Non-Farm Income Diversification and Agricultural Reinvestment Among Rural Households in South West Nigeria

This study examines the relationship between non-farm income diversification and agricultural reinvestment decisions among rural households in South West Nigeria, addressing a critical gap in understanding how off-farm income interacts with on-farm investment behaviour. The relationship between non-farm income and agricultural investment is theoretically ambiguous: non-farm income may provide capital for farm investment by relaxing credit constraints, or it may reduce farm investment by shifting household effort and interest away from agriculture. This study uses panel data from 360 rural households in Ondo, Ekiti, and Osun States surveyed in 2018, 2020, and 2022. Non-farm income sources are categorised by regularity and skill intensity. Agricultural reinvestment is measured by input expenditure per hectare, farm capital asset additions, and perennial crop planting decisions. Fixed effects instrumental variable estimation uses distance to urban employment centres as an instrument for non-farm income participation. Findings reveal a positive and significant effect of non-farm income on agricultural input expenditure, consistent with the capital relaxation hypothesis. However, this positive effect diminishes for high-skill, high-income off-farm occupations, where farm management attention effects dominate. The study contributes original evidence on the non-farm income-agricultural investment nexus in South West Nigeria and recommends policies that facilitate both rural non-farm employment and farm investment to maximise dual-income household agricultural productivity.

Keywords: non-farm income, agricultural investment, rural households, South West Nigeria, income diversification.