This study investigates the determinants of smallholder farmers’ participation in rural off-farm activities, including own non-farm business and wage employment, and effects on food shortage, relative deprivation and dietary diversity. We use a three-wave panel dataset of 7,110 smallholder farm households in Ethiopia. The estimation results suggest that the gender composition of households, age, education, natural shocks, participation in community meetings, exposure to media, access to credit, farmland, agricultural markets and rural infrastructure such as electricity are key determinants of smallholders’ participation in rural off-farm activities. The results also suggest that smallholders’ participation in rural wage employment aggravates relative deprivation, while participation in own non-farm business activities reduces relative deprivation and food shortage. However, participation in both own non-farm business activities and wage employment improves dietary diversity in smallholder farm households. Hence, well-designed policy interventions aimed particularly at enhancing smallholder farmers’ opportunities for having own non-farm businesses could help to enhance dietary diversity and reduce food shortages and relative deprivation. Conversely, policies aimed at enhancing rural wage employment could aggravate relative deprivation while still helping to enhance dietary diversity.
