Crop diversity, household welfare and consumption smoothing under risk: Evidence from rural Uganda

Abstract

Abstract In the wake of climate change, there is now a resurgence of interest in the promotion of crop diversification as a climate smart agricultural practice in Sub-Saharan Africa. The development economics literature suggests that increasing crop diversity is an effective risk management and consumption smoothing strategy in a context characterized by repeated exposure to shocks but weak institutional innovations. Using panel survey data from rural Uganda merged with historical weather data, this paper sheds light on the household welfare and consumption smoothing effects of crop diversity. We employ instrumental variables methods to control for unobserved heterogeneity and potential reverse causality. Our study finds that crop diversification is a welfare enhancing strategy that increases consumption and aggregate household diets. Instrumental variables quantile regression results show that crop diversification generates higher consumption benefits for poorest households in the lower quantile of the consumption distribution than for relatively richer households. Crop diversification also improves consumption smoothing through reducing households’ reliance on less effective strategies such as informal insurance and involuntary diet changes as risk coping mechanisms. Overall, the findings suggest that transforming agriculture towards a more diversified cropping system is a viable pathway for improving diets, welfare, risk management and the resilience of rural households.