Decision making for farm diversification

First and most important, the farmer must know why he or she wants to diversify. Some farmers may want to diversify to reduce risk, to use idle resources (including labour), or develop a business for social or lifestyle reasons. Older farmers tend to be more financially established and put the time and patience into developing/introducing a new enterprise. On the other hand, older experienced farmers might tend to stick to what they know, and less likely to be open to change. Equally, more educated or farmers that have alternative professions like teachers, etc. can easily diversify into new enterprises. They are normally willing to take risks because they are not necessarily relying on it for a living, so they are willing and able to experiment and be creative.

If the farmer’s goal is income, it’s important to know how much money is expected from the enterprise, how much is needed to start and operate, and where the funding will come from.

There are factors which determine the potential success of the on-farm diversification options. Examples include:

• Resources available on the farm and farmer characteristics. Experience from Ethiopia shows that crop–livestock diversifiers had better socioeconomic and demographic characteristics compared to non-diversifiers. Farmers who had more land, accessed irrigated land, more livestock and extension contact were found to have higher level of diversity compared to have-nots. This means that farmers access to more land from rain-fed and irrigation farming, more livestock and frequent extension support were liable to have higher level of crop–livestock diversities. Conversely, the relationship between land rent-out, getting more non-farm income and crop–livestock diversity was negative and significant, implying that land rent-out reduced both the likelihood and extent of crop–livestock diversity.
• Access to information. Adequate knowledge about the enterprise you are considering diversifying into is very important. Either through attending trainings with private or public extension services or farmer organizations, talking to other farmers practicing the same enterprise, personal research/self-reading can all be helpful.
• Access to finance. Depending on the form of diversification and what’s required to set it up, farmers might need to purchase new inputs in form of machinery or equipment, establish new infrastructure (e.g. livestock housing, or storage facilities) or hire new staff. All these requirements need financial resources which the farmer may not have enough financial resources from available savings. It is therefore important to consider if the farmer can obtain a loan based on a prepared business plan – indicating costs required and expected returns from the enterprise.
• Insurance. Every new enterprise brings benefits and risks to the farmer. Depending on the level of investment required (e.g. in machinery, buildings or vehicles) the farmer might consider insurance for these facilities or equipment against fire, theft or any unforeseen causes of damage. 
• Access to markets. The availability of an easily accessible market for the pro­ducts/services from the enterprise is an important enabler when considering diversification. A properly diversified farm produces different products, some or most of which should be able to be sold on the market to bring in the much-needed resources to sustain the farm’s activities.

Successful adoption of on-farm diversification strategies depends on the extent to which farmers have the possibility and are willing to invest in labour, financial capital, and learning new skills. Crop diversification may also be affected by climate related stresses, which may require investment in, for example, irrigation infrastructure or the establishment of shade trees to make farm systems more resilient against climate changes.
 

Farmers choose crops varieties/species, livestock types/breeds, or a mixture of the two based on steps 1 to 3.

These activities are part of adaptive management. Farmers continuously evaluate and improve on-farm diversification strategies in dialogue with other farmers, extension officers and researchers.