―Determinants of Income Diversification of Smallholder Farm Households Surrounding Shagar City: The Case of Muda Furi District, Ethiopia.”

Abstract

Smallholder rural farm households challenged with increasing the need of looking for alternative income sources to secure their livelihoods and supplement their agricultural activities. The aim of the study was to identify determinants of income Diversification of Smallholder Farm Households Surrounding Shagar City: The case of Muda Furi District. The study drew a sample of 385 rural farm households through multi stage sampling technique from four Kebeles of the district. Descriptive statistics and econometric model were employed for data analysis. The multivariate probit regression model was applied to identify factors affecingt rural household's participation in income diversification and Simpson Index was used to examine extent of income diversification..The result of multivariate probit model revealed that from 12 variables eight variables were significantly affecting income diversification of rural farm households.Accordingly, family size is negatively and significant where as, total livestock,credit access,training. land owneshiop ,annual income and market instability were positively and significantly affecting income diversification strategy. The result of Tobit regression model revealed that education,age,total livestock,credit,market instablitiy and climate shock are significantly affect extent income diversification strategies. This study concludes that agricultural sector alone cannot be relied upon as the core activity for rural households as a means of improving livelihood, achieving food security and reducing poverty in the study area rather thay have to diversify their income to improve their livelihood.based on finding study recommend relying solely on the agricultural sector is insufficient for improving livelihoods, achieving food security, and reducing poverty among rural households in the study area.