Crop and income diversification for rural adaptation: Insights from Ugandan panel data

Ugandan territory is a challenging environment for agriculture due to extreme climate events. These are likely to harm the development of rural communities. Crop diversification and off-farm activities are considered potential adaptation strategies to reduce the impacts of climate risk. This paper explores three main issues. The first one is the frequency and the intensity of climate shocks that push households to diversify their portfolio of livelihood options. The second one is about the market and the institutional factors that enhance the context where farmers can effectively diversify against adverse climate events. The last issue concerns the mix of crop and income diversification that minimises the welfare variability and the downside risk. To address these points, the study exploits four rounds of the Ugandan National Panel Survey and the SPEI climatic index to estimate a panel multinomial endogenous switching model. Results demonstrate that farmers' diversification response to the climate shocks is not linear. Moreover, the empirical analysis shows that a medium crop diversification maximises mean welfare, while a mix of high crop and income diversification generates the largest impact on the downside risk reduction. Social and human capital are crucial to improve the chance of an effective diversification-based adaptation.