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The OECD defines three regional types: predominantly urban, intermediate, and predominantly rural regions.

A multiple role for agriculture in the rural economy

In general, primary agriculture plays a small and declining role in employment and GDP, whatever the type of region, and farm households account for a modest share of the population. The importance of the agri-food system as a whole may be greater, but cannot be measured in general for lack of data.

In regions defined as predominantly rural, primary agriculture usually accounts for a larger, though still mostly modest, share of employment and GDP. Nevertheless, there are some regions where a significant proportion of the population is dependent on agriculture. At the same time, a significant share of farming takes place in regions that are not defined as rural. For example, less than half of the farms and half of the farmland is in predominantly rural areas, as defined by OECD.

Agriculture is an important land user and provider of rural amenities in rural and other areas. Land used in agriculture has decreased in a majority of OECD countries over the last decade (by 2.5% on average), with declines over 10% in some Central European countries, Italy and Korea.

The importance of farm-based environmental services, pressures for land conversion, and whether conversion relates to afforestation, conservation or urban sprawl, vary by region, notably with distance to urban areas. In some regions where farmland use has declined or may do so, there are concerns about  impacts on environmental and socio-economic viability from:

• Under-provision of land-based amenities where they are instrumental in regional development or in some high-value-nature rural areas.
• Alternative uses of farmland and water and alternative sources of income and employment.
• Urban sprawl in peri-urban areas.

Farm household diversification

A range of economic and social factors and policies, such as financial motivation, education, and family status affect the attitude of farm households towards diversification. The increasing participation of women in the work force, or the wish to be more integrated in the local community, are also important.

Data on the extent to which farm households are engaged in diversification activities, the nature of those activities, whether they are located in rural areas, and on the income they generate are scarce, often incomplete and out-of date. Generally, however, we know that farm households derive a significant share of their income from non agricultural sources, mainly off-farm labour activities, and that the importance of their non-farm income tends to increase over time in most countries. This is important information for those deciding on the proper balance of agricultural, rural and regional policies.

How can farm and rural policies reflect these realities?

The role of farm households in the rural economy goes far beyond the supply of agricultural goods. They also provide environmental and recreational services, participate in the off-farm labour force and sustain demand for consumer goods and services locally. Thus viable farms, with or without diversified sources of income, contribute to rural development.

But a healthy and diversified rural economy which provides off-farm work opportunities and services is essential to the survival and welfare of a large proportion of farm households. The role of agricultural policy in contributing to rural development has to be seen in this light.

• With the share of primary agriculture in employment low and decreasing the extent to which agricultural policies can foster general economic development in rural areas is often limited, but varies by region and needs to be considered for each specific case.
  
• Regional multi-sectoral approaches that respond to specific problems and build on specific attributes and assets of individual rural areas are needed. A panoply of policies covering domains such as mobile telephone and internet access, infrastructure, training, and information is required to foster business in rural areas.
  
• Farm tourism can provide an opportunity to diversify for some farm households and successful initiatives can also promote local products, preserve the natural and agricultural environment, and enhance a region’s reputation, but these positive outcomes will be limited to specific regions attractive to tourists and will not be possible everywhere.
  
• Grants, training and facilitation and other targeted measures are more likely to be helpful in enabling farm households to diversify than broad agricultural support.
  
• Removing unintended obstacles to diversification is important. Some policies may be inadvertently creating obstacles to farm household diversification and rural development generally, for example, if part-time farmers lose entitlement to certain types of farm-based subsidies. In other cases, however, this may reflect government concerns that certain forms of diversification could also have negative implications, for instance on the provision of public goods.
  
• Tax, social security, land zoning and labour market regulations may also complicate diversification if agriculture is treated differently from other sectors, for example if the social security regime is specific to farming. Governments should try to ensure that all rural actors are able to participate fully in the development of rural areas on an equal basis.

References

• OECD (2010), Agricultural Policies and Rural Development: A Synthesis of Recent Work (pdf, 1.2 MB)
• OECD (2009), Farmland Conversion: The Spatial Dimension of Agricultural and Land Use Policies
• OECD (2009), The Role of Agriculture and Farm Household Diversification in the Rural Economy: Evidence and Initial Policy Implications
• OECD (2009), Methods to Monitor and Evaluate the Impacts of Agricultural Policies on Rural Development