Interlinked diversification strategies: evidence from the US farm business households

Abstract

PurposeThe agricultural sector in the USA has experienced significant structural changes. For accommodating farm business, households have diversified their operations adopting various strategies—agricultural, structural, environmental, and income strategies. The purpose of this study is to analyze the factors influencing farmer’s diversification strategies while taking into account the simultaneous decision-making process.Design/methodology/approachThis study uses a nation-wide farm household data from the US. The diversification decisions are analyzed using multivariate probit regressions.FindingsThe study suggests that agricultural, structural, environmental, and income diversification strategies are interlinked. Specifically, results indicate that, on one hand, environmental and income diversification strategies are positively interlinked. On the other hand, agricultural and structural diversification strategies are positively interlinked. Additionally, the factors representing location, farm, and farmer characteristics, farm type, and financial condition of the farm are major determinants in the choice of farm diversification strategies.Research limitations/implicationsIn this paper, diversification activities are broadly classified under four strategies: agricultural, structural, environmental, and income. Depending on the context and country, the definition and strategy set may need revision.Practical implicationsStrong complementary between diversification strategies suggests that studies analyzing farm household decisions and strategies need to account for the simultaneous decision-making process. As decisions are interlinked, separately analyzing one specific strategy may lead to biased estimates. Farm business households need to develop multiple skills and flexible capacities to tackle farming-related issues, including structural changes, risk management, and income enhancing activities. Improving employment opportunities for the rural farming population can stimulate structural diversification.Originality/ValueThis paper contributes to limited literature about diversification by analyzing factors influencing different diversification decisions and finds interlinkage between decisions.