DAMBI DOLLO UNIVERSITY

DETERMINANTS OF LIVELIHOOD
DIVERSIFICATION STRATEGIES: THE CASE OF
SMALLHOLDER RURAL FARM HOUSEHOLDS IN
SADI CHANKA DISTRICT, KELEM WOLEGA ZONE,
OROMIA; ETHIOPIA.

BY: TUJUBA NAGASA GEMECHU

JUNE, 2021
DAMBI DOLLO, ETHIOPIA
 DETERMINANTS OF LIVELIHOOD
DIVERSIFICATION STRATEGIES: THE CASE OF
SMALLHOLDER RURAL FARM HOUSEHOLDS IN
SADI CHANKA DISTRICT, KELEM WOLEGA ZONE,
OROMIA; ETHIOPIA.

DAMBI DOLLO UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ECONOMICS

A thesis Submitted to department of Economics and presented in

partial fulfillment of the requirements for the degree of masters
of Science (MSc) in Development Economics.

BY: TUJUBA NAGASA

ADVISOR: Dr. LETA SERA

JUNE, 2021
DAMBI DOLLO, ETHIOPIA
 DECLARATION

I, Tujuba Nagasa Gammachu, hereby declare that the thesis entitled “Determinants of
Livelihood Diversification Strategies: The Case of Smallholder Rural Farm
Households inSadi Chanka District, Kelem Wolega Zone, Oromia; Ethiopia‟‟ is my
original work and has not been presented for a degree in any other university and that
all sources of materials used for the thesis have been duly acknowledged.

Declared by

TujubaNagasa

Signature ____________________________

Date____________________________
Declaration by advisor

This is to certify that the thesis prepared by Tujuba Nagasa, entitled “Determinants of
Livelihood Diversification Strategies: The Case of Smallholder Rural Farm
Households in Sadi Chanka District, Kelem Wolega Zone, Oromia; Ethiopia‟‟ and
submitted in partial fulfillment of the requirements for the degree of Master of
Science in Development Economics compiles with the regulations of the University
and meets the accepted standards with respect to originality and quality.

Name of advisor: Dr. Leta Sera (PhD)

Signature:

Date: 5/06/2021
 DambiDollo University
College of Business and Economics
Department of Economics

APPROVAL SHEET
This is to certify that the thesis prepared by Tujuba Nagasa entitled “Determinants of
Livelihood Diversification Strategies: The Case of Smallholder Rural Farm
Households inSadi Chanka District, Kelem Wolega Zone, Oromia Regional State;
Ethiopia‟‟, submitted and presented in partial fulfillment of the requirements for the
degree of “Masters of Science in Development Economics” complies with the
regulation of the university and meets the accepted standards with respect to
originality and quality.

Board of Examiners
_________________ ____________ ________
Name of Internal Examiner 1 Signature Date
_________________ ____________ ________
Name of Internal Examiner 2 Signature Date
_________________ ____________ ________
Name of External Examiner Signature Date
ACKNOWLEDGEMENT

First and foremost I thank the Almighty God who gave me the wisdom and strength to
endure all the ups and downs I faced in the course of undertaking this thesis. I also
cordially acknowledge Leta Sera (PhD), my academic advisor, for his invaluable
support and encouragement to get me undertake research thesis on this very
interesting and very vast complex subject.
It is my pleasure to thank Sadi Chanka Office of Agriculture as well as Rural Land
Administration, enumerators, the members of the sample respondents and members of
focus group discussions for their valuable cooperation during data collection.
I would also like to thank my friends and individuals like Mr. Oda Tashoma, Mr.
Zakarias Gadisa Mr. Yohanis Ababe who were helped me for the successful
realization of this thesis. Although I could not mention individually, I would like to
thank many other friends who supported me while undertaking this study.

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ACRONYMS AND ABBREVATIONS

CSA Central Statistical authority

DAs Development Agents

DFID Department for International Development

ETB Ethiopian Birr

FAO Food and Agricultural Organization

FGDs Focus Group Discussion

GOs Government Organizations

Ha hectare

Hhs house holds

IDS Institute for Development Studies

IFAD International Fund for Agricultural Development

KAs Kebele Administrations

KIIs Key Informant Interviews

MoFED Ministry of Finance and Economic Development

NGOs Non-Governmental Organizations

SCHDARD Sadi Chanka district Office of Agriculture and Rural

Development

TLU Tropical Livestock Unit

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Table of Contents
ACKNOWLEDGEMENT ............................................................................................................................. i

ACRONYMS AND ABBREVATIONS ...................................................................................................... ii

Table of Contents ......................................................................................................................................... iii

Lists of figures .............................................................................................................................................. vi

Lists of tables .............................................................................................................................................. vii

ABSTRACT ................................................................................................................................................... viii

CHAPTER ONE ........................................................................................................................................... 1

1. INTRODUCTION ................................................................................................................................ 1

1.1. Background of the Study ........................................................................................... 1

1.2. Statement of the problem ........................................................................................... 2
1.3. Research questions ..................................................................................................... 4
1.4. Objectives of the study .............................................................................................. 5
1.4.1. General Objective .............................................................................................. 5
1.4.2. Specific Objectives ............................................................................................. 5
1.5. Significance of the Study ........................................................................................... 5
1.6. Scope and Limitation of the study ............................................................................. 6
CHAPTER TWO .......................................................................................................................................... 7

2. REVIEW OF RELATED LITERATURE ............................................................................................ 7

2.1. Concepts and Basic Definitions ................................................................................. 7

2.2. Theoretical Review .................................................................................................... 7
2.2.1. Livelihoods and rural livelihood diversification ................................................ 7
2.2.2. Livelihood strategies .......................................................................................... 8
2.3. Empirical Review..................................................................................................... 10
2.3.1. Determinants of Livelihood Diversification Strategies .................................... 10
2.3.2. Vulnerability context ....................................................................................... 11
2.3.3. Livelihood assets .............................................................................................. 11
2.3.4. The Roles of Livelihood diversification .............................................................. 12
2.4. Conceptual framework of the study ......................................................................... 15
CHAPTER THREE .................................................................................................................................... 19

3. RESEARCH METHODOLOGIES..................................................................................................... 19

3.1. Descriptions of the study area .................................................................................. 19

3.1.1. Location of the study area ................................................................................ 19

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 3.1.2. Weather conditions .......................................................................................... 20
3.1.3. Demographic characteristics of the study area................................................. 20
3.1.4. Farming activities............................................................................................. 20
3.1.5. Non-farm activities .......................................................................................... 21
3.1.6. Off-farm activities ............................................................................................ 21
3.2. Research Design....................................................................................................... 21
3.3. Data Types and Sources ........................................................................................... 21
3.4. Sampling Technique and sample size determination ............................................... 22
3.5. Data Collection Techniques and Procedures............................................................ 24
3.6. Methods of Data analysis ......................................................................................... 25
3.6.1. Econometric model specification ..................................................................... 25
3.6.2. Dependent and Independent Variables ............................................................... 27
CHAPTER FOUR....................................................................................................................................... 32

4. Results and Discussion ........................................................................................................................... 32

4.1. Socio-Economic and Demographic characteristics of the Respondents. ...................... 32

4.2. Livelihood Assets of Respondents ................................................................................ 33
4.2.1. Natural Capital ....................................................................................................... 33
4.2.2. Social Capital ......................................................................................................... 33
4.2.3. Human Capital........................................................................................................ 33
4.2.4. Financial Capital .................................................................................................... 34
4.2.5. Physical Capital ..................................................................................................... 35
4.3. Agricultural Risks ......................................................................................................... 36
4.4. Distribution of households by livelihood strategies adopted ........................................ 37
4.5. Econometric Model Results .......................................................................................... 38
4.5.1. Multicollinearity and degree of association ........................................................... 38
CHAPTER FIVE ........................................................................................................................................ 44

5. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ....................................................... 44

5.1. Summary .................................................................................................................. 44

5.2. Conclusions .............................................................................................................. 44
5.3. Recommendations .................................................................................................... 45
References ................................................................................................................................................... 47

Appendixes ................................................................................................................................................. 51

Appendix 1: Questionnaire ......................................................................................................................... 51

Appendix 1.1.Observation Guide ......................................................................................... 65

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 Appendix 1.2.Checklist for Key Informant Interview ........................................................... 65
Appendix 2: Conversion factors to compute tropical livestock units' equivalents ..................................... 66

Appendix 3: Stata Outputs .......................................................................................................................... 67

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Lists of figures

FIGURE 2.1. CONCEPTUAL FRAMEWORK OF THE DETERMINANTS OF LIVELIHOOD

DIVERSIFICATION STRATEGIES ..................................................................................................... 17

FIGURE.2.2. MAP OF SADI CHANKA DISTRICT ....................................................................................... 19

FIGURE 4.1.DISTRIBUTION OF HOUSEHOLDS BY LIVELIHOOD STRATEGIES ........................................... 38

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Lists of tables

TABLE.3.1. SAMPLED PEASANT ASSOCIATIONS AND NUMBER OF HOUSEHOLDS

SELECTED FROM EACH SAMPLED PEASANT ASSOCIATIONS ........................................................ 23
TABLE.3.2. RELATIONSHIP BETWEEN INDEPENDENT VARIABLES AND DEPENDENT
VARIABLES ............................................................................ ERROR! BOOKMARK NOT DEFINED.
TABLE 4.1 SOCIO-ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS OF THE
RESPONDENTS. ............................................................................................................................. 32

TABLE 4.2 DESCRIPTION OF CATEGORICAL VARIABLES OF THE RESPONDENTS. ................................. 36

TABLE 4.3 DESCRIPTIONS OF CONTINUES VARIABLES OF THE RESPONDENTS..................................... 37
TABLE 4.4. MULTINOMIAL LOGISTIC REGRESSION RESULTS FOR HOUSEHOLD
LIVELIHOOD STRATEGIES. ............................................................................................................ 39

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ABSTRACT
This study examines the determinants of livelihood diversification strategies of
smallholder rural farm households in Sadi Chanka District of Kelem Wolega Zone in
Oromia; Ethiopia. Both qualitative and quantitative data collection and analysis is
employed in this study. Data collected and utilized for this study was a cross-sectional
data. The two stage sampling design was used to select the sample households.
Descriptive statistics and multinomial logit regression model were used to analyze the
collected data. The descriptive statistics result showed that, out of 351 sampled
respondents,93(26.5%) participated into on-farm activity and 60 (17.09%)
respondents participated in both on-farm plus off-farm, 107(30.48%) respondents
participated into on-farm plus non-farm diversification strategy and the rest 91
(25.93%) respondents engaged into on farm plus off farm plus non-farm
diversification strategies. The model result indicated that out of the 16 hypothesized
variables in the model, 10 were found to be significantly influenced households
adoption of alternative livelihood strategies at less than 5% probability levels.
Accordingly, the model result indicated that the age of household head, sex,
education, credit, crop production risk influenced positively and significantly the
choice of farming plus non-farming, while the land size and dependency ratio were
negatively and significantly affected the diversification of livelihood into farming plus
non-farming activities. On the other hand irrigation and credit access had positively
and significantly influenced the household choices of farm plus off-farm activity and
dependency ratio had negatively and significantly affect the household choices of
farm plus off-farm activities, Similarly, education, credit and urban linkage had
positively and significant influence on the household decision of selecting diversified
livelihood strategies into farm plus non-farm plus off-farm activities, while land size
had negative and significant influence on livelihood strategies choice of farm plus
non-farm plus off-farm activities. Thus, this implies that, these positive and negative
factors need to be considered and included by policy makers in planning of the rural
development strategies’ and policies to overcome the determinants of rural livelihood
diversification strategies.

Keywords: Diversification strategy, Livelihood, Multi nominal logistic regression

Nonfarm, off farm, Sadi Chanka District

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 CHAPTER ONE

1. INTRODUCTION

1.1. Background of the Study

Agriculture is an important sector for majority of the rural populations‟ livelihood in
developing countries. It employs a huge number of unskilled workers and provides
livelihoods for more than 70 percent of the rural population, including a large share of
the country‟s poorest households (World Bank, 2016).

However, farming as a primary source of income has failed to guarantee sufficient

livelihood for most farming households in developing countries and the agricultural
development policies have largely produced little improvement, especially in sub-
Saharan Africa (Babatunde Ro, 2013).

Thus, the expectation that achieving the goal of reducing poverty only through
increasing agricultural productivity and readdressing the issues of access to key
agricultural resources without non/off-farm livelihood diversification could not be
successful in the sub-Saharan African countries(Emmanuel ,2011). For these reasons
here is a strong consensus that any development intervention to improve the
livelihood and food security situation of the rural poor need to take agriculture along
with the non/off-farm livelihood diversification, without undue preference being
given to farming as the unique solution to rural poverty.

Thus rural economy is thus, not based solely on agriculture but rather it depends on
diverse collection of activities and enterprises. Livelihood diversification into non/off-
farm activities are an important way of reducing poverty. Non-farm activity is
typically positively correlated with income and wealth (in the form of land and
livestock) in rural Africa, and thus seems to offer a pathway out of poverty if non-
farm opportunities can be seized by the rural poor (Barret et al., 2001).

Agriculture serves as the primary means of rural households‟ livelihood in Ethiopia,

which contributes 27.5 billion dollars or 34.1% to the GDP, employs some 79% of the
population, accounts for 79% of foreign earnings, and is the major sources of raw
material and capital for investment and market (MoPED, 2020). However, due to the

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smaller farm size and low return from farming activities, majority of rural households
are exposed to food insecurity and chronic poverty. In rural Ethiopia the prevalence of
extreme land pressure has resulted in vast deforestation and cultivation of unsuitable
slopes, causing sever environmental damages, which make the future prospects of
agriculture look bleak without generating non-agricultural activities (Degefa, 2003).

Hence, it recognized that rural people have their own strategies to secure their
livelihoods which vary from household to household depending on numerous factors
such as their socio-economic status, education and local knowledge, ethnicity, and
stage in the household lifecycle. Even in some locality there can be a bid distinction
between the strategies of those with different socioeconomic background, for
example, for those with more land and those who are with less land or landless
(Wagayehu B, 2004).

In line with this view, this study was intended to identify the existing livelihood
strategies, and assess the contextual and location specific determinants of livelihood
diversification strategies in Sadi Chanka district.

1.2. Statement of the problem

Rural households‟ livelihood in Ethiopia depends on agriculture which is dominated
by smallholders, the majority cultivating less than 0.5 ha and producing mostly basic
staples for the subsistence of their households. Furthermore, their agricultural
activities are characterized by backward production technologies, small fragmented
land size, irregular rainfalls, increasing soil erosion land degradation, aridity in some
regions and pervasive tropical diseases in others (Arega et al., 2013). The limited
opportunity for livelihood diversification, due to absence of supplementary income
from other non-farm activities has made the Ethiopian rural poor more vulnerable.
Given the inability of most Ethiopian smallholders to make a living from agriculture,
because of resource constraints and recurrent shocks, increasing policy attention has
turned to supporting alternative livelihood activities (Devereux, et al, 2005).

Diversification has increasingly turned towards non- farm and off-farm activities as a
source of income and employment (Haggblade S, 2007).
The primary categories of livelihood diversification are farm, off-farm, and non-farm
income sources (Ellis, 1998). Ellis (1998) explained the farm, off-farm and non-farm
diversification. According to Ellis, farm income includes livestock as well as crop
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income and comprises both consumption-in-kind of own farm output and cash income
from output sold. Off-farm income typically refers to wage or exchange labor on other
farms (i.e. within agriculture). It also includes labor payments in kind, such as the
harvest share systems and other non-wage labor contracts that remain prevalent in
many parts of the developing world. Non-farm income refers to non-agricultural
income sources. Different literatures note the reason for livelihood diversification.
According to (Ellis, 2000) reasons for livelihood diversification in to two broad
categories which are necessity or choice. He further elaborates Necessity as
involuntary and desperation reasons for diversifying. Choice on the other hand, refers
to voluntary and proactive reasons for diversification for instance, seeking out
seasonal wage earning opportunities, travelling to find work in remote locations,
educating children to improve their prospects of obtaining non-farm jobs, saving
money to invest in non-farm businesses such as trading and etc.
Rural people on their side partake in a number of strategies, including agricultural
intensification, and livelihood diversification, which enable them to attain food
security goal, however, still unable to escape food insecurity. The rural poor struggle
to ensure food security status by participating in diversification activities. However,
the contribution to be made by livelihood diversification to rural livelihoods has often
been ignored by policy makers who have chosen to focus their activities on
agriculture (Carswell, 2007). Thus, a thorough understanding of alternative livelihood
strategies of rural households and communities is indispensable in any attempt to
bring improvement. This is important not to commit a limited resource available for
rural development based on untested assumption about the rural poor and its
livelihood strategies (Tesfaye, 2003).
The extent to which farm households are able to feed themselves often depends on
off/non-farm income as well as their own agricultural production. Many households to
purchase grain use off/non-farm income and the concept of subsistence farmers needs
to be understood in this context of diversified income sources (Chapman and Tripp,
2004 as cited in Daniel, 2009). Limited off-farm economic activities characterize
livelihood insecurity. These conditions are exacerbated by climactic variability. Over
successive poor harvests, households‟ asset base is steadily depleted to the extent that
they have nothing left to cope with another shock (CARE international, 2001).
Smallholder households and those vulnerable due to limited agricultural inputs are
most often victims of low agricultural production and the production is unable to
3
satisfy the food needs of these people. Therefore, these households are often forced to
complement and supplement their income from different nonfarm and off farm
income generating activities such as selling of fuel wood, charcoal, trading,
handcrafting and engagement in wage labor (Yared, 2002).
Even though, the greater contribution of diverse livelihood portfolios in ensuring
household food supply by generating income that agriculture cannot provide and the
inability of agriculture alone as a sole source of broad household demands, the studies
that have been conducted in relation to the contribution of livelihood diversification
strategy in Ethiopia at the woreda level was not satisfactory (Lorato, 2019).
Some empirical literature shows that the determinants of livelihood diversification
strategies in Ethiopia in general and study area in particular at local context were less
researched. For example, (Ambachew, M.D. and Ermiyas, 2016)employed
multinomial logit to empirically examine the determinants of rural household
livelihood diversifications strategy in South Gondar zone, using cross sectional data.
(Birhanu, N. and Getachew, 2017)investigated livelihood diversification status,
challenges and factors influencing pastoral household‟s engagement in livelihood
diversification activities in Bale zone, Ethiopia pastoral livelihood by using
multinomial logistic model.
The above studies emphasized on the determinants of livelihood diversification
strategies at zone level. (Amare Molla, 2018)examined the determinants of pastoral
livelihood diversification choices of Borena pastoral communities of Ethiopia. The
study was focused on pastoral communities and didn‟t reflect the role of mass media
and urban linkage variable on livelihood diversification of the households.
Hence, to fill the above mentioned knowledge gap this study was focused on
assessing existing livelihood diversification strategy choices and identifying the
determinants of rural livelihood diversification strategies in sadi chanka district. In
addition, this research was important and helpful to explain why people are choose
existing livelihood diversification strategies and staying as a poor over time.

1.3. Research questions

The study was answered the following basic question

i. What are the existing livelihood strategies pursued by small holder

farming rural households in the study area?

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 ii. What are the determinants of smallholder farmers‟ livelihood
diversification strategies in the study area?
iii. What are the contributions of non/off-farm activities to the total household
income in the study area?

1.4. Objectives of the study

1.4.1. General Objective

The general objective of this study was to examine the determinants of smallholder
farming households‟ livelihood diversification strategies in Sadi Chanka district.

1.4.2. Specific Objectives

The specific objectives of the study include:

i. To examine the existing livelihood strategies pursued by the smallholder

farming rural households in the study area.
ii. To identify the determinants of livelihood diversification strategies among
smallholder farmers in the study area.
iii. To assess the contribution of non-farm and off-farm activities to the total
household income in the study area.

1.5. Significance of the Study

In an agrarian economy like Ethiopia who was more dependent on agriculture and in
which more than 80% of the populations derive their income from agriculture.
Therefore, it is important to provide alternative strategies for the smallholder farmer
household in rural area.
To do this it is important to understand that what livelihood strategies are pursued by
rural households and determinants of livelihood strategies choice. While
understanding this it is possible to develop appropriate policy that will help rural
households in ensuring their livelihood security. Hence this study is very important
for policy makers and decision makers if multiplied in different contexts.
The research findings will also serve as a source of information and literature review
for other researchers interested to conduct their study on livelihood strategies of
smallholder rural households in the study area and other locations. More importantly,
the research will narrow the knowledge gap that exists on the different livelihood
strategies pursued. On the other hand, this study was undertaken for partial fulfillment
of Master of Science degree in Development Economics.

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1.6. Scope and Limitation of the study
The study was delimited to assess the determinants of smallholder rural farm
households‟ livelihood diversification strategies in four sub kebele administrations of
Sadi Chanka district. The unit of analysis for this study was the farmer household.
However, according to literatures the household was not a homogenous unit; rather, it
has different members who have different roles, responsibilities; and have different
opportunities for livelihood diversification.

The limitations of this study were shortage of budget, unavailability of enough time
and political instability at the time of data collection is a limitation to this study.
Furthermore lack of well-trained enumerators as well as lack of collaboration of
different office of Sadi Chanka district experts for collection of secondary data is also
a limitation to this study.

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 CHAPTER TWO

2. REVIEW OF RELATED LITERATURE

2.1. Concepts and Basic Definitions

Farming Livelihood Strategies: Includes activities like rain fed crop production and
irrigation based crop agricultural production and livestock rearing. If households
diversify their sources of income within this sector or earn incomes from different
crop production and livestock rearing, it means that these households are pursuing
farming livelihood strategy.

Nonfarm Livelihood Strategies: Includes a bunch of activities undertaken on other

farm in the form of wage labor or skilled labor or self-employment in rural non-farm
activities. Generally it includes all activities that are non-agriculture.

Diversification Livelihood Strategies: Integrates farming or agriculture based

livelihood strategies with nonfarm or non-agriculture types of livelihood strategies. If
a given households undertake farming as well as non-agricultural activities to earn
income as well to lead living it is said to be diversified livelihood strategy.

2.2. Theoretical Review

2.2.1. Livelihoods and rural livelihood diversification

The concept of livelihood is widely used in contemporary writings on poverty and
rural development, but its meaning can often appear elusive either due to vagueness or
different definitions being encountered in different sources while a popular definition
is that provided by (Chambers, R. and Conway, 1992) wherein livelihood comprises
the assets (natural, physical, human, financial and social capital), the activities, and
the access to these (mediated by institutions and social relations) that together
determine the living gained by the individual or household (Ellis, 2000).

The concept of livelihood diversification has been defined differently. One of the
early exponents of the concept (Scoones, 1998) defines it as the development of a
wide income earning portfolio to cover all types of shocks or stress jointly or the
strategy may involve focusing on developing responses to handle a particular type of
common stock or stress through well-developed coping mechanisms.

7
For (Barrett et al., 2001) to diversify livelihoods is to cope ex post with shocks to
income. However, the most widely cited definition and which is adopted as the
working definition for the study, stems from the work of (Ellis F., 1999). For Ellis,
livelihood diversification constitutes the process by which household‟s constructs a
diverse portfolio of activities and social support capabilities for survival and in order
to improve standard of living. The process stated in this definition by a household
may signify two things: one reason may be linked to increased vulnerability, the other
reason being a deliberate effort by households to broaden income streams for the
purpose of accumulation and investment in the future. The common underlying theme
from this definition is that diversification is a proactive or reactive strategy that seeks
to provide some sort of cushioning for households livelihood security especially in
rural areas. It is a strategy household‟s leverage to either cope with risks or expand
domestic resources (cash and non-cash) or fulfillment of both.

In this study context livelihood diversification strategies was conceptualized as

getting income from on-farm plus off-farm or on-farm plus non-farm or a
combination of three (on-farm, off-farm, and non-farm).

2.2.2. Livelihood strategies

Livelihood strategies are defined as those activities undertaken by households to
provide a means of living. Livelihood strategies are the combination of activities that
people choose to undertake in order to undertake in order to achieve their livelihood
goals (Ellis F. and E. Allison., 2004).

The same source states that the choices of strategies are a dynamic process in which
people combine activities to meet their changing needs. For example, in farming
households, activities are not necessarily confined to agriculture but often include
non-farm activities and migrations whether seasonal or permanent in order to
diversify income and meet household needs. Livelihood strategies are diverse every
level. Individuals themselves may rely on a range of different income generating
activities at the same time, and are likely to be pursuing a variety of goals. Hence,
livelihood strategies are the full portfolio of livelihood activities, which involves
different combination of income generating activities, uses of assets and choices about
investing money in assets.

8
Literatures also showed that livelihood strategies are classified into different ways
based on the contexts. For example, according to (Scoones I., 1998), rural livelihood
strategies divided into three broad types according to the nature of activities
undertaken as agricultural intensification and extension faction, livelihood
diversification, and migration.

Another grouping of livelihood typologies based on the source of livelihood income is

given by (Ellis, 2000). He classified livelihood strategies into three groups; farm
activities (income off-farm activities (income) and non-farm activities (income). Farm
income refers to income generated from own account farming which includes
livestock as well as crop income and comprises consumption in kind of own farm
output as well as the cash income obtained from output sold. Off farm income refers
to wage or exchange labor on other farms (i.e. within agriculture). Non-farm income
refers to non-agricultural income sources such as self-employment (business), rental
income from leasing land and remittances.

On the other hand, based on the data drawn from southern Ethiopia, (Berehanu, 2007)
identified different activities both within the agriculture and non-agriculture sector.
The activities in non- agricultural sectors could further take three forms as off-farm
employment opportunity, non-farm income generating activities and migration,
moving away of elsewhere temporarily in search of employment. The same source
classified livelihood strategies into four broad groups as agriculture only, agriculture
plus migration, agriculture plus non-farm, and agriculture plus non- farm plus off
farm. Furthermore, (Adugna, 2005) also classified livelihood strategies as on-farm,
on-farm plus off-farm, on-farm plus non-farm and on-farm plus off-farm plus non-
farm strategies. Many studies follow the classification to identify livelihood
strategies.Other identifies livelihood strategies by using cluster analysis. By using this
method Brown et al., (2006) summarized a large number of sample observations into
a smaller and tractable number of distinct groups or clusters based on similarly along
particular pre-determined dimensions. According to their study in rural Kenyan
highlands the common livelihood strategies were part time subsistence
smallholder/unskilled labor works, mixed stallholders, staples producers, off-farm
skilled employment, and diversified commercial.

9
An alternative method of analyzing livelihood strategies involves direct examination
of the individual household‟s asset endowment. The amount of income earned and
even the type of activity undertaken by a household is a stochastic of the assets it
controls. Certain activities may be beyond the reach of households without access to
the required financial, natural, physical, human or social capital (DFID, 2009).

All the above classifications of livelihood strategies are far from homogeneity.
Therefore, this clearly indicates the diversity of livelihood strategies according to the
local contexts, and asset availability and ownership combinations. Thus, it has given
the base line information to the researchers as are different types of livelihood
strategies classification.

2.3. Empirical Review

2.3.1. Determinants of Livelihood Diversification Strategies

Rural households earn income from diverse allocations of their natural, physical and
human assets among various income generating activities. The literature offers many
reasons why such diversification occurs (Barrett et al, 2001). Among these might be
diminishing returns on increasing investment in certain activities, missing markets
that compel self-provision of goods or services the household desires for own
consumption. Similarly, households may wish to diversify as a strategy for coping
with unexpected shock, or to minimize risk ex ante by participating in activities that
generate imperfectly correlates returns. The presumption throughout the literature is
that households choose such patterns of diversification so as to achieve the best
possible standard of living (Brown et al., 2006).

The determinants of livelihood diversification can be different on the basis of

location, assets, income levels, opportunities and social relations. As a result,
diversification is different under different circumstances (Ellis, 2000). However,
livelihood diversification determinants can be classified into two broad categories i.e.
pull and push factors (Barrett et al, 2001). Push factors such as rural population
growth, farm fragmentation and declining agricultural productivity are commonly
cited causes for diversification (Ellis, 2000). On the other hand proximity to the
market, availability of roads, and the existence of comparative advantages, are pull
factors (Barrett et al, 2001). (Degefa, 2005) also found in one of the Oromia zone the
main discouraging factors for expanding non-farming income earning activities which

10
include notably the lack of waged labor opportunities, lack of initial financial capital,
limited knowledge and skills, lack of raw materials, and limited markets. The detail
explanation of the determinants of livelihood diversification strategies were narrated
below.

2.3.2. Vulnerability context

Vulnerability can be defined as a comprising both exposure and sensitivity to
livelihood shocks (Devereux, S and Guenther, B., 2009).Vulnerability is
defenselessness, insecurity, and exposure to risk, shocks and stress (Chambers, R.,
and G. R. Conway,1992). Vulnerability is characterized as insecurity in the well-
being of individuals, households, and communities in the face of changes in their
external environment. The vulnerability contexts includes shocks like conflict, illness,
floods, storms, droughts, pests diseases; seasonality‟s like prices and employment
opportunities; critical trends like economic, and technological trends. The occurrence
of different shocks like animal and crop diseases increases the probability of farm
households‟ participation into non-farm and off-farm activities. Land degradation,
population pressure and declining soil fertility are also force farmers to diversify into
occasional wage labor, petty trading as well as migration in search of means that will
provide sustainable livelihoods (Woinshet, 2010). Therefore, a diversified portfolio of
activities would certainly reduce the expected hazard of total income and hence, both
on-farm and off-farm diversification can be seen as efficient mechanisms for
households to reduce income risks (Ellis, 2000).

In rural Ethiopia, the livelihood of the population is mainly crop production and
livestock rearing. The rural households in Ethiopia work in a high environment. They
experienced with climatic risk, livestock problems, and land shortage problem
(Demisse and Workineh, 2004). Thus households tended to diversify activities to
buffer such risks so as to support their livelihood needs.

2.3.3. Livelihood assets

Livelihood assets are the resources on which people draw in order to carry out their
livelihood strategies (Ellis F. and E. Allison., 2004). Livelihood assets owned by the
households represent the basic building blocks with which households undertake
production, engage in labor markets and participate in reciprocal exchange with other
households (Ellis, 2000). In the livelihoods approach, resources are referred to as

11
assets or capitals which are often categorized into five different asset types: human
capital (skills, education, and health), physical capital (infrastructures), financial
capital (money, savings, and loan access), natural capital (land), and social capital
(networks and associations). The differential access to these livelihood assets owing
households found in different livelihood diversification strategies (Ellis F. and E.
Allison., 2004).

In assessing diversification strategies of households, Barrett et al (2005) and Reardon

et al (2001) indicate that because of differences in initial asset endowments, rich and
poor households diversify differently. The rich typically engage in more capital
intensive and more remunerative activities, while leaving the poor confined to labor
intensive, highly contested niches with low barrier to entry and low returns. Wealthier
households often mention profit maximization as their motive for entering into rural
non-farm activities, whereas lower income households emphasize „risk minimization.
Poorer households have a high incentive but a low capacity to diversify successfully,
even if in some cases they rely more on non-farm activity in percentage terms.
Previous studies also suggest that the determinants of livelihood diversification in
rural areas vary according to household‟s access and ownership of different livelihood
assets. For Example, (Demurgeret al,2009) stated that financial capitals like having
enough money and access to credit improves the probability of households engaging
in any diversification strategy, both on-farm and off-farm, locally or elsewhere. When
households have access to credits they likely to invest in different non/off-farm
activities. Similarly, Tezera (2010) indicated that access to capital or credit
determinants rural households wishing to start a new business, whether in the farm or
non-farm sectors. Without start-up funds, or with only little cash available for
investment, households are limited to a small number of activities which yield poor
returns.

2.3.4. The Roles of Livelihood diversification

The participation of rural farm households in different livelihood strategies could
improve the total incomes of small holder rural households. By supporting this idea
(Woinshet,2010) argues that the participation of households into off-farm activities
have a potential to improve the living standard of the poor and hence have a greater
tendency in reducing income inequality, as it is important source of income for the

12
poor society. The same source states that the importance of income generated from
off-farm activities in rural Ethiopia is increasing through time.

Moreover, diversification of income sources has positive effect on the livelihood of

rural households and reduces their poverty situation. Income diversification is the key
for risk management and it could help vulnerable households to meet and smoothing
their consumption needs, social and labor needs and improve households‟ income
(Adugna, 2005). In the contrary to these studies some study results showed that poor
households are diversifying for survival strategy and this could not improve the
poverty status and therefore, diversification for copping strategy may not have
significant effect on poverty level (Wassie, 2005).

The participation of rural households in non/off-farm activities is significantly and

positively determined by education level of the household heads. The better educated
households are always coming up with better livelihood strategies and more likely to
participate non-farm and off-farm livelihood diversification (Amare and Belaineh,
2013). On the contrary to this, (Adugna, 2005) thesis research result depicted that
education level of the household head is negatively and significantly related to
non/off-farm participation which is suggesting house hold heads with more years of
education might have realized the low return from non/off-farm activities and decided
to work on agriculture only. Somewhat different result found by (Beyene, 2008)
justified that education has no significant effect on the decision of farm households to
participate in off-farm activities because the nature of off-farm activities in Ethiopia
are mostly agricultural wage works and traditional which does not require formal
education for its accomplishment.

Experience could matter livelihood diversification. Empirical studies stated that the
age old households are grasped skills from their life time experience which enable to
engage in non/off-farm activities. For example, (Khatun and Roy, 2012) found that
age have a significant and positive influence of farmers‟ livelihood diversification
options because of the experienced persons have more prospects of getting jobs in the
non-farm sector. Whereas other studies like (Gebrehiwot ,2018) argues that
households whose age relatively found in the range of productive labor are flexible
with situation, relatively active and more likely to diversify their livelihood strategies

13
into off-farm and non-farm activities than the older ones and as a result and livelihood
diversification have negative relationship.

The issue of labor is also considered in case of livelihood diversification. A higher

dependency ratio enhances the consumer to the producer ratio and undermines the
economic potential of the farmer to invest in different non-crop income generating
activities, (Gebrehiwot , 2018). On the opposite side, (Adugna, 2005) argue that more
dependency ratio indicates more inactive labor force which declines the ability of
households to meet subsistence needs of the family from agriculture only and
necessitates them to engage in non-farm activities. Hence, dependency ratio is
positively related to non-farm diversification.

Extension contact has a positive influence on households‟ choice to agriculture plus

off farm livelihood diversification strategy. The frequent extension contact received
would increase the tendency of the households to participate in off farm activities.
This is explained that the message/contents that the extension agents deliver to the
farmers initiate them to use risk aversion strategies that seek diversification of income
within and out of agriculture (Adugna, 2005).

It is also obvious that land size is a critical factor in the choice of livelihood
diversification strategies of rural farm households. Cultivating large land size would
enable the households to invest on non/off-farm activities and hence, larger land size
has significant and positive effect on non/off-farm activities participation (Amare and
Belaineh, 2013). However, (Demissie and Workineh, 2004) finding s revealed that a
large size cultivated land was found not to encourage diversification. This is because
those households having small plot size obliges farmers to participate other non/off-
farm activities to fulfill household needs.

(Demise and Workineh, 2004) findings also indicate that livestock has a positive and
significant effect on diversification of households livelihood into non-crop activities.
This is because households with more livestock are likely to have more capital and
thereby they invest on non-farm activities. On the other hand, (Adugna, 2005) showed
that livestock holding had significant negative relation to non/off farm participation.
That means the farmer with lower livestock holding would be obliged to diversify
livelihoods into off-farm and no-farm activities in order to meet the household needs.

14
Credit has a significant effect on the livelihood diversification strategies of farm
households. Regarding this, (Adugna, 2005) study revealed that credit use is found to
have a significant negative impact on the likelihood of choosing diversified livelihood
strategy which combines agriculture, off-farm and non-farm. This negative impact
may be attributed to the fact that credit use allows farmers to follow agricultural
intensification by accessing farm inputs which in turn improves productivity. On the
contrary to this, Destaw (2003) argues that credit considered as an important source
of investment and helps to improve livelihood strategies of households and hence,
households who have better access to credit could have better investment
opportunities for livelihood diversification.

Non-farm livelihood diversification determined by market access, availability of roads

and public transport services, simply because people must be able to sell their
processed products, handcraft outputs and their labor. For example, (Gebrehiwot and
Fekadu, 2002) found that market distance is negatively related to non/off-farm
livelihood diversification. They reason out that households nearby to market center
gets several key advantages such as access to different information, asset exchange
opportunities, save their substantial time, much lower transport costs and better and
more remunerative non-farm activities. However (Fikru, 2008) study result revealed
that there was insignificant relationship between market distance and non-farm
diversification. According to his justification most non-farm activities may not
directly relay on market access, and may rely more on local demand directly at the
household location, as for example sale of local drinks at the production site.

Based on these reviews one can conclude that in rural Ethiopia livelihood
diversification decision is driven by different factors which vary according to the
contexts, local settings and asset possessions of household.

2.4.Conceptual framework of the study

As it has been shown by different researchers, conceptual framework is a guide for
any research. Therefore, in order to have a clear understanding of the main
determinants of livelihood diversification and its effect on households‟ income
improvement the following conceptual framework is designed.

Rural households derive their livelihoods from a diverse portfolio of activities using
different types of resource for which they have access to achieve their livelihood

15
goals. However, a combination of livelihood strategies is not available for all
households. The involvement of households in a combination of activities and its
outcome depends on resource endowments and risk factors, and the existing
institutional and organizational factors asset level and income status of the household
(Ellis, 2000).

Literature showed that analyzing different livelihood strategies involves direct

examination of the individual household‟s asset endowment. For example, (Brown et
al., 2006) argues that the amount of income earned and even the type of activity
undertaken by a household is a function of the asset it controls. The same source
justified that certain activities may be beyond the reach of households without access
to the required financial, natural, physical, human or social capital. Thus, the access
and control of the different assets plays a great role in determining the choice and
involvement of diversified livelihood strategies.

Natural capitals: are the natural resource stocks from which resources flow and
services useful for livelihoods are derived. It also refers to land, water and
biodiversity that are utilized by people to generate their means of survival (Ellis,
2000).

Human capitals: refers to the labor available to the household: its education, skills
health (Ellis, 2000). It is often said that the chief asset possessed by the poor is their
own capital. Human capital is increased by investment in education and training as
well as by the skills acquired through pursuing one or more occupations. Labor as an
asset is also made more effective by being free of illness or debilitating health
problems.

Financial capitals: The capital base (household income, credit, and amount of
savings) which are essential for the pursuit of any livelihood strategy. There are two
main sources of financial capital such as available stock, which can be held in several
forms as cash, bank deposits, and liquid assets like earned income.

Physical capital: Comprises capital that is created by economic production process

such as buildings, irrigation canals, roads and machines. Important classes of physical
asset that facilitate livelihood diversification are infrastructural assets such as roads,
power lines, and water supplies. Roads have multiple effects in reducing the spatial

16
cost of transactions in resources and outputs. They also facilitate movement of people
between places offering different income-earning opportunities, they create markets
that otherwise would not come into existence, and in countries lacking in
telecommunication facilities, they play an import role in transfer of information
between rural centers and remote settlements.

Social capital: this term attempts to capture community and wider social claims on
which individuals and households can draw by virtue of their belonging to social
groups of varying degrees of inclusiveness in society at large. Social capital is
developed through networks and connectedness, membership of cooperatives,
membership of local institutions which facilitates cooperation.

In brief, a household bases its livelihood on the five types of assets including human
capital, social capital, physical capital, financial capital, and natural capitals that they
own or can access, to build livelihood activities involving income generating income
and improving capacity for their livelihood. The differential access and control over
these resources owing the farm households to follow different livelihood
diversification strategies.

Figure 2.1. Conceptual framework of the determinants of livelihood

diversification strategies

17
Source: Conceptual framework adapted from Emanuel (2011)

18
 CHAPTER THREE

3. RESEARCH METHODOLOGIES

3.1. Descriptions of the study area

3.1.1. Location of the study area

Sadi chanka district is one of the 12 districts which are found in kelem Wollega zone,
Oromia National Regional State of Ethiopia. The district located 572 km from Addis
Ababa. The district is located in the south eastern part of kellem wollega zone at a
distance of 63 km away from zonal capital (i.e. Dembi Dollo town). Astronomically,
the district is located between 7o 411 north latitude and 33o 711 east longitude. It is
bounded by Dale Wabara woreda in the north, Yemalogi Walal woreda in the west,
Dale sadi woreda in the east and Ilubabor zone in the south. The district has a total
area of 493.51 km2 (Kelem Wollega Planning and economic development office,
2021)

The district has 15 administrative subdivisions (kebele), out of which 13 are rural
kebeles and the remaining 2 are urban kebeles. From 13 rural kebeles administration,
4 kebeles namely Igukofale, mender-5, Dogano- adami and Komboowas the study
sites.

Figure 2.2. Map of SadiChankadistrict

19
 Source: KelemWollega planning and Economic Development, 2021

3.1.2. Weather conditions

The major rainy seasons in the district include spring (April – May), summer (June –
August) and autumn (September – November). The area receives annual rainfall
ranging from 1200mm-1500mm.The district is classified in to two major agro-
ecological zones kolla 85% which is low altitude characterized by relatively hot
temperature and woinadega 15% which is mid altitude, sub humid & cool. The
average daily temperature ranges from 20 oC – 30 oC. There are four types of soil in
the district which are loam, sand , clay and red soil; loam soil is highly suitable for
agricultural work while the remaining soils are also suitable for agriculture to some
extent (SadiChanka Agriculture Office, 2021).

3.1.3. Demographic characteristics of the study area

Based on the 2007 national census conducted by the central Statistical Agency of
Ethiopia (CSA), Sadi Chanka district has a total population of 59,860 which 48,733
(81.4 %) rural population (24,854 men 23,878 women) and 11,127(18.6%) urban
population is urban inhabitants of which (5,724 men, 5,404 women). In the study area
the total youth population is 17,958 of which 14,620 (7,456 male and 7,163 female)
(Sadi Chanka Agriculture Office, 2021)

3.1.4. Farming activities

In the study area the farming system is a mixed farming system mainly based upon
crop production and livestock rearing activities. Agriculture is dependent on the
Kiremt rains with minimum irrigation practices. According to (SChARDO,2021)
report in 2020/2021 production year only a total of 33.08km2 of land were cultivated
through irrigation practices; and a total of 93.72 km2 of land were cultivated through
rain-fed agriculture. This indicates that the small scale irrigation activities are not
expanded in the study area (Sadi Chanka Agriculture Office, 2021).

Maize and sorghum are the dominant and most important crops, serving as both the
main food and cash crops. Other crop grown in the study area includes finger millet
and sesame. Crop sales make the largest contribution to the household income
together with cattle, sheep and goat for their cash earnings. Cattle, sheep, goats,

20
donkeys, honey bee production and chickens are the most reared livestock. Cattle and
sheep are free grazers at the grazing land and are given complimentary crop residues
at the dry season whilst chicken scavengers and partly feed grain. Livestock are
significant source of income, mostly obtained from the sale of sheep and goat. Oxen
are used to provide traction power for land preparation activities(Sadi Chanka district
Agriculture Office, 2021).

3.1.5. Non-farm activities

According to ((Ellis, 2000).definition refers to non-agricultural activities. In his
definition non- farm activities include non-farm rural employment salary (like
security guard salary), non-farm employment (like shop keeping and local beer
selling), and income obtained from renting out land or property, urban-to-rural
remittances arising from cross boarder and overseas migration.

3.1.6. Off-farm activities

The term off-farm income refers to income from wage or exchange labor on others‟
farms. It includes labor payments in kind such as harvest share systems, income from
firewood, house building woods selling (Ellis, 2000).

3.2.Research Design
This study followed mixed method research design. In this mixed method research
design both qualitative and quantitative data collection and analysis is employed in
order to get both in depth information from small respondents as well as large
information from all sample respondents of the study area (Creswell, 2014). Data
collected and utilized for this study by this method to achieve objectives of the study
was a cross-sectional data. Among various typologies of mixed method, concurrent
embedded method was employed for data collection and analysis. In simultaneous
triangulation method, both qualitative and quantitative data collection, data analysis
and interpretation was employed simultaneously at the same time as well as one type
of data collection. Hence, from both qualitative and quantitative data collection
analysis, the quantitative element was the dominant one.

3.3.Data Types and Sources

This study employed both types of data meaning qualitative and quantitative to
analyze and investigate smallholder rural households‟ livelihood strategies, and
determinants of household livelihood strategies in the study area. Regarding data

21
source, both primary data and secondary data was collected in order to meet the
objectives of this study.

Household Survey: Information related to household demographic and socio-

economic characteristics, access to land, livestock, household assets, livelihood
strategies, income, access to social and economic infrastructures, social support
networks, access to credit, challenges to livelihood diversification strategy and the
like was collected through household survey from 351 sample households. This
household survey was undertaken by preparing structured questionnaire in English.
Household survey was conducted through hiring and giving training for enumerator
living and working as development agent in the study area. Enumerators had collected
data by door to door visiting of smallholder rural households.
Key Informant Interview (KII): One key informant interview at woreda level and
four at kebele level is held, to collect primary data. These Key informant interview
was very important in supporting the data collected by household survey. Participant
of key informant was selected based on their knowledge of the study area as well as
their age and educational status. Accordingly, four key informant interviews were
held with literate and well informed persons of the study area. At woreda level one
key informant interview was held with senior expert of the sadi chanka Agricultural
Development Office. At kebele level four key informant interviews were held with
four elders who have better knowledge about the study area as well as who have
better years of schooling as compared to others.
Observation: In all sample kebeles observation was held on infrastructure availability
with their respective quality, means of transportation, land use patterns, sources of
household energy, communication facilities, housing condition, and livelihood
activities.

3.4.Sampling Technique and sample size determination

The two stage sampling design was used to select the sample households. In the first
stage, 4 kebeles (namely Igukofale, Mender-5, Dogano-adami and Komboo), where
the large number of small holder farmers are rampant, purposively selected by the
help of Sadi Chanka district agriculture office workers. In the second stage, according
to the number of total households in each kebele, probabilistic proportionate to size
technique was applied to determine the total sample households size from each
kebele. Ultimately, a total of 351 sample household heads was selected.

22
The sample size was determined using statistical formula (Yamane formula) as
follows:
-------------------------------------------------------------------------equation 3.1

Where, N is the total population, e (margin of error) is 0.05(5%) while the confidence
level is 95%. Using the total population of selected kebeles and error margin of 0.05,
the sample size is calculated as follows.

N= Number of Total Households (2884)

n=Number of HH heads selected (351)
e = allowable error (%) or Sample of error (0.05)

Proportional sampling technique was used to select the sample from each of the four
kebeles. The sample selected from each selected kebeles was proportional to the
sample population in each kebele and the formula for this purpose was determined by
formula.
∑ Where - the sample to be selected from i‟s kebele, - the
total population living in selected i‟s kebele. ∑ The summation sign, ∑ – The
sum of total population in the selected four kebeles and – Total sample size
Table.3.1. Sampled Peasant Associations and Number of Households Selected
From Each Sampled Peasant Associations

S. No Name of kebeles
Total HHs(Ni) Number of HH heads Proportion
selected (%)
( )= ∑
1 Igu-kofale 804 98 28
2 Mender- 5 813 99 28
3 Dogano- adami 470 57 16
4 Komboo 797 97 28
Total ∑ =2,884 ∑ 351 100
Own computation 2021

23
3.5.Data Collection Techniques and Procedures
Data collection method utilized for this study was interview, observation and review
of different published and unpublished sources. Interview was used to collect both
quantitative and qualitative data by household survey, key informants, focus group
discussions and case study. On the other hand observation and review of published
and unpublished sources was undertaken to collect the required data for this study.
Data collection tool employed for household survey was structured questionnaire.
Furthermore data collection tool for key informant interview and observation was
checklist, which is prepared as open ended questionnaire. All the above-mentioned
tools are used to collect primary qualitative and quantitative data. Besides this
primary data, secondary data from reports of various offices was utilized.
Interview was held by using structured questionnaire with 351 rural households of the
study area by trained enumerators, who were working as development agent. Data
relating to households demography, socio economy, livelihood activities as well as
livelihood strategies, access to and ownership of livelihood assets and the like were
collected by these enumerators, through interviewing sample rural households of the
selected kebeles. This data collection method had a principal importance in gaining
the required information.
Checklist was prepared to collect qualitative data to support information collected
through household survey. For this specific study checklist was used to collect data
from key informant interview and observation. The nature of data collected by this
tool was qualitative. These data were collected through dialogue as well as by
observation.
Key informant interview was held with literate and well informed persons of the study
area. For this study four key informant interview were undertaken. The participants of
these key informant interview were one person from each four sample kebeles and
one person from woreda level expert. The data collected by this method had helped in
understanding of the data collected by household survey, because their understanding
on the subject matter was greater than others.
Observation on the other hand was undertaken to collect infrastructure status,
livelihood activities, transportation methods, vegetation cover and the like of all the
study area sample kebeles. While undertaking observation, residents of the kebele
were asked to clarify the collected information.

24
3.6.Methods of Data analysis
To analyze the data, both descriptive and inferential statistics were used. The types
and levels of assets a household own, types of shocks household faces, and constraint
of livelihood diversification strategy choice was analyzed through descriptive
statistics like maximum, minimum, mean, percentage, and was presented by using
table and graph. To analyze the determinants of livelihood diversification multinomial
logit model was used. The descriptive and inferential data analysis was conducted
using latest version 13.

3.6.1. Econometric model specification

In this study there were four mutually exclusive livelihood diversification strategies.
These include on-farm only, on-farm plus non-farm, on-farm plus off-farm, and on-
farm plus off-farm plus non-farm. According to many literatures multinomial logit
model is a widely used technique in applications that analyze polychromous response
categories in different areas of economic and social studies. (Wassie, 2008) stated that
multinomial logit model is an important model to examine the determinants of
household livelihood strategy choices among the alternative livelihood strategies.
Thus, to identify determinants of livelihood diversification strategy of rural farmer
households‟ multinomial logit model was used. The assumption is that in a given
period at the disposal of its asset endowment, a rational household head choose
among the four mutually exclusive livelihood strategies that could offer the maximum
utility.

Following (Greene, 2003), suppose for the ith respondent faced with j choices, the
utility choice j can be specified as:

If the respondent makes choice j in particular, the Uij is the maximum among the j
utilities. Do the statistical model is derived by the probability that choice j is made,
which is:

( )

Where; Uijis the utility to the ith respondent from livelihood strategy j; and Uik is the
utility to the ithrespondent from livelihood strategy K. Thus, he ithhousehold‟s

25
decision can be modeled as maximizing the expected utility by using the jth livelihood
strategy among J discrete livelihood strategies, i.e.:

( )

In general, for an outcome variable with j categories let the jthlivelihood strategy that
the ithhousehold chooses to maximize its utility could take the value 1 if the
ithhousehold chooses jthlivelihood strategy and 0 otherwise. The probability that a
household with characteristic x chooses livelihood strategy j, pij is modeled as:

( )
= , J=0 3.5
∑ ( )

With the requirement that ∑ for any i

Where; Pij=probability probability representing the ith respondent‟s chance of falling

into category j; Xi=predictors of response probabilities; and βj= Covariate effects
specific to jth response category with the first category as the reference. A convenient
normalization that removes indeterminacy in the model is to assume that β1=0
(Greene, 2003). So that exp(Xiβj)=1, implying that the generalized equation (4) above
is equivalent to:

( )
= , for J=0, 1…J and
∑ ( )

=
∑ ( )

Where, y=A polychromous outcome variable with categories coded from 0---J

Note: The probability of Pi1 is derived from the constraint that the J probabilities sum
to1.

That is Pij=1-ƩPij. So similar to binary logit model it implies that we can compute j
log-odds ratios which are specified as:

26
 3.6.2. Dependent and Independent Variables
In this study livelihood diversification is a polychromous dependent variable which
takes the value Y=0 if the household livelihood strategy is on-farm only; Y=1 if the
households livelihood strategy is on-farm plus non-farm; Y=2 if the households
livelihood strategy is on-farm plus off-farm; and Y=3 if households livelihood
strategy is on-farm plus off-farm plus non-farm activities.

The independent variables that expected to affect diversification of livelihood

strategies of rural household in the study area were discussed below.

Age of household head (AGHHS): Age is continues variable and reflects the age of
the household head in years. It is assumed that non/off-farm activities require active
labor force and those young age households relatively have active labor force which
enable them to participate on non/off-farm activities. Thus, as the mean age of the
household heads increases their ability to engage into different off-farm and non-farm
activities decreases (Gebrehiwot and Fekadu, 2012) and (Adugna, 2005). On the other
hand, it is obvious that experience increases with age and hence, age old persons have
more prospects of getting jobs in the non-farm sector. In relation to this idea (Khatun
and Roy, 2012) found that age have a significant and positive influence on farmers‟
livelihood diversification options. In this study, it is hypothesized that the age of
household head expected to have positive or negative influence on livelihood
diversification to non/off-farm activities.

Education level of the household head (EDCTN): Education refers to the education
level of the household heads. Education is a dummy variable which could take 0 for
illiterate and 1 for literate. (Tesema, 2009) found that there is a positive association
between more years of schooling and non-farm plus on-farm livelihood diversification
at less than 1% of level of significance. Literate people are always coming up with
better off strategies and often they engaged in better remunerated non/off-farm
occupations. This variable is thus, expected to have a positive impact on engagement
of households in the diversified livelihood strategies.

Land size (LAND):land size refers to the total size of cultivated land which may
obtained from own land, crop sharing land, and rented land in hectare in 2020/21
production year. It is a continuous variable. The amount of land cultivated can affect
the decision to participate in non/off-farm activities. A smaller amount of cultivated

27
land may not allow households to make a sufficient living from farm production
alone, causing them to look for supplementary income but those households who have
large farm land holding would have better probability to rely on cop production only
without any non/off-farm activities (Abera and Zeller, 2012; and Gebrehwot and
Fekadu, 2012). On the other hand, those farmers who cultivate large land size have
the capacity to produce more and that would enable them to accumulate startup
capital for participation in non/off-farm self-employment income at 1% probability
level (Amare and Belaineh, 2013). Therefore, in this study positive/negative
relationship is expected between total land size and household non/off-farm livelihood
diversification.

Sex of the household heads (SEX): It is a dummy variable which would take the
value 1 if the household head is male and otherwise. Male headed households are able
to participate in non/off-farm employment activities compared to female headed
households at 1% significant level (Amare and Belaineh, 2013). This is because
female major activities are mostly confined at home, their access to credit is limited
due to cultural and transportation problem. Therefore, in this study it is expected that
male headed households are able to participate in non/off-farm livelihood
diversification than female headed household.

Market distance (MARKET): Market distance is a continuous variable and which

refers to the amount of kilometer that the household‟s home away from the
surrounding area local market. It is assumed that the further a household is far from
the local market, the lower the likelihood of participation in non/off-farm sector.
(Amare and Belaineh, 2013) found that distance to the main market determine the
participation of farm households into non/off-farm study therefore, negative
relationship is expected between non/off-farm livelihood diversification and longer
market distance.

Livestock holding (LIVESTOCK): Livestock is a continuous variable which refers

to the total number of household‟s livestock holding in TLU. Larger house holing
generates household‟s income through sale of animals and animal products (milk,
butter etc.) and enables them to accumulate more capital and thereby investing in
different non/off farm activities. TLU per sample household is found to be the
significant and positive determinant of off-farm self-employment income at 95% level

28
of significance (Amare and Belaineh, 2013). Thus, it is hypothesized that those
households having large livestock holding are most likely to participate in non/off-
farm activities and positive relationship is expected.

Access to Irrigation (IRRIGATION): It is a dummy variable which will take 1 if

there is access to irrigation and 0 otherwise during 2020/2021 production year.
Irrigation in this context refers to the use of irrigation services for crop and/or
vegetables production during the dry season. An irrigation opportunity makes
multiple cropping possible which in turn will create agricultural surplus. This surplus
can be used for doing non-farm activities, particularly self-employment activities
(Khatun and Roy, 2012). In this study positive relationship is expected between
access to irrigation and non/off-farm livelihood diversification.

Credit Access (CREDIT): Credit access refers to the household‟s opportunity to get
credit service from formal and/or informal institutions. It is a dummy variable and
takes 1 if there is credit use by rural farm households and 0 otherwise. ( Khatum and
Roy, 2012) found that both the availability of and access to formal credit had a
positive and significant effect on the level of livelihood diversification. Because,
without access to institutional credit rural farming households are not able to
undertake any non-farm income-generating activities which requires some initial
investment. Similarly, in the study area providing credit to smallholder farming
households expected to improve their non-farm livelihood diversification. Therefore,
positive relation is expected between utilization of credit and livelihood
diversification.

Dependency Ratio (DPNR): It refers to the ratio of the dependent age groups (below
15 and above 65) to the working age groups (age groups from 15 up to 65). It is a
continuous variable. According to (Adugna, 2005) dependency ratio is found to have
a significant (P<0.10) positive correlation with choice of agriculture and non-farm
livelihood strategy. He justified that with increase in dependency ratio the ability to
meet subsistence need declines and the dependency problems make it necessary in the
household to diversify their income source. On the other hand, (Gebreiwot and
Fekadu, 2012) argue that a higher dependency ratio undermines the economic and
potential of the farmer to invest in non/off-farm activities. Thus, dependency ratio is
found to have negative and significant relationships with the participation of rural

29
households into non-farm activities. Therefore, from this study positive or negative
relationship is expected between dependency ratio and non/off-farm livelihood
diversification.

Membership of cooperatives (COOP): Cooperatives in this context defined as

members to an organized farmers‟ cooperative association which gives different
services to the members. It is dummy variable that takes1if they are member to the
cooperative organization otherwise 0. (Kharun and Roy, 2012) found that livelihood
diversification and membership of cooperative society have positive and statistically
significant relationship with livelihood diversification. Thus, it is expected that
positive relationship between membership to cooperative organization and non/off-
farm livelihood diversification.

Extension Contact (EXTENSION): Extension contact is the number of times the

household head contact with the extension personnel during the last 2020/2021
production year. It is a continuous variable. (Adugna, 2005) result revealed that there
is a significant relationship between extension contact and livelihood diversification
into agriculture plus off-farm. This is because the message/contents that the farmers
gain from extension agents help them to initiate to use risk aversion strategies that
seek diversification of income sources. Thus, in this study positive relationship is
expected between extension contact and livelihood diversification.

Urban Linkage (URBLNK): In this study urban linkage refers to smallholder‟s rural
farm households having relation/connection with their urban friends and/or relatives.
It is a dummy variable which takes1 if there is urban linkage and otherwise 0. Having
a relative or friend who are acting as a liaison between the farm household and an
employer in town or abroad, or the development of cooperative enterprise in the
community play a positive role in the participation of rural households in non-farm
activities and they will have a chance to start new non-farm business (Warren,2002).
Therefore, it is hypothesized that those farm households having relations/friendships
with urban dwellers have more probability to engage in non/off farm livelihood
diversification strategies.

Access to Mass Media (MASMEDIA): Mass media refers to farmers‟ access to

watching television and/or listening to radio at least once a week during the survey
year 2021. It is a dummy variable which would like 1 for households access to

30
television and/or radio at least once a week and 0 otherwise. It is expected that those
farmers having access to mass media at least once a week would likely to diversify
their income sources because they will have information to different potential non/off-
farm opportunities. Households who listen to radio and television at least once a week
were found to have greater likelihood to engage in non-farm activities (Emanuel,
2011). Therefore, positive relation is expected between accesses to mass media and
non/off-farm livelihood diversification.

Total Annual Household Income (TOTICM): Total income refers to the amount of
money in ETB that a household accumulated until 2020/2021. (Tezera, 2010)
indicated that the amount of money in hand can determine rural household‟s
capability to start a new business, whether in the farm or non-farm sectors. Without
start-up funds, or with only little cash available for investment, households are limited
to a small number of activities. Thus, the larger amount of total income of a
household could have positive relation with non-farm livelihood diversification.

Crop Production Risks (CRPRSK): It refers to the households‟ crop production

failure due to different emergencies like snow, crop diseases and shortage of rainfall
during 2020/2021 production year. It is dummy variable which takes 1 if there was
crop production risk and o otherwise. The occurrence of different hocks like animal
and crop disease increases the probability off-farm households‟ participation into non-
farm and off-farm activities (Woinishet, 2010). When there is crop production risk
farm households are compelled to engage in non/off farm activities diversification to
reduce the risk effect. Thus, in this study positive relationship is expected between
livelihood diversification and the occurrence of production risks.

Road Distance (Road): Road refers to the distance between the household home and
nearest road in km. (Khatum and Roy, 2012) stated that those households who have
not easy access to roads cannot travel to urban centers easily. As a result, household
found far from roads are not engage in non-farm activity. Hence, in this study longer
distance to the nearby road is negatively related to non-farm livelihood
diversification.

31
 CHAPTER FOUR

4. Results and Discussion

4.1. Socio-Economic and Demographic characteristics of the Respondents.

Socio-economic and demographic characteristics of the study area sample
respondents was presented in table 4.1. Among the interviewed 351 rural households
of the study area respondents 317 (90.31%) were male-headed, while 34 (9.69%)
were female-headed households. As it is indicated in the table age of sample
respondents was range from 30 – 70 years. Furthermore about 207(58.97%) of the
respondents were between 30 to 45age category, 140 (38.89%) of sample household
ages were from 46 to 65 age category and also 4(1.14%) households were above 65
years. This indicates that from the total sample respondents of the study area 95%
were economically active smallholder farmers.
According to the collected data from the study area 189(53.85%) sample respondents
were literate and 162(46.15%) respondents were illiterate. This data reveals that the
number of respondents who can read and write is greater than that of who are unable
to read and write.
Regarding family size of respondents, about 131 (37.32%) of households have less
than five family size and about 200 (56.98%) of respondent households have family
size which range between 6 – 10 individuals. Households who have family member
greater than 10 is about 20 (5.7%) of respondents. In general the average family size
of respondent‟s households is about 5 individuals.
Table 4.1 socio-economic and demographic characteristics of the respondents.

Characteristics Frequency Percent Cumulative percent

Male 317 90.31 90.31
Female 34 9.69 9.69
Sex Total 351 100.00 100.00
From 30 to 45 207 58.97 58.97
From 46 to 65 140 39.89 39.89
Above 65 4 1.14 1.14
Age Category Total 351 100.00 100.00
<5 Family size 131 37.32 37.32
6 to 10 Family size 200 56.98 56.98
Household >10 Family size 20 5.70 5.70
Family size Total 351 100.00 100.00
Source: Own survey, 2021

32
4.2. Livelihood Assets of Respondents
According to various scholars there were about five assets or capitals that were to be
utilized to lead living and that are useful in choosing livelihood strategies and
activities (Ellis, 1999). Accordingly they were Natural Capital, Human Capital, Social
Capital, Financial Capital and Physical Capital. So the assets that rural landless
households of the study area owns and have access to is presented in what follows.

4.2.1. Natural Capital

Land sizes: The amount of land a farmer owns can be associated with the amount of
produce obtained in a season ceteris paribus. It should, however, be acknowledged
that it is not always the case that the available land was fully utilized for farming. The
average land size owned by households in this sample was 2.909 hectares (table 4.2).
Land sizes ranged from 0.5 to 6 hectares per household.

4.2.2. Social Capital

Cooperative membership: Membership to cooperatives is a means of building social
net-works that enable households to obtain updated information in sharing pooled
labor, farm equipment, cash credit usage and other non-farm income generating
activities (Gebru and Beyene, 2012). The results of the survey indicate that, out of the
total of 351 sample respondents, 252(71.97%) were active cooperative members while
about 99(28.21%) of them were no longer willing to participate in some of these
cooperatives (Table 4.2). Here, most of the farm households involved in cooperatives
was diversifying their livelihood strategies into off-farm plus non-farm, on-farm plus
non-farm plus off-farm strategies.

Urban Linkage: With regard to urban linkage, the respondents were enquired as to
whether they have friends and relatives in the town, among the sample 351 sample
respondents 278 (79.20%) of the respondents confirmed that they have friends and/or
relatives in the town and the rest 73(20.8%) of the respondents have no relatives
neither friends‟ in the town.

4.2.3. Human Capital

Age of the households: It is assumed that non/off-farm activities require active labor
force and those young age households relatively have active labor force which enable
them to participate on non/off-farm activities. Thus, as the mean age of the household
heads increases their ability to engage into different off-farm and non-farm activities

33
decreases (Gebrehiwot and Fekadu, 2012) and (Adugna, 2005).In this study the mea
age of the sample respondents were 44.57 and ranges from 30 to70 years.

Education: Education is one of the major determinants of households‟ choice of

livelihood strategy in Sadi Chanka woreda as indicated by the results in Table 4.3.
According to the collected data from the study area 189(53.85%) sample respondents
were literate and 162(46.15%) respondents were illiterate. This data reveals that the
number of respondents who can read and write is greater than that of who are unable
to read and write. Literate people are always coming up with better off strategies and
often they engaged in better voluntary non/off-farm occupations.

Dependency Ratio: It refers to the ratio of the dependent age groups (below 15 and
above 65) to the working age groups (age groups from 15 up to 65). According to
(Adugna, 2005) increase in dependency ratio the ability to meet subsistence need
declines and the dependency problems make it necessary in the household to diversify
their income source. According to the data collected from the study area the mean
dependency ratio of the farmer‟s households were 1.805 and the minimum and the
maximum households dependency ratio was 0.1 and 4.3 respectively.

Extension Contact: Extension contact is the number of times the household head
contact with the extension personnel during the last 2020/2021 production year.
(Adugna, 2005) result revealed that there is a significant relationship between
extension contact and livelihood diversification into agriculture plus off-farm. This is
because the message/contents that the farmers gain from extension agents help them
to initiate to use risk aversion strategies that seek diversification of income sources.
As indicated in (table 4.2) below the average number of times the household head
contact with the extension personnel was 2.29 and the minimum and maximum
extension contact was 0 and 5 respectively.

4.2.4. Financial Capital

Access to Credit: Rural people need money for a variety of activities, including
purchasing ox or other cattle, purchasing agricultural inputs such as fertilizer and
seed, farm tools; or to engage in non-farm activities. However, they may lack
sufficient money for the activity they plan. Access to credit service, thus, becomes a
means to obtain money. As indicated in the table 4.3.below Out of the total sampled

34
households, 216 (61.54%) reported that they had access to credit and about
135(38.46%) households had no access in the study area.

Total Household Income: Total income refers to the amount of money in ETB that a
household accumulated until 2020/2021.As indicated in table 4.3.Out of the total
sampled households the mean average household income of the study area was
57,178.7 ETB and the minimum income was 10000 ETB while the maximum house
hold income of the respondents was 140,000ETB.

4.2.5. Physical Capital

Access to Irrigation: Irrigation in this context refers to the use of irrigation services
for crop and/or vegetables production during the dry season. An irrigation opportunity
makes multiple cropping possible which in turn will create agricultural surplus. In this
study from the sample respondents 290(82.62%) households were had access to
irrigation and 61(17.85%) had no access to irrigation.

Access to Mass Media: Mass media refers to farmers‟ access to watching television
and/or listening to radio at least once a week during the survey year 2020.Regarding
mass media from the total respondents of the study area 218 (62.11%) households had
access while133(37.89%) had no access to mass media.

Market distance: Market distance refers to the amount of kilometer that the
household‟s home away from the surrounding area local market. It is assumed that the
further a household is far from the local market, the lower the likelihood of
participation in livelihood activity. (Amare and Belaineh, 2013) found that distance to
the main market determine the participation of farm households diversification
strategy. According to the data collected in the study area the average market distance
of the respondents were 5.22 KM and the minimum maximum market distance were 2
KM and 6 KM respectively.

Distance from main road: Road refers to the distance between the household home
and nearest road in km. (Khatum and Roy, 2012) stated that those households who
have not easy access to roads cannot travel to urban centers easily. As a result,
household found far from roads are not engage in non-farm activity. Hence, in this
study the average distance between the household home and nearest road 0.98Km and

35
the minimum distance between the household home and nearest road was 0.1 KM and
the maximum distance was 3.5KM.

Livestock holding: In rural community livestock ownership is considered as measure

of wealth and status. In the study area mixed farming is practiced i.e. households
engage both in growing crops and raising livestock. Households which own large
number of livestock, can benefit a lot besides direct consumption they can gene rate
income from the sale of milk, egg, by products, and direct sale of animals. This
implies that livestock ownership had effect on rural livelihood (Amare and Belaineh,
2013).In this research the average livestock holding size of the sample respondents
were 7.38 and the minimum holding size and the maximum holding size was 0.5 and
18.8 respectively.

4.3. Agricultural Risks

Crop production Risk: It refers to the households‟ crop production failure due to
different emergencies like snow, crop diseases and shortage of rainfall during
2020/2021 production year. The occurrence of different hocks like animal and crop
disease increases the probability off-farm households‟ participation into non-farm and
off-farm activities (Woinishet, 2010).In this study among the sample respondents in
the study area the farmers households who faced challenges/risks of crop production
during the last production year 2020/21 were 73.5%and who do not faced any risks
were 26.5% (table 4.2).

Table 4.2 Description of Categorical Variables of the respondents.

Cumulative
Characteristics Frequency Percent percent
Education Literate 189 53.85 53.85
Illiterate 162 46.15 46.15
Total 351 100.00 100.00
Yes 252 71.79 71.79
Cooperative No 99 28.21 28.21
membership Total 351 100.00 100.00
Yes 278 79.20 79.20
Urban No 73 20.80 20.80
Linkage Total 351 100.00 100.00
Yes 216 61.54 61.54
Access to No 135 38.46 38.46
Credit Total 351 100.00 100.00
Crop Yes 258 73.5 73.5
production No 93 26.5 26.5

36
Risk Total 351 100.00 100.00
Yes 290 53.85 53.85
Access to No 61 46.15 46.15
Irrigation Total 351 100.00 100.00
Yes 218 37.89 37.89
Access to No 133 62.11 62.11
Mass Media Total 351 100.00 100.00
Source: Own survey, 2021

Table 4.3 Descriptions of Continues Variables of the Respondents.

Variable Obs Mean Std. Dev. Min Max

Age of the households 351 44.58 7.41 30 70
Extension contact 351 2.29 1.21 0 5
Land holding size 351 2.909 0.95 0.5 6
Road distance 351 0.98 0.67 0.1 3.5
Market distance 351 5.22 0.73 2 6
Livestock holding size 351 7.38 3.08 0.5 18.8
Household Income 351 57,178.7 31858.12 10,000 140,000
Dependency Ratio 351 1.805 1.055 0.1 4.3
Source: Own survey, 2021

4.4. Distribution of households by livelihood strategies adopted

Rural households in the study area engaged into different combination of livelihood
diversification activities. Agricultural land is declining from time to time, because of
this a significant part of the sampled respondents engaged into on farm +non-farm
activities. As it can be seen from the survey results on figure below, in the study area
out of 351 sampled respondents,93(26.5%) participated into on-farm activity and 60
(17.09%) respondents participated in both on-farm +off-farm, 107 ( 30.48%)
respondents participated into on-farm + non-farm diversification strategy and the rest
91 (25.93%) respondents engaged into on farm + off farm + non-farm diversification
strategies.

37
Figure 4.1.Distribution of households by livelihood strategies

livelihood diversification
93 107

91
60

26.50%
30.48%
17.09%
25.93%
On farm only
on-farm plus
non-farm On Farm
plus Off On Farm
Farm plus Non-
farm plus
Off Farm
Source: Own survey, 2021

4.5. Econometric Model Results

As specified in the methodology part of this research, multinomial logistic regression
model was used to identify factors affecting livelihood diversification strategies in the
study area. Under this section important variables (demographic, socio-economic,
institutional and land characteristic) which were hypothesized to influence the
households‟ decision to participate into different livelihood diversification strategies
are considered. The analysis was made by using; STATA 13 version. The
hypothesized explanatory variables were tested for the existence of Multicollinearity
and degree of association.

4.5.1. Multicollinearity and degree of association

Before conducting econometric analysis it is vital to look into the problem of
multicollinearity among the continuous explanatory variables and verify the degree of
associations among dummy explanatory variables which otherwise, the parameter
estimate would seriously be affected by the existence of multicollinearity among
variables. To this end, the variance inflation factor (VIF) and contingency coefficients
were used to test the degree of multicollinearity among the continuous variables and
to check the degree of association among the discrete variables. The values of VIF for
continuous variables were found to be small (i.e. VIF values less than 10). As a rule
of thumb, if the VIF of a variable exceeds 10, that variable is said to be highly
collinear (Gujarati, 2004).Based on the VIF result, in this study the maximum VIF
value 1.04 indicated that there is no problem of multicollinearity among the variables
38
in this study. Also, according to (Gujarati, 2004), contingency coefficient is a chi-
square based measure of association where a value 0.75 or above indicates a stronger
relationship between explanatory variables. Accordingly, the results of the
computation revealed that the maximum value of Contingency coefficient was 0.72
indicating no serious problem of association among discrete explanatory variables.
Table 4.4. Multinomial Logistic Regression results for household livelihood
strategies.
livelihood strategies
on-farm plus non- On Farm plus Off On Farm plus Non-
Variables farm Farm farm plus Off Farm

β P-Value β P-Value Β P-Value

AGE .0834292 0.013** .058397 0.076 .0668974 0.035**
SEX 2.093012 0.034** -.3640885 0.568 .5484606 0.443
EDCTN 1.433378 0.004** .9002779 0.073 1.328307 0.004**
LAND -2.107227 0.000*** -.5743073 0.092 -1.524512 0.000***
MARKET -.2125207 0.517 -.1466717 0.653 -.7499196 0.011**
LIVESTOCK .0872969 0.272 .0334645 0.691 -.0131415 0.869
IRRIGATION -.0032455 0.996 1.922691 0.016** .8877092 0.160
CREDIT 3.0758 0.000*** 2.238894 0.000*** 2.987724 0.000***
DPNR -.8837937 0.000*** -.5422511 0.018** -.0839422 0.692
COOP .6241862 0.235 .6561768 0.213 .4516271 0.364
EXTENSION .2804606 0.173 .3137562 0.133 .1854377 0.337
URBLNK -.7536376 0.208 -.2740371 0.655 1.65833 0.019**
MASMEDIA -.3691662 0.506 1.067221 0.056 .0136129 0.980
TOTICM 4.77e-06 0.513 -2.10e-06 0.776 2.53e-06 0.705
CRPRSK 2.637688 0.000*** 17.24785 0.972 .5958276 0.253
ROAD -.6400996 0.089 -.5815214 0.112 -.5244912 0.152
CONSTANT -1.28382 0.680 -19.60863 0.969 .4904922 0.861
Base Category On farm only
Number of observations 351
LR chi2(48) 388.74
Prob> chi2 0.0000,
Pseudo R2 (Nagelkerk ) 0.4054
Log likelihood -285.09421
Source: Own survey, 2021. ***, ** indicates significant at 1% and 5%
probability levels respectively.

Age of household head (AGHHS): As expected, age was found significant at 5%

probability level and positively influence smallholder farmers‟ livelihood
diversification into on-farm plus nonfarm income-generating activity. The positive
coefficients of on-farm plus non-farm and on farm plus non-Farm plus off farm
livelihood strategy implies that if other factors are held constant, as the age of the

39
household increases by 1 year, the probability of the household to choose income-
generating livelihood strategies increases by 0.83 and 0.07 factors for households who
rely on-farm plus non-farm and on farm plus non-Farm plus off farm activity. In
relation to this idea (Khatun and Roy, 2012) found that age have a significant and
positive influence on farmers‟ livelihood diversification options.

Sex of the household heads (SEX): Gender affects diversification options, including
the choice of income-generating activities of both farm and non-farm due to culturally
defined roles, social mobility limitations and differential ownership or access to assets
(Galabet al, 2002). In this study, as expected sex of household head is found to
positive and significant at 5% probability level. The likelihoods of using a
combination of strategies both farm plus non-farm activity is highly adopted by male
headed households. Thus, keeping other factors constant, the likelihood of male
headed household choice on farm plus non-farm combination livelihood strategies rise
by 2.09 units as we shift from female headed household to male headed household.
The opposite is true for the Female counterparts. This result is in agreement with
previous studies conducted by Adugna (2005) and Berhanu (2007).

Education level of the household head (EDCTN): In line with prior expectation,
education had positively and significantly influenced the household choices of farm +
non-farm and On Farm plus Non-farm plus Off Farm activities at 5% probability
level. These indicate that literate farmers households are more likely diversify their
livelihood strategies into farm + non-farm and On Farm plus Non-farm plus Off Farm
activities than illiterate farmers. From the model result, the likelihood of a household
diversifying into the farm + non-farm activities increase by 1.43 factor and also
likelihood of a household diversifying into On Farm plus Non-farm plus Off Farm
activities increase by 1.32 factor for those farmers who were literate. In other words,
literacy of the farmer household head can increase the chance of choosing farm plus
non-farm and On Farm plus Non-farm plus Off Farm activities. This study was
consistency with (Tesema, 2009) found that there is a positive association between
more years of schooling and non-farm plus on-farm livelihood diversification at less
than 1% of level of significance.

Land size (LAND): As expected, Land holding size significantly affects at 1%

probability level farmers who rely on farm plus non-farm and farm plus off farm. In

40
this study the relationship between farm land size owned by the household and
livelihood diversification was found to have negative relationship with farm plus non-
farm and farm plus off farm livelihood diversification strategy. According the above
result the coefficient of farm plus non-farm and farm plus non-farm plus off farm
livelihood activity was -2.10 and -1.52 respectively. The negative sign indicates the
household with small land size tend to shift from farm plus non-farm activity to farm
plus non-farm plus off farm livelihood activity. On the other hand having large land
size decreases the probability of farmers household diversification in farm plus
nonfarm and farm plus nonfarm plus off farm activates. A smaller amount of
cultivated land may not allow households to make a sufficient living from farm
production alone, causing them to look for supplementary income but those
households who have large farm land holding would have better probability to rely on
cop production only without any non/off-farm activities (Abera and Zeller, 2012; and
Gebrehwot and Fekadu, 2012).

Market distance (MARKET): As expected, distance to market center was found to

have negative relationship and statistically significant at 5% probability level with
household‟s likelihood of livelihood diversification into on-farm plus non-farm plus
off-farm income-generating activities. According to the beta coefficients distance
from nearest market center indicates that keeping other factors constant, the
smallholder farmers to choose farm plus off-farm + non-farm livelihood
diversification strategies decreases by factor of 0.011 as the distance from the
household‟s home to market center increases by 1 km. It is clear that the more
households are distant from market center, the more disadvantaged from diversifying
their livelihood income into farm + off-farm + non-farm options. This study is
consistence with (Amare and Belaineh, 2013) found that distance to the main market
determine the participation of farm households into non/off-farm.

Access to Irrigation (IRRIGATION): As expected, access to irrigation has found

positively and significantly affected households‟ livelihood diversification strategy
into on-farm plus off-farm at 5% level of significance. Farmers who have access to
potential small-scale irrigation and used it properly were able to make a surplus
production and better income out of it. According to the model result as access to
irrigation scale increases by 1 the likelihood of choosing on-farm plus off-farm
strategy of the households increases by 0.02 factor.

41
In addition, the surplus income gained from irrigation helps them in strengthening
their economic capacity to participate in different farm plus off farm livelihood
diversification activities to improve their livelihood and food security level in the
study area. This study is consistence with (Khatun and Roy, 2012).

Credit Access (CREDIT): As expected statistically significant coefficients of

3.08,2.23 and 2.98 (Table 4.5) indicate a positive relationship between the increase in
the number of sources of credit and the probability of the households to diversify their
livelihood strategies into farm plus non-farm , farm plus off farm and on-farm + off-
farm + non-farm. Credit access has a potential of influencing households in the study
area to shift from on-farm plus non-farm livelihood strategy to farm plus off-farm and
on-farm + off-farm + non-farm livelihood strategies. As the chances to access credit
and the number of credit sources increases, the probability of households to engage
into these livelihood strategies increases. Holding all other factors constant, an
increase in access to credit by 1 extra source will result in 3.08,2.23 and 2.98 units
increase in chances to shift from farm plus non-farm , farm plus off farm and on-farm
+ off-farm + non-farm livelihood strategies respectively. (Khatun D, 2012)found that
both the availability of and access to formal credit had a positive and significant effect
on the level of livelihood diversification. Because, without access to institutional
credit rural farming households are not able to undertake any non-farm income-
generating activities which requires some initial investment.

Dependency Ratio (DPNR): As expected, the coefficient of dependency households

was found to have negative relationship with on farm +non-farm and on-farm + off-
farm choices of household livelihood diversification strategies and statistically
significant at 1% and 5% probability level respectively. This implies that households
with high dependency ratio have low probability level to participate in on farm +non-
farm and on-farm + off-farm income-generating livelihood diversification strategies.
According to the model result as the number of individuals whose age is below 15 and
above 64 increases by 1 the likelihood of choosing on farm +non-farm and on-
farm + off-farm strategy declines by 0.88and 0.5 factors respectively.

The result of this study is consistent with the finding obtained by (Gebreiwot and
Fekadu, 2012) argue that a higher dependency ratio undermines the economic and
potential of the farmer to invest in non/off-farm activities. Dependency ratio is found

42
to have negative and significant relationships with the participation of rural
households into non-farm activities.

Urban Linkage (URBLNK): The result of the model shows that, this variable has
positive and significant effect on likelihood of choosing on farm plus non-farm plus
off-farm livelihood strategies. Urban and Market proximity affect the choice of
diversification and nonfarm livelihood strategies at 5 % significant level. Holding
other factors constant as nearness to the urban increases the likelihood of the
household to choose on farm plus non-farm plus off-farm livelihood strategies also
increases by 0.02 factors. This implies that, households who are very near to market
and urban choose more likely diversification and nonfarm livelihood strategies than
farming livelihood strategies, because they have more access to market linkage and
different livelihood activities. In other words the possible reason for households who
are near to market is, they have quick physical access to the market, to transport
output and input from and to their residence and there is increased chance of
participation in wage labor, small business (petty trade) and other on farm plus non-
farm plus off-farm activities. Furthermore those who are more near to market have
access to different infrastructures that directly and indirectly support the choice of
diversification and nonfarm livelihood strategies. This finding is consistent with
(Eneyew, 2012) which says that the larger the distance to market the lesser is
diversification of livelihood strategies. According to(Nigussie, 2017), household who
are nearer to the market have more propensity choice to be engaged in agriculture plus
off-farm livelihood strategy diversification compared to alternative agriculture only.

Crop Production Risks (CRPRSK): As hypothesized, coefficients of crop

production risk was found to have positive relationship with on farm plus non-farm
choices of household livelihood diversification strategies and statistically significant
at 1% probability level. Holding other factors constant as crop production risk
increases by 1 percent the likelihood of the household to choose on farm plus non-
farm livelihood strategies also increases by 2.6 factors. This implies that households
with high occurrence of different hocks like animal and crop disease increases the
probability households‟ participation into farm plus non-farm activities. This study
was consistence with (Woinishet, 2010) when there was existence of crop production
risk farm households are compelled to engage in non/off farm activities
diversification to reduce the risk effect.

43
 CHAPTER FIVE

5. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1. Summary
Livelihood diversification activities have become an important component of
livelihood strategies among farming households in most developing countries, and
non-farm income diversification has recently received increased attention in
discussions about rural development and poverty reduction. This study was conducted
to examine the determinants of livelihood diversification strategies of smallholder
rural farm households in the study area. Data was collected from a sample of 351
farmer households in four kebeles of sadi chanka distirict (namely Igukofale, Mender-
5, Dogano-adami and Komboo). Descriptive statistics and multinomial logit
regression model were used to analyze the nature and extent of livelihood
diversification activities. The descriptive statistics result showed that, out of 351
sampled respondents,93(26.5%) participated into on-farm activity and 60 (17.09%)
respondents participated in both on-farm plus off-farm, 107(30.48%) respondents
participated into on-farm plus non-farm diversification strategy and the rest 91
(25.93%) respondents engaged into on farm plus off farm plus non-farm
diversification strategies. The model result indicated that out of the 16 hypothesized
variables in the model, 10 were found to be significantly influenced households
adoption of alternative livelihood strategies at less than 5% probability levels. These
variables include land size, membership to cooperatives, urban linkage, Market
distance, road distance, access to irrigation, access to mass media, household total
income, access to credit, Sex, education level, dependency ratio, age, extension
contact, crop production risk.

5.2. Conclusions
From the finding of the research, it is clear that the agricultural sector alone cannot be
relied upon as the core activity for rural households as a means of improving
livelihood, achieving and reducing poverty in the study area.

Livelihood diversification is gaining/playing prominent role in rural household‟s

income and food security. Even though, regarding the rural economy in Ethiopia,
policy makers give almost full attention to agricultural sector. Nevertheless, there is a
growing evidence that rural sector is much more than just farming. The result of this
44
study indicated that there were agricultural risks and low livelihood asset endowments
were main characteristics of livelihood diversification strategies and this insufficient
asset could not enable them to generate sufficient livelihood outcome. To overcome
the situation, majority of poor households depend on other livelihood options rather
than agriculture, which is not worthy. Results suggest that different livelihood
diversification strategies are influenced by different factors. The model result
indicated that out of the 16 hypothesized variables in the model, 10 were found to be
significantly influenced households adoption of alternative livelihood strategies at less
than 5% probability levels. Accordingly, the model result indicated that the age of
household head, sex , education, credit, crop production risk influenced positively and
significantly the choice of farming plus non-farming, while the land size and
dependency ratio were negatively and significantly affected the diversification of
livelihood into farming plus non-farming activities. On the other hand irrigation and
credit access had positively and significantly influenced the household choices of
farm plus off-farm activity and dependency ratio had negatively and significantly
affect the household choices of farm plus off-farm activities.

Similarly, education, credit and urban linkage had positively and significant influence
on the household decision of selecting diversified livelihood strategies into farm plus
non-farm plus off-farm activities, while land size had negative and significant
influence on livelihood strategies choice of farm plus non-farm plus off-farm
activities.

5.3. Recommendations
Based on the findings of the study, the following recommendations are possible areas
of intervention, which might help to adopt best alternative livelihood diversification
strategies in the study area particularly and in general as a whole.

 The important roles of education and training in diversification of livelihood

strategies suggests to give due attention in promoting farmers education through
strengthening and establishing both formal and informal type of education,
developing farmers' training centers, expanding technical and vocational schools.
 The significant influence of the variable sex on household livelihood strategies
choice considers government and other responsible bodies to design necessary

45
 strategies to create awareness among the community to participate women equally
with man in all development activities.
 The significant and positive effect of age on adoption of on farm plus non-farm
activities calls policies instruments to build capacity of rural farm households in
the area of non-farm activities in order to enhance their skill to exploit the
opportunity sustainably. ·
 The negative and significant impact of land size on livelihood diversification
suggests concerned bodies to develop appropriate strategies and policies
especially for land resource-poor farmers. It also concerns promoting and creating
positive environment for the emerging livelihood alternatives like non-farm and
off-farm activities. The presence of very small size of land calls for giving
emphasis in agricultural intensification to enhance the productivity of the land so
that generate adequate income and food.
 Distance to markets is one of the key factors that influence households to diversify
on farm plus non-farm and off farm activity. Therefore, intervention by both
government and non-government agencies are needed to improve market
accessibility in the study area. Also policies that can help boost markets in this
area should be exploited. Transport facilities and infrastructures are important for
market access. They need to be developed to increase access to an arrangement of
opportunities to improve the livelihood of households.
 Rehabilitation of irrigation schemes in the study area by the government is also
necessary as it may increase the chances of household livelihood diversification
strategy and hence improve the average household income in the study area.
 Majority of the study area respondents do not have access to credit service as
required. Because of lack of capital respondents of the study area were not
pursuing livelihood strategies or activities of their choices. So it is very important
for Micro Finance Institutions, Micro and Small Enterprise Office, Woreda
Administration Office and NGOs operating in the study areas to solve this lack of
capitals required as an input to undertake a given livelihood activities.
 Special attention should also be given to avoid crop failure, since respondents of
the study area expenditure on land rent and other input is very high in undertaking
production of a given crop. There should be special activities of pre preparation to
mitigate the impacts that comes from different pests.

46
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50
Appendixes

Appendix 1: Questionnaire

DAMBI DOLLO UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

Household Survey Questionnaire

Dear respondent! The aim of this questionnaire is to collect data for the study entitled
“DETERMINANTS OF LIVELIHOOD DIVERSIFICATION STRATEGIES:
THE CASE OF SMALLHOLDER RURAL FARM HOUSEHOLDS IN SADI
CHANKA DISTRICT.”. This study is required for the completion of Masters of
Arts degree in Development Economics in Dambi Dollo University. The study aims
to examine the determinants of smallholder farming households‟ livelihood
diversification strategies in Sadi Chanka district. Questions included in this
instrument are useful to get information pertaining to livelihood strategies of
households, asset base of households, determinants and challenges of your choice of
strategies. The information you give will only serve for academic purposes, and thus
your genuine response to questions is very important in achieving the goal of this
study. The information you provided me will be kept confidential and you will never
be identified as the source of the information. I thus kindly request you to respond to
these questions genuinely.

Date of interview
_______________________________________________________________

Name of
interviewer________________________________Signature____________________

51
Name of household head/
respondent_______________________________________________

PA/kebele of the
respondent______________________________________________________

A. GENERAL HOUSEHOLDIDENTIFICATION

1. Livelihood assets information

1.1. Human Assets

1.1.1. Sex of respondent. 1=male, 0=female

1.1.2. Education level of the respondent. ________________________________

1.1.3. Age of the respondent__________________________________________

1.1.4. Age, sex and family size of household members

Age categories Male Female

30 to 45

45 to65

>65

family size
<5 family size
6 to 10 family size
>10Family size

1.1.5. Did you experience labor shortages at the peak labor periods during the last
one production year? 1=yes, 0=no

52
1.1.6. If yes do you hire labor? 1= yes, 0= no. Again If yes, for what duties? Please
go in detail

Number of people
What duties/tasks hired per duty Male Female

1.1.7. If yes what services have you got?__________________

1.1.8. Do you have had extension contact with PA development agents during the
last one year? 1=yes, 0=no

1.1.9. If yes, how many contacts did you had during the last one year?

1.1.10. For what purpose you have had extension

contacts?_______________________________________________________
______

1.1.11. Have you get any training(s) from DAs?

1.1.12. If yes what kind of training(s) have you

attended?_______________________________________________________
_________________________________

1.1.13. Did you use improved agricultural technologies during the production year
(2020/2021)? 1=yes, 0=no

53
1.1.14. If yes what agricultural inputs do you used? Please go detail on the table
below

S/No. Name of agricultural inputs Quantity/costs per year?

Quantity in kg/No. Total price in ETB

1 Fertilizer

1 Dap

Urea

2 Improved seeds

Maize

Wheat

Sorghum

3 Pesticide and herbicide

4 Improved animal breeds

Dairy cow

Modern hive for honey bee

Poultry

1.2. Natural assets

1.2.1. Do you have farm land other than your residential site? 1=yes, 0=no

1.2.2. If yes please what is the Source land that respondents have access to

(Own land=1,Rented land=2,Land sharing=3)

1.3. Physical assets

1.3.1. Do you have access to irrigation of land? 1=yes, 0=no

1.3.2. If yes what and how you produce in quintal from each type of crops or
vegetables?
_______________________________________________________________
_______________________________________________________________

54
1.3.3. How far is the road from your residential site?
________________________km

1.3.4. Did you have listened TV and/or radio once a week during the last one year?
1=yes. 0=no

1.3.5. Where do you sell your farm products? (multiple answers possible)

1) On farm (local assembler)

2) In the local market

3) Through service cooperatives

4) Others(specify)____________________________________________
_________________________________________________________
____________

1.3.6. How much is the market far from your home/residence? __________km
or_______hr

1.3.7. What were the problems you faced in marketing your products?

1) Transportation problem

2) Homes too far from market place

3) Through service cooperatives

4) Others (specify)
_________________________________________________________
_________________________________________________________
_______________________________________________

1.3.8. Do you rear livestock? 1=yes, 0=no.

55
1.3.9. If yes please go in detail below (livestock rearing for the last 12 months)

Total sales and

Total number of slaughtered at home in
Livestock types livestock owned Birr

Sheep

Goats

Heifer

Bull

Cow

Calf

Donkey

Horse

Mule

Sheep

Goats

poultry

Others

1.3.10. Fill the following table for annual income gained from livestock products and
by-products

Income from livestock Sales amount in Birr Estimated consumption

products and by-products during the last 12 months in
Birr

Milk and milk products

Eggs

Skin and hide

56
 Meat

Manure

Honey

Others

1.3.11. Did you face any problems in livestock production during the last 12 months?
1=yes, 0=no

1.3.12. If yes what is/are major problems of livestock production you faced during the
last 12 months?

1) Lack of grazing land

2) Shortage of drinking water for animal

3) Lack of veterinary service

4) Lack of improved breeds

5) Lack of working capital

6) Other(specify)_____________________________________________
_________________________

1.4. Social assets

1.4.1. Are you member to at least one local institution? 1=yes, 0=no

1.4.2. If yes, which institution are you member in?

1. Ekub

2. idir

3. mahiber

1.4.3. What is the purpose of being membership to local institution/organizations?

1) Getting information regarding agricultural and no agricultural activities

2) Labor sharing for agricultural activities

57
 3) For religious purpose

4) Getting credit

5) Getting labor and cash aid at the time of emergency

6) Others
_________________________________________________________
______________________________________

1.4.4. Are you member of farmers‟ cooperative associations? 1=yes, 0=no

1.4.5. If yes what benefits did you gain from being membership to such
cooperatives?

1) Farm product selling with better price

2) Labor sharing

3) Credit with low interest

4) Buying cheap price goods

5) Others___________________________________________________
____________________________________________

1.4.6. If no, what is the probable reason?

1) No information on the availability of service cooperatives

2) No profit for being membership

3) Other(specify)_____________________________________________
____________________________________

1.4.7. Do you have friends or relatives in the town? 1=yes, 0=no

1.4.8. If yes what benefit have you got from your relatives/friends?

1) Getting information about information of different prices

2) Getting credit from them

58
 3) Getting information about new agricultural technologies

4) Others(specify)____________________________________________
_________________________________________________________
_________________

1.5. Financial Assets

1.5.1. Did you use credit during the last one production year (2020/2021)? 1=yes,
0=no

1.5.2. If yes fill the following table

Purpose(s) Amount in Interest Total amount

of taking kind of Birr amount paid/returned
Source of credit credit borrowed paid Birr

1. Formal

Commercial Bank

Service cooperatives

Oromia credit and

saving institution

2. informal

Local institutions
like idir and ikub

Local money
lenders

Friends and relatives

others

59
1.5.3. codes for purpose(s) of taking credit

1) Purchase of oxen

2) Purchase of seeds

3) Purchase of fertilizer

4) Purchase of chemicals

5) Purchase of farm implements

6) For consumption

7) For social obligation

8) To start new investment

9) Others___________________________________________________
_________________________________________________________
____________

1.5.4. If no why? (multiple answers are possible)

1) Fear of ability to pay

2) Lack of collateral

3) High interest rate

4) No need for credit

5) Others(specify)__________________________________________________
_______________________________________________________________
____________

1.5.5. Do you have saving habit? 1= Yes, 0= no, if yes how much is the current
amount of saving ___________________Birr or in kind
___________________Qt. which is extra of consumption

1.6. Agricultural risks

60
Did you face challenges/risks of crop production during the last production year?
1=yes, 0=no. If yes, what problems did you face?

1) Crop diseases

2) Shortage of rainfall

3) Frosts and ice

4) Others

2. Livelihood Strategies

2.1. Which kinds of livelihood strategies are you depending on; to lead your
living?

0 = farm only

1 = farm plus non-farm;

2 = farm plus off-farm;

3= farm plus off-farm plus non-farm activities.

2.1.1. Non/off-farm Activities contribution to household income

2.1.1.1. Do you get any income from non/off-farm activities during the last 12
months? 1=yes, 0=no. If yes please go in detail and fill the information
in the table below.

Total income during Raw

the last 12 months materials cost
S/No. Source of income (Birr) in Birr

1 Income from off-farm activities

1.1 Daily wage labor

1.2 Sales of fire wood

1.3 Sales of charcoal

1.4 Rent of land, pack animals, and oxen

61
1.5 Others

2 Income from non-farm activities

Petty trading like trading of orange,

2.1 banana, spices, mango, groundnut, etc

2.2 Handcrafts (weaver, pot making, etc)

Selling local beverages (Tella, Katikala,

2.3 etc)

2.4 Trading of cattle and small ruminants

Remittances (income from

2.5 relatives/friends)

2.6 Tanning and blacksmith

2.7 Others

2.1.2. If you do not employ non/off-farm livelihood diversification strategies what

are the constraints of non/off-farm livelihood diversifications?

1) Lack of credit

2) Lack of different opportunities like poor infrastructure and

unavailability of different supportive GOs and NGOs

3) Bad cultural habits

4) Lack f working capital

5) Gender division of labor

6) Availability of different agricultural and non-agricultural risks

7) Lack of labor

8) Others___________________________________________________
_________________________________________________________
____________

62
2.1.3. If you engaged in non/off- farm livelihood diversification why do you follow
livelihood diversification strategies?

1) For survival

2) For risk minimization

3) For income improvement

4) Other____________________________________________________
_________________________________________________________
____________

2.1.4. If you do not employ non/off-farm livelihood diversification strategies what

are the constraints of non/off-farm livelihood diversifications?

1. Lack of credit

2. Lack of different opportunities like poor infrastructure and

unavailability of different supportive GOs and NGOs

3. Bad cultural habits

4. Lack f working capital

5. Gender division of labor

6. Availability of different agricultural and non-agricultural risks

7. Lack of labor

8. Others___________________________________________________
_________________________________________________________
____________

2.1.5. If you engaged in non/off- farm livelihood diversification why do you follow
livelihood diversification strategies?

1. For survival

2. For risk minimization

63
 3. For income improvement

4. Other____________________________________________________
_________________________________________________________
__________________

2.2. Farm activities and its contribution to household income

2.2.1. Do you grow crops 1=yes, 0=no

2.2.2. If yes please fill the information you have in the last 12 months in the table
below

Total harvest (Kg/Qt)

Area covered
in ha/oxen Total harvest Total amount
plough in (Kg/Qt) in Birr at local
S/No. Crops grown 2020/2021 Price

1 Maize

2 Sorghum

3 Teff

4 Sesame

5 Groundnut

6 Noug

7 vegetables

8 Fruits

Garden plants like gesho

9 and eucalyptus

10 Others

64
Appendix 1.1.Observation Guide

Appendix 1.2.Checklist for Key Informant Interview

1. What kinds of strategies are employed by rural households in order to survive and
improve living?
2. Do you think that livelihood strategies in your area are open to all households
residing in your areas?
3. What are the entry barriers for households not to involve in better livelihood
combinations?
4. Do you observed that when households abandon their previous activities and
begin a new one or switching between different activities? If so what is the
reason?
5. Is there any policies, legislations, regulations, local norms, traditions, etc. that
encourage or discourage certain kinds of livelihood activities?

65
Appendix 2: Conversion factors to compute tropical livestock units' equivalents
Animal Category TLU

Calf 0.25

Weaned Calf 0.34

Heifer 0.75

Cow and Oxen 1.00

Horse 1.10

Donkey (adult) 0.70

Donkey (young) 0.35

Camel 1.25

Sheep and Goat (adult) 0.13

Sheep and Goat (young) 0.06

Chicken 0.013

Source: Storck el at. (199 1) in Gemechu (2018)

66
Appendix 3: Stata Outputs
Multinomial logistic regression Number of obs = 351
LR chi2(48) = 388.74
Prob > chi2 = 0.0000
Log likelihood = -285.09421 Pseudo R2 = 0.4054

LIVELIHOODDIV Coef. Std. Err. z P>|z| [95% Conf. Interval]

On_farm_only (base outcome)

on_farm_plus_non_farm
AGE .0834292 .0334313 2.50 0.013 .0179051 .1489534
SEX 2.093012 .9877962 2.12 0.034 .1569669 4.029057
EDCTN 1.433378 .4921598 2.91 0.004 .4687623 2.397993
LAND -2.107227 .3336554 -6.32 0.000 -2.761179 -1.453274
MARKET -.2125207 .3281497 -0.65 0.517 -.8556823 .430641
LIVESTOCK .0872969 .0794983 1.10 0.272 -.068517 .2431107
IRRIGATION -.0032455 .667727 -0.00 0.996 -1.311966 1.305475
CREDIT 3.0758 .5595763 5.50 0.000 1.979051 4.172549
DPNR -.8837937 .2398257 -3.69 0.000 -1.353843 -.4137439
COOP .6241862 .5250896 1.19 0.235 -.4049704 1.653343
EXTENSION .2804606 .2059336 1.36 0.173 -.1231617 .684083
URBLNK -.7536376 .5990303 -1.26 0.208 -1.927715 .4204401
MASMEDIA -.3691662 .5555256 -0.66 0.506 -1.457976 .719644
TOTICM 4.77e-06 7.30e-06 0.65 0.513 -9.53e-06 .0000191
CRPRSK 2.637688 .638355 4.13 0.000 1.386535 3.888841
ROAD -.6400996 .3766462 -1.70 0.089 -1.378313 .0981133
_cons -1.28382 3.108134 -0.41 0.680 -7.375651 4.808011

On_Farm_plus_Off_Farm
AGE .058397 .0328906 1.78 0.076 -.0060674 .1228614
SEX -.3640885 .6374837 -0.57 0.568 -1.613534 .8853566
EDCTN .9002779 .5027359 1.79 0.073 -.0850663 1.885622
LAND -.5743073 .3403626 -1.69 0.092 -1.241406 .0927911
MARKET -.1466717 .3259241 -0.45 0.653 -.7854713 .4921278
LIVESTOCK .0334645 .0841149 0.40 0.691 -.1313977 .1983267
IRRIGATION 1.922691 .7944571 2.42 0.016 .3655837 3.479798
CREDIT 2.238894 .5570185 4.02 0.000 1.147158 3.33063
DPNR -.5422511 .22841 -2.37 0.018 -.9899264 -.0945758
COOP .6561768 .5271003 1.24 0.213 -.3769208 1.689274
EXTENSION .3137562 .2089143 1.50 0.133 -.0957084 .7232207
URBLNK -.2740371 .6137252 -0.45 0.655 -1.476916 .9288422
MASMEDIA 1.067221 .5582224 1.91 0.056 -.0268748 2.161317
TOTICM -2.10e-06 7.37e-06 -0.28 0.776 -.0000166 .0000124
CRPRSK 17.24785 498.431 0.03 0.972 -959.659 994.1547
ROAD -.5815214 .3660674 -1.59 0.112 -1.299 .1359575
_cons -19.60863 498.4409 -0.04 0.969 -996.5348 957.3175

On_Farm_plus_Non_farm_plus_Off_F
AGE .0668974 .0316721 2.11 0.035 .0048213 .1289735
SEX .5484606 .7149275 0.77 0.443 -.8527716 1.949693
EDCTN 1.328307 .4634197 2.87 0.004 .4200211 2.236593
LAND -1.524512 .3132382 -4.87 0.000 -2.138448 -.9105767
MARKET -.7499196 .2961138 -2.53 0.011 -1.330292 -.1695472
LIVESTOCK -.0131415 .0798318 -0.16 0.869 -.169609 .1433261
IRRIGATION .8877092 .6315255 1.41 0.160 -.3500581 2.125476
CREDIT 2.987724 .541414 5.52 0.000 1.926572 4.048876
DPNR -.0839422 .2116538 -0.40 0.692 -.4987761 .3308917
COOP .4516271 .4972643 0.91 0.364 -.522993 1.426247
EXTENSION .1854377 .1932694 0.96 0.337 -.1933634 .5642388
URBLNK 1.65833 .7047012 2.35 0.019 .2771406 3.039518
MASMEDIA .0136129 .5470275 0.02 0.980 -1.058541 1.085767
TOTICM 2.53e-06 6.68e-06 0.38 0.705 -.0000106 .0000156
CRPRSK .5958276 .5213262 1.14 0.253 -.425953 1.617608
ROAD -.5244912 .3656958 -1.43 0.152 -1.241242 .1922594
_cons .4904922 2.810556 0.17 0.861 -5.018096 5.99908

Source: Own computation result based on survey data (2021)

67
. reg AGE LAND MARKET LIVESTOCK DPNR EXTENSION TOTICM ROAD

Source SS df MS Number of obs = 351

F( 7, 343) = 2.89
Model 1071.32069 7 153.045813 Prob > F = 0.0060
Residual 18165.779 343 52.9614549 R-squared = 0.0557
Adj R-squared = 0.0364
Total 19237.0997 350 54.963142 Root MSE = 7.2775

AGE Coef. Std. Err. t P>|t| [95% Conf. Interval]

LAND 1.09661 .4180737 2.62 0.009 .2742993 1.918921

MARKET -.3848446 .5430622 -0.71 0.479 -1.452996 .6833068
LIVESTOCK -.305607 .127744 -2.39 0.017 -.5568671 -.0543468
DPNR -.7315996 .3774966 -1.94 0.053 -1.474099 .0109
EXTENSION -.5532944 .3268689 -1.69 0.091 -1.196214 .0896255
TOTICM -8.49e-06 .0000123 -0.69 0.490 -.0000327 .0000157
ROAD -.4531836 .5971195 -0.76 0.448 -1.627661 .7212933
_cons 49.18323 3.358545 14.64 0.000 42.5773 55.78917

. vif

Variable VIF 1/VIF

ROAD 1.07 0.934250

LAND 1.06 0.947447
DPNR 1.05 0.953400
MARKET 1.04 0.962042
EXTENSION 1.03 0.967472
LIVESTOCK 1.03 0.971867
TOTICM 1.01 0.985381

Mean VIF 1.04

Source: Own computation result based on survey data (2021)

68
. pwcorr SEX EDCTN MARKET IRRIGATION CREDIT COOP URBLNK MASMEDIA CRPRSK, star(0.05)sig

SEX EDCTN MARKET IRRIGA~N CREDIT COOP URBLNK

SEX 1.0000

EDCTN 0.0253 1.0000

0.6371

MARKET 0.0205 -0.1489* 1.0000

0.7013 0.0052

IRRIGATION -0.0485 -0.0626 -0.0355 1.0000

0.3647 0.2417 0.5072

CREDIT 0.0381 0.1256* 0.0482 0.1629* 1.0000

0.4771 0.0186 0.3681 0.0022

COOP -0.1411* 0.0547 0.0781 -0.0368 -0.0270 1.0000

0.0081 0.3068 0.1441 0.4914 0.6138

URBLNK -0.0492 0.1451* -0.0556 -0.1053* 0.1143* 0.1156* 1.0000

0.3585 0.0064 0.2988 0.0486 0.0323 0.0304

MASMEDIA 0.1215* 0.0190 0.0850 -0.2187* -0.2191* 0.1499* 0.0483

0.0229 0.7224 0.1119 0.0000 0.0000 0.0049 0.3668

CRPRSK -0.1530* 0.2082* -0.0738 0.0824 0.0296 -0.1324* 0.0741

0.0041 0.0001 0.1679 0.1233 0.5804 0.0130 0.1660

MASMEDIA CRPRSK

MASMEDIA 1.0000

CRPRSK -0.2028* 1.0000

0.0001

Source: Own computation result based on survey data (2021)

69