Causal Effect of Agricultural Diversification on Smallholder Farmers’ Welfare Status in Nigeria

The acceptance rate of agricultural diversification as an effective strategy to mitigate climate change shocks on smallholder farmers’ welfare is growing. However, many smallholder farmers in Oyo State, Nigeria, feel that the proposed solutions to their ongoing welfare challenges lack sufficient information and guidance. Thus, this study used descriptive statistics, the Herfindahl-Hirschman index, the double hurdle model and a sample selection ordered probit regression model, to analyze the dataset elicited from 249 smallholder farmers through a multistage random sampling technique. These analytical techniques were applied to: describe farmers’ personal and socio-economic characteristics, examine the levels of diversification in the different agricultural enterprises, determine the correlates of agricultural diversification, and investigate the causal effect of agricultural diversification and other unobserved factors on farmers’ welfare status in the study area, respectively. Results showed that the average household size was five persons. Similarly, the majority engaged in diversified farming are operating at a moderate level and were classified as having a moderate welfare status. Furthermore, the double hurdle estimation revealed that age, dependency ratio, market access, food security status, years of farming experience, per capita income, and credit access significantly influenced both the decision to diversify and the extent of diversification. The sample selection ordered probit regression estimation indicated that agricultural diversification, household size, per capita income, distance to market, and years of farming experience significantly influenced farmers’ welfare status. Findings also revealed the need to support smallholder farmers with policies that encourage them to diversify their farming activities to maximize their gains, experience improved life and contribute to rural development in Oyo State, Nigeria.