Abstract

Effective agricultural strategies are key to improving smallholder farmers’ livelihoods, with crop diversification emerging as a viable solution for income growth and market supply. We examine the relationship between crop diversification, farm income, and commercialization among Tanzanian agricultural households using three-wave micro panel data from 8,055 household observations from the National Panel Survey. Employing both crop count and Simpson Index measures, we analyze diversification’s effects on farm income using fixed-effects models and examine heterogeneous effects across income groups through quantile regression. We find that diversification positively affects income measures following an inverted U-shaped relationship and generally improves market supply, though this varies by crop type. Diversification into cereals, tubers and roots, legumes and oils, and cash crops positively influences income, with cash crops generating the largest benefits. Cash crops and vegetables show a strong positive association with commercialization, while staple crops exhibit a negative association. Higher-income farmers maintain more diverse farming systems, yet our quantile regression demonstrates that lower-income farmers would benefit more from diversification, likely because they currently have the least diversified practices. Our results support promoting crop diversification as an effective development strategy, particularly targeted towards lower-income farmers. Policies should encourage diversification with emphasis on both staple and high-value cash crops, while linking farmers to markets to maximize income and commercialization benefits.