# VI. The impact of weather, prices and peace on non-agricultural income and welfare

In light of the importance of prices and weather in driving crop income growth and to determine how well households are able to compensate these changes through the diversification of income, the impact of prices and weather on other sources of income is explored further in this section. We also examine whether positive trends in prices, weather and peace contributed to household consumption growth, and also the degree to which consumption growth is vulnerable to price falls or rainfall shortfalls, using the fixed effects specification set out in equation (2). Table 9 presents the results. Column 1 reports the results for crop income that were discussed in section IV. Columns 2 to 5 detail results for livestock income, agricultural wage income, non-agricultural income and non-farm selfemployment income. Column 6 examines the impact on household consumption using consumption data for 2006 and 2010 but not 2011 and 2012 given concerns over the consumption data collected in later years. Table 10 presents results for the bottom 40 percent.

Rainfall shocks do not impact income from livestock; perhaps because for livestock the rainfall over multiple seasons is important. However, wage employment and self-employment out of agriculture are inversely and significantly correlated with rainfall. The results suggest that diversification of productive activities can be an important risk hedging strategy for households in Uganda, particularly the poorest. If agricultural income is affected by climate shocks, households can offset this with increased non-farm income. It is not clear whether household labor is pulled into own-farm agricultural production as a result of the increased demand for agricultural labor when the rainfall is good or whether household labor is pushed out of agriculture as a result of a desperate need to smooth consumption when rainfall is bad.

Although some of the weather shocks can be insured through diversification, households are not able to fully insure their consumption from the impact of weather. A decrease in rainfall of 10 percent results in decline of 4.8 percent in per capita consumption (4.1 percent when considering households in the bottom 40 percent in 2006).

In contrast to rainfall, price increases impact all sources of income positively. This means that when prices are good total income is positively impacted, but conversely when prices are bad households are not able to mitigate crop income shortfalls by increasing income from other sources. The exception to this is agricultural wage income, which is surprising given findings in other countries that agricultural wage labor is positively impacted by crop price increases and our expectation that higher prices would result in increased demand for agricultural wage labor. It is not clear why a negative relationship is observed in this context.

The impact of prices on consumption is, however, smaller than the impact of prices on crop income, indicating that even though households are not able to diversify to manage price risk, they are able to reduce the impact of prices on consumption by other means. A decrease of 10 percent in the price of maize and beans results in a 5.1 percent reduction in consumption. The impact is almost doubled for the bottom 40 percent—a 10 percent price decrease results in a 10.5 percent reduction in consumption—consistent with the fact they are less able to insure consumption from income shortfalls.

Although the cessation of violence had a positive impact on crop income, a significant impact on consumption is not observed. The results suggest that this may be because households switched out 22