ABSTRACTPATTERNS, DETERMINANTS AND WELFARE EFFECTS OF AGRICULTURAL AND LIVELIHOOD DIVERSIFICATION AMONG SMALLHOLDER FARMERS IN RURAL KENYAByMiltone Were AyiekoMarket-oriented economic reform is now at least 20 years old in most of Sub-Saharan Africa (SSA). Prior to these reforms, most economies were fettered with far-ranging limits on investment, private sector trade, and other initiatives, and on the free movement of agricultural products over space. Kenya is a prime example of these earlier policies, with limits on maize marketing, agricultural inputs marketing and dairy marketing restrictions that were lifted through the reforms. Over this same time, urban populations and rural population densities have increased dramatically, further broadening the scope for trade. How have farm households responded to this radically different economic environment? Using a five-period panel data from Kenya collected between 1997 and 2010, this dissertation explores investigated the patterns, determinants and welfare effects of agricultural and livelihood diversification among smallholder farmers in rural Kenya. Even though determinants of smallholder diversification in Sub-Saharan Africa have been investigated, results have been mixed, and few studies have used longer panel data or incorporated weather uncertainty in the analysis. There is also knowledge gap concerning the welfare effects of smallholder diversification on household welfare indicators. This thesis uses a conceptual model relating household diversification of economic activities to the process of agricultural transformation. The first essay examines the patterns and trends in smallholder livelihood diversification in rural Kenya and how these vary across types of households and spatially. The findings suggest that Kenyan smallholders are still relatively diversified, suggesting that agricultural transformation in Kenya may still be in initial stages, despite key policy reforms of the 1990s and 2000s. The second essay uses Fixed Effects Regression methods to investigate the key drivers of smallholder agricultural and livelihood diversification in the presence of weather uncertainty, and how these drivers differ among groups of rural households. Findings show that at higher rainfall stress levels, households adopt diversification as a strategy to mitigate the effects of drought diversification to mitigate against the adverse impacts of drought. The study further shows that the least endowed households are most sensitive to these weather effects. .Furthermore, smallholder diversification varies inversely with the distance to extension service.The third Essay uses the Dynamic Panel Data method to investigate the effects of smallholder diversification on three measures of rural household welfare, namely, income, maize security, and wealth. The findings show that smallholder diversification can be used as a mitigating strategy against weather effects on household welfare. Furthermore, there are differential effects between groups of households.
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