Smallholder rural farm households face an increasing need of looking for alternative income
sources to sustain and secure their livelihoods as well as to supplement their agricultural
activities. However, income diversification is influenced by various and yet empirically
unidentified factors in Agarfa district. Thus, the aim of the study was to examine income
diversification strategies and identify factors responsible for choice of income diversification
strategies among rural farming households in the district. The study drew a sample of 150
rural farm households through stratified random sampling technique from three kebeles of the
district. Data was collected using interview schedule, focus group discussions and key
informant interviews. Descriptive statistics were applied to characterize the sample
households’ demographic, economic, institutional and geographical factors. The finding of
the survey result indicates that agriculture has a leading contribution to the total income of
sample households (88.89%) followed by nonfarm (10.12%) and off farm (0.99%). The
multinomial regression analysis was applied to identify the factors which influence rural
household's choice of income diversification strategies. The results indicate that the choice of
farm and nonfarm strategy were influenced by the years of education of the household head,
family size, remittance, use of improved agricultural inputs, utilization of irrigation and
distance from nearest all-weather road. The choice of farm and off farm were affected by
utilization of irrigation and access to nonfarm training. Finally, the choice of a combination
of farm, nonfarm and off farm were influenced by the distance from nearest all-weather road.
This study concludes that agricultural sector alone cannot be relied upon as the core activity
for rural households and as a means of improving livelihood, achieving food security and
reducing poverty in the study area. Thus, rural development strategy should emphasis on
promoting nonfarm and off farm activities in rural areas to improve overall wellbeing of the
rural societies.