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CHAPTER ONE

INTRODUCTION

Background of the Study

As a country developed, the role and contribution of agriculture to the Gross Domestic Product (GDP) in general has declined and been taken over by the manufacturing sector. Industrialization through the manufacturing sector brought job opportunities in industrial zones and cash earnings as a salary which meant many citizens’ livelihoods became rapidly diversified.

In dealing with the farmers’ source of income in the rural areas, many studies have highlighted the importance of non-agricultural activities and income as a contributor to the total income of a household Ho (1979), Adam (1993), Hamza (2007), Roslan and Hadijah(2011). Simultaneously, another source of income received by the farmers are such as remittance from children, income attained according to level of education and rental received according to the size of land actually determines the total income of non-agriculture. Ho, (1979) and Adam (1993; 2001) discussed about the non-farming income activities in reducing poverty and income inequality among the poor. At the same time Hamza (2007), also explained that the contribution of nonagricultural employment have led to the reduction of income inequalities. However, non-farming income and employment income is not found to have a significant effect in reducing the severity of poverty compared with the poverty rate. This is because a lot of non-agricultural income possibilities are owned by the farmers in the group approaching the poverty line income (Roslan and Hadijah, 2011).

In most of developing countries, the non-agricultural activities accounted for 50 % of the jobs for the rural population and household income (Lanjouw, 1999). The average non-farming income accounted for 40%t of the population in Latin America, 42% in Africa and 32% in Asia (World Bank, 2000). The study found that nonfarming income accounts for more than 40% of lower income in rural areas in Pakistan (Adam, 1993). Hamza, (2007) clarifies that the non-agricultural sector contributed an average of 50% of household income in Syria, while agricultural income accounted for 30%.

Simultaneously, the duration of the level of education obtained by the heads of households also has an impact on household income. Zhu and Luo,(2006) explained in their study that the income inequality and nonagricultural activities in China were found that, a farmer who has received more than six year period of education has a significant relationship and a positive result p<0.01for non-agricultural income. Hamza,(2007) in his study enunciated that in rural areas as Darkish and Al-Rastan in Syria indicate that a high level of education of household has a positive relationship with non-agricultural income. Aikaeli, (2010) also found that in Tanzania, the educational level of the household head has a positive and significant relationship to household income in rural areas at the level of p <0.01%. 

Previous studies identified and classified the various sources of household income in different ways (Kuniyasu 2002; Swastika et al. 2004; Kendawang et al. 2005; Ilham et al. 2007; Irawan et al. 2007; Lokollo et al. 2007; Kustiari et al. 2008; Kamanga et al. 2009; Otsuka 2009; Ding et al. 2011). Irawan et al. (2007) found that the majority of farmer households in West Java, Central Java, East Java, North Sumatera, and South Sulawesi, Indonesia have 2 or 3 sources of income. Only a small number of farmer households have more than four sources of income. Ilham et al. (2007) reported that paddy farming and non-paddy farming contribute to the income of farmer households in West Java, Central Java, and South Sumatra, Indonesia. However, the result of Lokollo et al. (2007) study showed that the contribution of non-agricultural sector to farmer household income was only 16.3% in Indonesia in 2008. This implies that the household members have opportunity to work in various jobs and those jobs contribute to household income.