Impact of Livelihood Diversification on Income of Smallholder Farmers in Lemo Woreda, Hadiya Zone, Central Ethiopia

Introduction: Livelihood diversification is increasingly recognized as a strategy to enhance household income and resilience among smallholder farmers in developing countries. This study evaluates the impact of livelihood diversification on household income and identifies the key determinants influencing farmers’ engagement in diversified livelihoods in the study area. Objectives: The study aims to analyze the determinants of livelihood diversification among smallholder farmers and evaluate its impact on household income in the study area. Methods: A multistage sampling procedure was used to select 364 smallholder household heads from four randomly chosen kebeles. Both primary and secondary data were collected using structured interviews, key informant interviews, focus group discussions, and personal observations. Descriptive statistics, binary logistic regression, and propensity score matching (PSM) techniques were employed for data analysis. Results: Findings revealed that 29.67% of the respondents engaged in livelihood diversification, while 70.33% remained non-diversified. Binary logistic regression identified education level, landholding size, frequency of extension contact, livestock ownership, and access to credit as significant factors influencing livelihood diversification. The PSM results demonstrated that diversified households earned 61% more in total annual income compared to their non-diversified counterparts. Conclusions: Livelihood diversification significantly enhances household income and economic stability. To promote diversified livelihoods, government and development partners should create enabling environments through improved access to education, extension services, credit, and asset accumulation support for smallholder farmers in the region.