We’ve heard the same sad story time and again from all corners of the globe: People are migrating from rural areas to cities in search of jobs, leaving behind a depleted, underprivileged countryside. But that paradigm may be starting to change. Signs of a “recovering rural consumer” surfaced in the Credit Suisse Research Institute’s 2014 Emerging Consumer Survey, the fourth edition of which was published Feb. 10. A rural middle class has begun developing in some of the world’s largest emerging market economies, fueling consumer appetites on the fringes of an increasingly urbanized planet.
The phenomenon appears particularly prominent in the world’s two most populous nations. Rural consumers in China and India now have significantly higher expectations for wage increases than urban consumers. The same is true in other emerging markets economies such as South Africa, Russia and Mexico. With more money in their pockets, people in rural areas plan to consume more, too. Consumers surveyed were asked whether they expected to spend more money on so-called “essential” goods (such as dairy products and bottled water), “useful” products (computers and educational courses) and “discretionary” items (sportswear, smartphones and vacations) over the next year. Among Indian consumers, a higher proportion of rural buyers foresaw spending increases than urban ones in 10 of 14 categories. In China, rural intentions topped urban ones in seven of 14.
India’s rural populations, in particular, have benefitted from recent infrastructure investments and rising wages. The percentage of rural households with electricity, for example, rose to 67 percent in 2011 from 55 percent in 2001, according to Credit Suisse. And real wages for rural jobs rose more than 7 percent between 2008 and 2013, after increasing less than 1 percent between 2005 and 2008. This rural progress is even more notable since income growth in urban professions such as technology software and services has started to slow.
In China, a sweeping reform package announced late last year has boosted optimism about the country’s willingness to open up its economy and financial system. For rural consumers, the key reform is a plan to give farmers more leeway to sell, rent or mortgage their land, which moves the country away from a system of collective ownership. That means farmers will profit from appreciating land values, giving them more cash to spend on discretionary items.
Chinese consumers were optimistic even before the reform package was announced, according to the Credit Suisse survey. The country ranked second in terms of consumer expectations about financial market performance over the next six months, and third in expectations of future wage increases. There was also an increase in optimism among the youth, with 12 percent of 18- to 29-year-olds saying it was an “excellent” time to spend, compared with between 5 and 8 percent in previous years.
Rural Indonesians, too, have become more hopeful than their urban counterparts, given recent increases in the minimum wage. Last November, a dozen governors across the country hiked base pay an average of 19 percent after striking workers took to the streets to demand increases. Urban residents, on the other hand, are expressing more doubts, faced with slowing economic growth, elevated inflation, and higher interest rates. “Not surprisingly, those in rural areas are more optimistic than those in urban communities,” the Research Institute report said.
Such rural optimism is still a nascent development, and it isn’t happening everywhere. In Brazil, for example, consumer demand remains largely driven by city dwellers, and any growth in rural consumption growth faces an uphill battle given the country’s slowing economy, higher inflation and declining real income growth. Indeed, Brazilians were the third most likely to say “no” when asked whether it was a good time to make a major purchase, according to the Credit Suisse survey. Also, the year-on-year decline in the degree of optimism was most pronounced in the lowest two income brackets surveyed, likely due, at least in part, to the country’s 5.5 percent food inflation rate in 2013, the highest of all the economies surveyed. In Mexico, things look even worse for rural residents relative to their city-dwelling countrymen. Urban expectations for increased spending there surpassed rural expectations in every category of the survey.
Still, rural consumers’ growing prosperity and optimism suggests opportunity for companies inclined to invest the time and money required to attract them. “While rural-urban migration and a rising middle class have been long-standing themes,” the Credit Suisse report says, “an emerging rural middle class is one for both investors and companies to consider.”
Photo of Indian village by Radiokafka, courtesy of Shutterstock.com