Can crop diversification buffer drought shocks? Evidence from Ethiopian smallholders

Crop diversification is widely promoted as a sustainable land management strategy that can improve nutrient cycling, soil fertility, and pest regulation while stabilizing yields under climate stress. Yet evidence on whether spatial and temporal crop diversification buffers drought-related production losses and food insecurity among smallholders remains limited, especially in Ethiopia. This study examines how household-reported drought shocks are associated with agricultural production, crop value, crop income, and household food security, and whether diversification is associated with weaker adverse drought relationships in rain-fed smallholder systems. Using a balanced panel of 1458 households (2916 household-wave observations) from the Ethiopian Socioeconomic Panel Survey, we estimate random-effects models with main effects and interaction terms, while fixed-effects models, winsorized-outcome sensitivity checks, and an objective rainfall-based drought proxy from the ESS geovariables provide robustness tests. Results show that drought is significantly associated with lower crop output, crop value, and crop income, and with worse food security, reflected in higher food insecurity experience scores and lower food consumption and dietary diversity scores. These adverse associations are strongest among households cultivating poor soils. Intercropping shows the most consistent positive moderating association, particularly for production, income, and dietary outcomes under drought. Crop rotation shows more selective moderating associations, with clearer evidence for reduced food insecurity than for the broader set of welfare outcomes. Overall, the findings suggest that crop diversification can buffer the association between drought and household welfare losses, with implications for policies that promote intercropping, crop rotation, and soil restoration in rain-fed smallholder systems.