 
characterized by high population growth and fast migration of rural population to urban 
areas, especially to coastal provinces of China that have experienced the fastest industrial 
growth in the country.  In spite of these changes, Sichuan‘s per capita was ranked 26
th
 
among 31 provinces in China, with a GDP of CNY 5,118 (USD 2,689) in 2001.  
 
 
12 
 
Rural poverty has fallen substantially in rural Sichuan since the late 1980s.  According to 
official statistics, rural poverty went from 35 percent in 1985 to 7 percent in 1996.
15
  The 
number of households living in poverty in the villages visited ranged between less than 3% 
in the better-off areas and between 10 and 20% in the poorer villages. Most households 
interviewed (including both poor and non-poor) said that their life was better than 5 or 10 
years earlier, stressing that they were now able to consume a wider variety of food and that 
they had been able to improve their houses and to purchase furniture, equipment, and 
motorcycles.  Most households interviewed also had savings accounts. 
 
Assets available. Sichuan is a large and diverse province.  More than 90 per cent of the 
province is hilly or mountainous.  Its population is concentrated in the central and eastern 
parts of the province, where soils and climate are more suited to agricultural production.  
Thus, while it has 10 per cent of China‘s population, Sichuan contains only 6.5 per cent of 
China‘s arable land.  This results in extremely small average landholdings (an average farm 
size of 0.23 hectares in 1996, which continued to decrease over time).  At the same time, 
land is distributed quite equally.  
 
Household characteristics were important determinants of rural poverty in Sichuan.  While 
the majority of households interviewed had an average of 4 members (a couple and two 
kids).  In the absence of migration and reliance only in agriculture, having a large number 
of children made it more difficult for the household to cover the needs of food and pay for 
education and health expenses.  In addition, land was distributed to households in the late 
1970s, and no more land is available for the newly formed families.  Thus, if grown-up kids 
remained in the village working in agriculture, they would demand land from the parents.  
This would lead to lower areas of land per household for both generations.  On the other 
hand, there were cases of poor households comprised of old couples and just one child.  In 
these cases, the only child had migrated and was not helping the old parents, or had stayed 
in the village but needed to sustain his/her own family, thus helping less than necessary 
with labor or cash.   
 
Illiteracy rates in Sichuan have been above the average for China.  By 1990, 23.6 percent of 
Sichuan‘s population were illiterate, while the average for China was 22.3 percent.  By 
1997, illiteracy had fallen to 18 percent in Sichuan and 16.4 percent in China.  Great 
disparities in schooling were observed related with geography (flat vs. mountainous areas). 
In flat areas with quite good roads and communications with townships and county cities, 
most households valued education very highly, so they invested in their children‘s 
education, using savings and loans from relatives and financial institutions (Rural Credit 
Cooperatives).  Most adults (both men and women) had completed primary school,  with 
secondary school graduates commonly observed, and even many households having 
                                                     
15
 Official estimates of poverty in China are based on the government's austere poverty line equivalent to USD 
0.66 per day.  The World Bank has developed an international poverty standard of USD 1 per day (in 1985 
purchasing power parity dollars) for cross-country comparisons. Estimates based on the international poverty 
standard of USD 1 per day indicate substantially greater numbers of absolute poor in China, but confirm the 
continuing remarkable decline in poverty.  
 
 
13 
 
children attending university in Chengdu.  In contrast, villages in more mountainous areas  
showed less school attendance. 
 
One of the most important features of rural households in Sichuan has been the migration 
of their younger members to coastal provinces since the early 1990s (a process that will be 
explained in more detail in the next section).  Thus, the visits to Sichuan showed that most 
rural households comprise old members and very young members who were respectively 
the parents and children of those who had migrated.  This leads to a scarcity of labor for 
carrying out labor-intensive agricultural activities. 
 
At the same time that it created problems to carry out agricultural activities, the large 
numbers of people who migrated created a dense network of connections between rural 
households and cities where household members have migrated.   In fact, the interviews 
carried out to rural households in Sichuan showed that most had direct family members or 
people who they knew well and were in close contact who were living in cities like 
Guangdong and Shanghai.  Thus, they had access to good information about the job market 
in the cities, such as the current demand for workers, wage levels, and even openings in 
specific companies, and about the costs of living and the availability of housing.  Almost all 
of the households interviewed stressed that they would know where to stay if they needed 
to travel to cities in coastal provinces.  Also, most said that those household members who 
had migrated had spent only a few days to get a job in the cities, and that they frequently 
left the village with a specific job more or less arranged in advance. 
 
Institutional, economic, and policy context.  China has been characterized by an 
outstanding record of economic growth since the late 1970s.  Official statistics show that 
real GDP grew an average 9.4 percent a year in the period 1979-2002, exceeding 10 percent 
in the first halves of the 1980s and 1990s. Between 1996 and 2002, China‘s GDP has 
grown from being about two-thirds the size of the rest of East Asia combined (excluding 
Japan) to 1.2 times.
16
   Between 1978 and 1984, economic growth relates to important 
reforms in agricultural policies.  In 1978, the government introduced the ―Household 
Responsibility System‖, which turned collective production that had started in the 1950s 
into family farming, allowing the division of the land among work units or families and the 
sub-contracting of production quotas to these smaller units.  In the initial period under this 
system, families sold a set amount of produced goods to government at stipulated prices, 
and anything produced above these quotas could be sold at higher prices to other buyers
17
.  
Later on, in the period between 1978 and 1984, the government progressively liberalized 
agricultural prices and marketing.  All these policies created powerful incentives for 
families to work and invest in agriculture, as they could benefit directly from higher 
productivity and production, leading to crop diversification, higher use of labor and inputs, 
and higher land productivity, unleashing rapid agricultural growth and rises in rural 
incomes allover China.  Total agricultural net value in the country increased by 55 per cent 
from 1978 to 1985 and agricultural productivity increased by 40%. The increase in 
agricultural production resulted in a large-scale reduction of rural poverty by the early 
                                                     
16
 See World Bank (2003). 
17
 Hudson (1997). 
 
14 
 
1980s.  Between 1978 and 1985, per capita per capita incomes of rural residents increased 
132% and 125 million poor rural people were lifted out of poverty.
18
  
 
Since the late 1980s, economic growth was linked mainly to the growth of industry, the 
shift from agriculture to manufacturing and services and rapid rural-urban migration.  
While the share of industry in GDP grew from 48 in 1993 to 52 per cent in 2003, the share 
of agriculture fell from 20 to 15 per cent in the period.  In the same period, the share of 
agriculture in total employment went from 49 to 43 per cent.    This context of rapid 
industrialization created employment opportunities great employment opportunities both 
for urban and rural population.   
 
An additional important policy measure that affected rural households involved the 
relaxation of restrictions to labor mobility that took place since the late 1980s.  The Chinese 
government had imposed a household registration system in 1952 with the objective of 
preventing laborers from migrating from rural areas.  Each resident became registered and 
the access to social services became dependent of their place of residence.  An urban 
welfare system was created that subsidized housing, medical care, education, childcare, and 
pension to urban residents, excluding rural residents from them.  Although the registration 
system has remained, it has been significantly relaxed since the late 1980s, promoting labor 
mobility among regions and sectors.
19
 
 
In addition, the evolution of Sichuan was highly affected by a poverty reduction strategy 
launched by the central government in 1994 under the 8-7 Plan (National Plan for Poverty 
Reduction).  This Plan had the objective of eliminating extreme poverty within seven years, 
designating 592 poor counties located in mountainous and semi-arid areas in the central and 
western parts of China.  The Plan emphasized the responsibility of local leaders for the 
effectiveness of poverty reduction work in their jurisdictions, having the following specific 
objectives: a) to assist poor households with land improvement, increased cash crop, tree 
crop and livestock production, and improved access to off-farm employment opportunities; 
b) improving rural infrastructure by providing townships with road access and electricity 
and improving access of rural villages to drinking water, and c) investing in basic social 
services, including mainly primary education and curative health. In addition, the plan 
introduced policy incentives for enterprise investors in poor counties (mainly tax 
exemptions), and it reduced or exempted agricultural taxes, and exempted poor households 
from paying the ‗special tax‖—a tax that used to be paid by all households.
20
  It also 
assigned responsibility to developed cities and provinces.  As it will be explained later, this 
led to the establishment of collaborative ties between developed city/provincial 
governments with poor counties, some of which focused on facilitating migration of rural 
population to industrialized cities and provinces, mainly through training and job searching 
services. 
 
Finally, local governments became active since the late 1990s in their investments in urban 
infrastructure in mid-size cities and towns and in aggressively attracting new investments, 
                                                     
18
 See Asian Development Bank (2004) 
19
 Fang and others (2002) 
20
 See World Bank (2004) 
 
15 
 
especially in the industrial sector. However, I found that most of the people employed in 
industries and services in Sichuan came from the urban areas themselves, and most rural 
families interviewed had no relatives working in these cities and towns.    
 
Poverty exit strategies. The interviews to rural households in villages of Sichuan showed 
that the main poverty exit strategies that they had implemented were: a) agricultural 
intensification and diversification between the late 1970s and the late 1980s, as a result of 
incentives  created by the Household Responsibility System; and b) migration to urban areas to 
work in industry or services since the late 1980s. Surprisingly, trade and other non-
agricultural activities in rural areas was not an important poverty exit strategy, in spite of 
the high population density.  Some households did invest in small shops or restaurants, but 
most did so after they had exit from poverty, most often using savings from remittances 
sent by migrant relatives, or sometimes by migrants themselves who returned to the village 
for personal reasons, using savings to start new activities.   
 
The interviews carried out to rural households in Sichuan showed that migration became 
the main poverty exit strategy adopted by the rural poor in the last 10 to 15 years, with the 
young generation having migrated in most of the households. About 90% of the households 
in villages visited in Sichuan had members who had migrated to other provinces. Most 
migrants were young family members, and about 50% of them of them in the villages 
visited had left small children to be taken care by the older family members.  Most migrants 
went to coastal provinces, with some going to internal provinces (Xinjiang, Qinghai, and 
Guizhou), where they worked in industry, construction, and services.  Because migration 
started quite a long time ago, most households had contacts in other provinces and good 
information about job opportunities for other members in case that they wanted to migrate.   
 
Most migrants sent back remittances twice or three times a year (an average of CNY 1,000 
or USD 125 per year), depending mainly on the time since they had migrated—usually the 
longer time the higher remittances.  In addition, migrants brought some additional cash 
when they visited the family in the holidays, and helped with additional cash if the 
household faced emergencies (e.g. sickness of a family member).   The family members 
who stayed in the villages used remittances mainly for consumption, improvement of the 
housing conditions, and dealing with health problems.  Even when they were unable to 
send remittances, migration of the younger family members helped improve the household 
situation because it relieved their burden, reducing the expenditures in food, clothes, health, 
and others.  In addition, even in cases in which migrants sent little or no money because 
they could barely cover their own expenses in the cities where they worked, most sent 
remittances to help in exceptional family circumstances, such as the sickness of a family 
member.  Finally, about 5% only of the households interviewed had migrant members who 
had returned, most of them as a result of personal reasons like taking care of old and sick 
parents or (less frequently) of children who had grown up and could not be taken care 
anymore by the old parents.  Some of them used savings to start new businesses or new 
commercial agricultural activities like fish, pig, or fruit production.   In the villages visited, 
the households that did not have remittances as the main source of income were very few.  
These households usually had shops in the village or township, worked as wage workers in 
nearby townships, or they had exit from poverty through agricultural intensification or 
 
16 
 
diversification as main strategy because they had more land, usually left to them by 
relatives who had migrated. 
 
To sum up, migration had several positive effects: (a) it served to improve the situation of 
the migrants themselves, who were usually surplus labor in their families before migrating; 
(b) it relieved the burden of the family members who stayed; (c) it helped reduce the 
population pressure in the villages; (d) remittances sent by migrants became the main 
source of cash income for the household members who remained in the village and the 
most crucial to pay for expenses in education fees, construction of new houses, marriages 
and funerals, medical services, and medicines; while the household members who stayed 
usually continued to work in agriculture, most did agriculture for family subsistence, with 
little or nothing sold in the market; (d) remittances increased the cash available in villages, 
enabling informal lending among villagers, as poor people were able to borrow more easily; 
(e) some migrants in Sichuan returned to their hometown and invested savings from wage 
incomes in agriculture or rural industries/services. 
 
Migration was not free of problems. Migrant workers in China often do not have basic 
protections. Low wages and late payment, forced overtime, poor working conditions and 
occupational injuries are common.
21
  Since migrant workers were not a part of China‘s 
urban labor force before the economic reforms, they also suffer from other disadvantages, 
such as the lack of urban residential status and welfare entitlement.  In addition, they 
frequently have limited education and skills, and they lack organizational experience, all of 
which have made them vulnerable to exploitation and mistreatment.
22
 Recent surveys in 
China have shown that migrant workers in cities frequently were not fully paid for their 
work.  A survey released in mid-August by the National Economic Research Institute under 
the China Reform Foundation showed that a quarter of 3,288 migrant workers questioned 
said they had not been fully paid. Also, an investigation by the National Bureau of Statistics 
last year discovered some companies that hired large numbers of migrants charge their staff 
20 to 30 per cent of their wages as a "deposit", but money was rarely paid back.
23
   
 
Vulnerability.  The interviews carried out to rural households in Sichuan, both poor and  
non-poor, showed that illness of the older family members was by far the most important 
source of vulnerability.  In fact,  I visited several households that had fallen back to poverty 
because they had to spend a lot of money in medicines and sometimes in services not 
covered  by the public health services.  Most of the poor households interviewed were those 
whose members were unable to work, such as disabled, old people (70s-80s) living alone, 
or chronically sick, and who in addition were not receiving enough help (or no help at all) 
from their children.  In all these cases, households had limited or no productive labor, had 
substantial expenditures in medicines, and their productive family members (if any) could 
not migrate because they needed to stay to take care of the old, sick, or disabled.  
Meanwhile, some families were poor because they were making a great effort to pay for 
                                                     
21
 See Chan (1998a and 1998b). 
22
 Before the reform, the government banned rural–urban migration, imposing a residential registration system 
(named hukou system) that prevented the access to entitlements like education and health services to people 
out of their places of residential registration.  
23
 China Daily, front page, August 17, 2005.  A complete version of the article can be found in 
http://www.chinadaily.com.cn/english/doc/2005-08/17/content_469781.htm 
 
17 
 
education fees of their children (usually senior high school or college), spending a high 
proportion of their cash income and getting indebted to do that.  In a great majority of the 
cases, this latter problem seemed to be short or medium-term, as the parents were usually  
in working age and still worked in agriculture, and it was a custom that the children would 
help in repaying back loans after they graduated and started working.  However, several 
families visited that were in such a situation still had their children in high-school or 
college, so it was impossible to know precisely the final outcome. 
 
In most cases, migration was accompanied by a reduction in the vulnerability of rural 
households.  Remittances sent back by migrants to the family members who stayed in the 
village.  While part of these money was used to cover expenses in clothes and other items 
and some to improve the housing conditions, part was saved to deal with emergencies. 
Most of the households interviewed in Sichuan had savings accounts in the Rural Credit 
Cooperatives, and most savings came from remittances.  In addition, it was found that 
migrants usually sent higher amounts when they were needed for facing health-related 
expenditures. Others ways of dealing with health related expenditures was asking loans 
from relatives and  neighbors (usually with  no  interests involved), and formal institutions 
(mainly Rural Credit Cooperatives).  However, long-term sickness became a difficult 
burden that eventually ended up draining family savings and compromised the access to 
both formal and informal credit, as the family could not pay back additional loans.  
 
Key factors in poverty exit.  This section identifies the key factors, in particular government 
interventions, that influenced the type of poverty exit strategies selected by rural 
households and their capacity to implement them successfully.  The most important in 
Sichuan were the following: 
 
a) Policy reforms that turned collective production into family farming and liberalized 
agricultural prices and marketing, played a key role in the selection of agricultural 
diversification and intensification as the main poverty exit strategy between the late 
1970s and the late 1980s.  As it was explained, the agricultural policy reforms 
implemented in the late 1970s and early 1990s created great incentives for rural 
households to use more inputs, work more intensively, and diversify into new crops 
and non-agricultural activities.  This is coincident with the findings of the literature 
that analyzes the development of China, which argues that poverty reduction 
between 1978 and the mid-1980s is linked mainly to agriculture and non-
agricultural activities. 
 
b) The context of rapid industrial growth in the coastal provinces that took place in the 
1990s, coupled with the lifting of restrictions to labor mobility in the late 1980s, 
created employment opportunities to potential migrants from rural areas.  This 
became key for migration to urban areas becoming the most important poverty exit 
strategy of rural households (with the migration of their younger members) in 
Sichuan during the 1990s and 2000s. 
 
c) Elimination or reduction of agricultural taxes paid by rural households to local 
governments.  These taxes had been in place since the early days of the People‘s 
Republic of China and were imposed by local governments.  The central 
 
18 
 
government decided in 2004 to completely eliminate them within 5 years.  Since 
then, 27 out of 31 provinces had abolished them, while the other four provinces and 
regions lowered them significantly and were expected to eliminate them in 2006.   
The elimination of agricultural taxes was highly appreciated by all households 
visited because it increased the cash available to them. 
 
d) Elimination of taxes on special agricultural produce.  These taxes started to be 
imposed in November 1983 to a number of cash crops (tobacco, tea, rubber, 
bamboo, mushrooms, silkworm, nuts, melon, banana, apples and other fruits, among 
others) with the objective of restricting their expansion over areas with grain at a 
time in which the government was worried about producing enough grains to supply 
the domestic market.  These taxes were eliminated for all special agricultural 
products, with the exception of tobacco.   This policy provided new incentives to the 
cultivation of cash crops, increasing the net income available to farmers and 
commercial firms involved in their cultivation. 
 
In recent  years, the Chinese central government started several programs to deal with the 
remaining poor and with vulnerability, consisting mainly of measures to increase 
substantially the access to education and health.  However, these programs were very recent 
and their effects were still to be evaluated.  One of these efforts included started testing 
programs to improve the access of poor households to health services: (i) the Rural 
Cooperative Health Program, an insurance-type of program for all rural households (not 
only the poor) who joined and paid CNY 10 (USD 1.23) per person per year; the program 
reimbursed part of the costs incurred in medical expenses for serious sickness, expensive 
medical fees, and hospitalization fees;  members who did not get sick during one year could 
receive a free physical examination; and (ii) the ―Salvation Program‖, which provided 
subsidies to hardcore poor households to partially cover major medical bills; this program 
was in its pilot stage, covering only some counties in all provinces of China (among them 
Sichuan).   
 
Both programs faced difficulties, in particular insufficient financing.  In addition, some 
poor households interviewed argued that they could not even pay the CNY 10 per person 
per year required by the Rural Cooperative Health System.  The government tackled this 
problem by making possible the use of subsidies of the Salvation Program to pay the fees 
required by the Rural Cooperative Health Program.  Other problems included not benefiting 
those who were not seriously ill and figuring out if the sickness was serious or not.  In spite 
of these difficulties, the programs‘ direction seemed to be right because they addressed one 
of the main causes of rural poverty and vulnerability.  
 
Finally, other two government programs helped the poor with direct transfers:  a) the ―Five 
Guarantee‖ program, which provided (as stipulated in the Chinese Constitution) help in 
food, housing, clothing, and medical care to individuals or households without capacity to 
work, means of support, and family to help them;  and b) the ―Minimum Living Standards‖ 
program, which provided cash income to hardcore poor households in rural areas to cover 
the gap between their actual income and the poverty line.  According to the interviews 
carried out with local and provincial leaders, the latter program had fallen short of 
expectations, especially in middle and west provinces, where it covered a small number of 
 
19 
 
households due to insufficient budget from local governments.  Thus, it ended up covering 
counties mainly in coastal provinces.   
 
 
Yunnan Province (People’s Republic of China). 
 
Yunnan is one of the five southern boarder provinces of China, neighboring Vietnam, Laos, 
and Burma.  With a GDP per capita of CNY 4,840 (USD 2543) in 2001, Yunnan ranked 
28
th
 out of the 31 provinces of China, being one of the poorest and least industrialized, with 
an average GDP and rural income per capita that are two thirds of the national average.  
Yunnan is characterized by a great diversity of topography and climate, going from alpine 
mountains in the north to hills in the south.  The total population is over 41 million, with 24 
ethnic minorities reaching about 13 million (32 percent of the population) and dominating 
in rural areas.  While Yunnan accounts for about 3.4 per cent of China‘s population, its 
share in national GDP is only about 2.2 per cent.  The average annual GDP per capita 
growth rate for the whole Yunnan province during 1999–2003 was 6.2%.  The share of 
agriculture in GDP in 2003 was 21 percent, falling from 42 percent at the end of the 1970s.  
Agriculture experienced substantial changes in the 1990s as a result of the expansion of 
high value crops (mainly tobacco, tea, and sugarcane in the south and flowers in the north).   
 
According to official statistics, rural poverty in Yunnan feel from 41 percent in 1985 to 23 
percent in 1997.  However, poverty in the counties in the southern part of the province that 
were included in the case study (Yuanjiang, Mojiang, Simao, and Meng Lian) was higher 
than 30 percent.  Households‘ income levels within villages were quite homogeneous, but I 
found a great variation between villages, with the poorest being located in more remote and 
mountainous areas with poor roads.  In some of the villages visited, the average income of 
poor households was CNY 625 or USD 77 per year, while in others it was CNY 865 or 
USD 106 per year.  Using the definition of poverty used by the rural households‘ 
themselves (based not only on enough food to eat but insufficient cash income to cover 
other needs considered basic), the proportion of poor households varied greatly between 
almost no poor in the better-off villages to close to all in the poorest ones.  Most 
households interviewed (including both poor and non-poor) said that their life was better 
than 5 or 10 years earlier.  Food shortages seemed not to affect even the poor households, 
though their consumption of meat was low and some said that they occasionally 
experienced periods with difficulties to access enough food.  Poor households did lack cash 
income to satisfy other needs, such as clothes or bringing to the doctor a sick family 
member.  
 
Assets available. In contrast to Sichuan, the Yunnan Province has been characterized by a 
very low population density, which leads to a high availability of land per household.  In 
fact, the households visited in Yunnan had an average of 1.3 to 2 hectares of land, which 
represented close to ten times the land available per household in Sichuan.  In addition, 
Yunnan is characterized by deep and fertile soils that could be used for a wide variety of 
crops, and its latitude location and altitude between 1,200 and 1,500 meters are very 
appropriate for growing certain crops like tobacco, tea, and coffee. As it will be explained 
later, this created conditions for the establishment of commercial firms that promoted the 
cultivation of these crops under contract relations with small farmers. However, this 
 
20 
 
territory is also characterized by poor roads, a mountainous geography, and a sparse 
distribution of villages, which makes investments in roads more costly.  
 
As it was mentioned above, most households in rural Sichuan were ethnic minorities with 
high illiteracy rates. The interviews that I carried out with rural households showed that 
most of the adult population (specially women and the elder) could not speak at all or had 
very limited command of the Mandarin language dominant in other parts of China 
(especially in urban areas). Because rural-urban migration in Yunnan had been very 
limited, most households did not know anybody who had migrated, so they had very scarce 
information about employment opportunities in specific cities, especially from other 
provinces.  Most of the households interviewed expressed that they were reluctant to 
migrate to urban areas due to language and cultural barriers.     
 
In contrast to Sichuan, where poor households usually included those with disabled or long-
term sick family members and that did not receive sufficient help (or no help at all) from 
their children, the largest proportion of poor households in the villages visited in Yunnan 
were ‗productive poor‘, i.e. they were poor even though they had family members in 
working age and no sick or disabled family members.  Most of these poor households did 
not have any cash crops and no migrants in the family who could send money back.  In 
contrast, households that had been able to produce crops of higher values had been able to 
exit out of poverty and/or to accumulate some physical assets (even if they were still poor).  
About half the tobacco producers that were visited had their own drying houses—a higher 
proportion in those villages that started tobacco earlier.  Drying houses was very important 
because fresh leaves are highly perishable and lose quality very quickly after the harvest, so 
they need to be dried.  Thus, it was one of the first investments made by households once 
they had some resources available.  The cost of both infrastructure and the equipment was 
subsidized by the tobacco company.  Some households had purchased motorbikes.     
 
Institutional, economic, and policy context. As Sichuan and other provinces of China, 
Yunnan was highly affected by the national context of economic and industrial growth and 
by policies implemented by the central government.  The most important were the 
following:  
 
a) The transformation of collective production into family farming introduced 
by the ―Household Responsibility System‖ in 1978 and the liberalization of 
agricultural prices and marketing between 1978 and 1984. In Yunnan, these 
policies led to higher productivity and production of corn and increasing 
rural incomes. However, rural poverty in Yunnan remained among the 
highest in China, which related partly to low productivity of agriculture and 
difficulties in the marketing of production. 
 
b) Investments in rural roads and basic infrastructure (especially water supply) 
in villages of poor counties as a part of the 8-7 Plan.  Most of the villages 
visited had adequate water supply for domestic consumption coming from 
infrastructure constructed within the last five years by programs financed by 
the central government. In addition, counties received funds to improve rural 
roads connecting villages with counties. Better roads played a key role in the 
 
21 
 
decisions taken by specific companies that decided to promote the 
cultivation of tobacco, tea, and sugarcane among small farmers under 
contractual arrangements, as they preferred to work in villages with good 
roads than in more isolated villages with poor roads.  
 
c) Elimination or reduction of agricultural taxes paid by rural households to 
local governments.  As explained in the case of Sichuan, the elimination of 
these taxes increased the cash available to rural households. 
 
d) Elimination of taxes on special agricultural produce.  This was very 
important in Yunnan because they focused on cash crops, some of which 
became very important in the south of the province (tobacco and tea). Thus, 
this policy generated incentives to the cultivation of cash crops and 
increased the net income available by farmers. 
 
In contrast to Sichuan, the context of economic and industrial growth in China did not have 
such an important influence on rural households, as it did not attract young household 
members to migrate (as it  was the case of Sichuan) due mainly to cultural factors. 
 
Finally, an additional contextual variable that had an important influence in the poverty exit 
strategies adopted by rural households in the counties visited in Yunnan was the change in 
cropping patterns among farmers in counties of the north of Yunnan that used to cultivate 
tobacco.  In fact, Yunnan has been for some time the most important province producing 
tobacco in China.
24
  A company (Yuxi Hongta Tobacco Group Ltd) that is part of a larger 
government conglomerate (Hongta Group) was the most important processing firm in the 
province, producing with small farmers under contractual arrangements.
25
  The company 
had its main processing facilities of the company in the Yuxi county in the north of 
Yunnan, signing contracts with farmers in counties nearby.  Partly as a result of the 
upgrading of an expressway that linked Yuanjiang and Mohei (a 147 km section that was 
part of the road connecting Kunming, capital city of Yunnan, and Thailand), transportation 
costs decreased substantially, making it easier for farmers to sell in Kunming due to the 
decrease in transportation costs.  Thus, a large proportion of the tobacco producers in 
northern counties of Yunnan decided to shift from tobacco to other crops of higher value, 
especially flowers, that they sold in Kunming.   
 
As it will be explained in the next section, the reduction in the area with tobacco made the 
Yuxi Tobacco Group to search for new production areas.  After carrying out some studies, 
the company identified that climate and soil conditions in mountain areas in the south of the 
Yunnan were exceptionally good for tobacco, so it decided to expand the tobacco 
cultivation there based on similar contractual arrangements with small farmers.   
 
                                                     
24
 Seven of the top 10 enterprises of the Chinese tobacco industry in terms of the quantity of cigarettes inter-
provincially allocated for monopolistic sales by the central government in 2000 were Yunnan-based 
enterprises 
25
  Besides tobacco manufacturing, the Hongta Group has diversified into other industries, including energy 
and transportation, banking and finance, insurance, real estate, medicine, and light chemical. 
 
22 
 
Poverty exit strategies.  The main poverty-exit strategy adopted by rural households in 
Yunnan was agricultural diversification through the introduction of cash crops, mainly 
tobacco (especially in the villages visited in Yuanjiang and Mojiang),  tea and sugarcane 
(mainly in those visited in Simao and Meng Lian).  Seasonal migration and wage 
employment were two additional livelihood strategies that households adopted, but they 
usually did not lead to their exit from poverty. 
 
Most of the households visited in Yunnan had agriculture as the major source of income, 
growing rice and corn and having small livestock (chicken, ducks, and pigs), all of them 
mainly for the households‘ consumption.  In addition, non-poor households also had cash 
crops, including mainly tobacco, tea, and/or sugarcane.  Many of the non-poor households 
had one or two buffaloes to help in working the land, and about half of those working with 
tobacco had been able to build simple drying rooms that they used for drying the leaves 
after the harvest.  
 
Since the early 1990s, private and government-owned commercial firms that produced high 
value crops established in Yunnan, signing contracts with individual small farmers, 
purchasing their production and providing them with technical assistance and inputs.  This 
model became quite common in several of the counties visited in Yunnan for the 
production of tobacco, tea, coffee, and sugarcane.  As it was mentioned in the previous 
section, tobacco was strongly promoted by a government-owned company (the Yuxi 
Tobacco Group) that decided to increase the area cultivated with tobacco in counties 
located in the south of Yunnan, partly to compensate for the reduction in the area cultivated 
by growers in Yuxi (many of whom started to grow higher value crops) and also due to the 
excellent natural conditions (latitude, altitude, soils, and availability of water for irrigation).  
Under the contracts, the firm provided seeds, technical assistance, training, and financial 
support for building simple on-farm facilities for drying the tobacco leaves. In addition, 
local governments attracted firms that started cultivating tea, coffee, and sugarcane, all of 
them under contract farming arrangements.  In all cases, the local governments used their 
great power at the community level to organize agricultural production, convincing farmers 
to start cultivating the new crops. 
 
As a result, many farmers replaced areas of paddy rice with tobacco, though most 
maintained the production of paddy rice under irrigation and added tobacco in dryland 
areas, sometimes reducing the area with rice.  A low proportion had started to cultivate 
tobacco under a rotation with wheat—a production system promoted by the tobacco 
company in order to avoid the negative effects of monoculture.   
 
In addition to tobacco, private companies had started to promote the cultivation of tea and 
sugarcane.  Tea was cultivated under three models: a) a wage-based cultivation on 
company‘s land, usually by households coming from other places; b) cultivation in 
households‘ land under contractual arrangements; the company financed the investment in 
new tea plantations, while the household commits to keep the land for tea cultivation for 80 
years and to sell to the tea company. In the Menglian county, I visited a private company 
that had signed contracts with individual households that had their own tea plantations, 
providing them technical assistance, purchasing their production, and giving inputs that 
were deducted from the payment of production after the harvest. In the Cuiyun county, 
 
23 
 
another commercial company obtained a long-term concession to invest in new tea 
plantations in public lands, signing contracts with households for the management of small 
areas of tea.  Thus, households did not have their own areas of tea but worked in the 
company‘s plantations, receiving a ―management fee‖ equivalent to CNY 450 or USD 55 
per hectare per month during the first two years (during which there is no production) and 
between CNY 1 and 2 (USD 0.12-0.24) per kilogram of tea leaves during the production 
phase.   
 
The cultivation of sugarcane in Menglian was somewhat different because a processing 
private firm had promoted the crop and become the main buyer from small farmers.  
However, the firm did not want to deal with the transaction costs of negotiating and 
supervising a large number of contracts with individual farmers.  Thus, two people with 
connections and availability of capital became the major actors in organizing producers.  
The private firm signed a single contract with each of these intermediaries, who then had to 
convince farmers to grow sugarcane, obtained loans to provide them inputs, and purchased 
the sugarcane and sent it to the firm‘s processing facilities.  Once the firm received the 
sugarcane, it paid the intermediary, who then paid each individual farmer.  Many farmers 
relied on the intermediaries for other credit needs as well. 
 
The cultivation of tobacco and tea was usually accompanied by intensification and higher 
productivity.  Both recent and older growers of tobacco had to make progressive 
adjustments to their technology that implied: a) intensification in the use of the land (more 
labor and more inputs per unit of land); b) a more timely use of fertilizers and pesticides; c) 
the use of a new variety of tobacco in some villages.  The timely use of pesticides was the 
result of efforts from the company to increase productivity and quality, and most 
households were slowly doing so.  For that purpose, the company provided inputs whose 
costs were deducted from the payment due to farmers after the harvest.     
 
In contrast to the villages visited in Sichuan, where most households had members who 
migrated to other provinces and sent back remittances, migration to other provinces was 
rare in the villages visited in Yunnan.  Thus, most households had no income from transfers 
of migrant family members.  This was mainly a consequence of very low education levels 
and language barriers.  Most villagers were of minority groups, had completed only a few 
years of primary school, and spoke little or no Mandarin.  In addition, they did not have 
social connections with other provinces because there was no history of migration as in the 
Sichuan province.  Thus, most interviewees feared migrating to other provinces because 
they did not know anyone and had heard many stories of people not receiving their 
payment from their employers.  Migration to other provinces was more common only in 
villages closer to the border with Myanmar.  This was the result from efforts by the local 
government of the Menliang country, which had established a program in collaboration 
with the governments of Shanghai and Canton provinces that linked migrants with firms in 
those provinces.  
 
Seasonal migration was more common, with usually one household member going to work 
in agricultural activities during the off-season (October-January), most often to townships 
closeby, where workers received daily wages of between CNY 10 (USD 1.2) and 25 (USD 
3).   However, their employment was often unstable, so most stressed that they were able to 
 
24 
 
bring home little or no money at all.  Thus, off-farm employment seems to have served 
mainly to sustain the seasonal migrants themselves and to relieve the burden of the rest of 
the family, rather than being an important source of family income.   
 
Finally, wage employment in tea production was an additional important poverty exit 
strategy adopted by many households.  In one of the villages visited, the tea company 
owned 667 hectares of tea plantations, giving individual households the responsibility of 
managing areas of about 0.15-0.20 hectares per person.  Some of these households had 
worked for the company for more than fifteen years, while others had been resettled by the 
government from mountain areas of low productivity, receiving construction materials to 
build their houses, a small amount for food needs during the first few months, and a small 
piece of land to grow their crops (usually corn to feed pigs and chicken).  Each household 
had to carry out all the farming activities, such as fertilization, control of pests and diseases, 
and harvesting, receiving a piece rate of CNY 13 (USD 1.6) per kilogram of small younger 
leaves and CNY 1 (USD 0.12) per kilogram of larger leaves.  In exchange, they received a 
monthly payment of CNY 30 (USD 3.7) during all-year, plus a payment per kilogram of 
collected leaves during the harvest times (nine or ten months per year).  Although the 
payment was low, it was better than their earlier income, and most families interviewed 
were able to obtain a net annual income of CNY 1,500 (USD 405). 
 
Vulnerability.  As in Sichuan, the interviews to rural households in Yunnan showed that 
sickness of family members was the most important source of vulnerability for rural 
households, especially when it involved old family members who required medicines for a 
long time.  In addition to increasing households‘ income, the introduction of high value 
made possible to reduce vulnerability it made possible for them to save more. However, the 
situation was less comfortable than in Sichuan, as it was found that a very low proportion 
of the households interviewed had savings accounts in the Rural Credit Cooperatives and 
another substantial proportion were savings in other  forms, e.g. by having some animals 
that could be sold in an emergency. Informal credit  to deal with emergencies was not very 
relevant, though some households borrowed from neighbors. 
 
As it was explained in the case of Sichuan, the Chinese central government started testing 
programs to improve the access of poor households to health services, including the Rural 
Cooperative Health Program (an insurance-type of program) and the ―Salvation Program‖ 
(a program providing subsidies to hardcore poor households to partially cover major 
medical bills).  However, the alter in a pilot stage, covering only some counties in southern 
Yunnan, so it was found that rural households still did not know it.   
 
Key factors in poverty reduction. The key factors that influenced the type of poverty exit 
strategies selected by rural households, their capacity to select and implement them were 
the following: 
 
a) The establishment of commercial firms in the region to promote the cultivation of 
high value crops through contract farming.  This created new opportunities for small 
farmers that used to cultivate basically subsistence crops to diversify their 
production and obtain higher incomes.  The contracts included not only the 
companies‘ commitment to purchase production from small farmers at an agreed 
 
25 
 
price, but also their provision to small farmers of training, technical assistance, and 
credit in the form of inputs paid at the time of harvest and, in the case of tobacco, 
the construction of drying houses.  Commercial firms were key because, in contrast 
to individual small farmers, commercial firms had better access to financial 
resources, know-how in agricultural technology, and capacity to operate in changing 
product markets. As it was explained in the previous section, these firms were 
attracted by the high potential of the natural resources in southern Yunnan.  In the 
case of tobacco, it was important that growers in the north of the province that used 
to be the main suppliers of the company had shifted to other crops of higher value 
(mainly flowers).  In some cases (e.g. in tea), the prices paid to farmers for their 
production were very low, or payments charged for loans (e.g. in sugarcane) were 
too high or for too long time.  This situation is similar to what critics of contract 
farming have found in other countries, arguing that it has frequently been 
characterized by low prices received by small farmers mainly due to their limited 
access to information and capacity to negotiate with firms.
26
 However, it must be 
recognized that most if not all of the households working with cash crops that were 
visited in Yunnan said that they were better now that before cultivating them.  In 
addition, comparative experience shows that some of the problems of contract 
farming can be dealt with the creation of farmers‘ organizations that make possible 
collective bargaining and measures that strengthen their negotiation capacity.  
 
b) Policies of the local governments to attract agricultural firms.  Counties and 
municipalities in southern Yunnan played an active role in attracting new 
businesses.  In recent years, the Chinese central government pushed strongly local 
governments to attract foreign and national investments.  As a result, many county 
governments created Business Bureaus and provided benefits (like tax benefits and 
concessions for the use of public lands) to attract investors.  In villages visited in 
Yunnan, local governments focused on attracting investments of agricultural and 
agro-processing companies because they recognized that the characteristics of their 
counties made it very difficult to attract manufacturing industries, and at the same 
time that they had a great availability of natural resources.  Part of the efforts 
focused on investments in upgrading or constructing roads connecting villages with 
small and medium-size towns and cities, as the commercial firms had told them that 
it was too difficult if not impossible for them to work with farmers in villages 
located in remote places or without good roads. Technicians from the tobacco 
company who were interviewed stressed that the availability of good roads was one 
of the important factors that they considered in the decision to incorporate a village 
                                                     
26
 There is an extensive literature on contract farming offering opposing views on its potential effects on small 
farmers‘ incomes.  Several authors have been highly critical of contract farming, considering it in a 
dependency theory framework as an exploitative extension of international capital. For example, see Lappe 
and Collins, 1977.  Watts (1990) has considered contract farming as a system for self-exploitation of family 
labour and frequently characterized by  company manipulation and abrogation of contracts.  Little and Watts 
(1994) argue that the problems arising from unequal power relationships as well as market fluctuations, often 
make contract farming unsustainable in the long term.  In contrast, other analysts have argued that contract 
farming and outgrower schemes have very often led to a significant rise in livin g standards.  For example, see 
Glover (1983 & 1987), Glover and Ghee (1992), and Glover and Kusterer (1990).