How is Off-farm Income Linked to On-farm Diversification? Evidence from Afghanistan

In the farming business it is crucial to understand the decision-making environment and behaviour of farm households, particularly subsistence smallholders that are often exposed to various types of risk and uncertainties. Understanding decisions such as the allocation of limited resources among a diverse production portfolio requires empirical evidence. Traditionally, Crop Diversification (CD) is regarded as a management strategy, particularly in the context of subsistence farming, where farmers choose the appropriate crop mix to reduce production risks and sustain their livelihoods and income. Previous studies have established the economic value of CD as an alternative strategy that farmers utilise to enhance productivity and even improve and sustain their incomes (Joshi et al., 2007; Kurosaki, 2003; Weinberger and Lumpkin, 2007). To respond effectively to changing market demand and altering consumption patterns, both farmers and agriculture policy makers require a solid empirical understanding of the production decision-making environment, farmers’ socio-economic characteristics and the behaviours that drive decisions regarding crop diversification. This paper aims to explore farm households’ decisions with regard to the magnitude of crop diversification at the farm level in Afghanistan. It analyses the extent of diversity in crop production, and the empirical relationship between CD and household socio-economic, demographic, farm, and farmer characteristics with a key focus on household off-farm income. Heterogeneity in farmer crop portfolios under a given set of socio-economic circumstances is an important empirical discussion. Even in the presence of high-return alternatives both onand off-farm, a large number of farm households still engage in producing low yield food commodities (mainly staple food grains), and crop portfolio choices vary greatly among similar households (Stoeffler, 2016). Hence, farmer’s knowledge, technical know-how, and production management practices have critical implications for their income and costs. This implies that without additional costs, there is a great potential for farm households to improve their productivity and income simply by adding high value crops to their production agenda. In addition, markets for particular commodities are imperfect and often fail to facilitate the efficient trade of farm produce, forcing farmers to adjust their production decisions to compensate for losses due to the presence of such market risks. These decisions often involve opting for crop or enterprise diversification to a lesser or greater extent. Since emerging out of conflict and the establishment of a market-led economy in 2001, Afghanistan’s agricultural economy has undergone a drastic policy change, which has created opportunities but also posed risks and uncertainties. The primary emphasis of Afghanistan’s National Development Framework (ANDF) 2009 is to increase productivity so as to attain food self-sufficiency and increase farm incomes at national, regional, and household levels. With increased international aid being pledged, Afghanistan’s economy grew at a steady rate of 9.4% during 2003-2012 with a significant contribution (about 25%) coming from the agriculture sector (World Bank, 2014). Economic growth has been accompanied by changes in agriculture production and consumption patterns, whilst other economic sectors (e.g. services and manufacturing industries) have been revitalised. With the revitalisation of other sectors and improved levels of education, farm households may have had the opportunity to diversify into off-farm activities. This highlights the importance of understanding the household decisions about labour and resource allocation between onand off-farm activities. Current studies on production efficiency find evidence of a positive relationship between crop diversification and production efficiency in Afghanistan (Ahmadzai, 2017; Tavva et al., 2017). Broader research also confirms that CD significantly improves farm level efficiency in other countries with Hayatullah AHMADZAI*