The welfare effects of crop biodiversity in the presence of market failures An empirical application on Kenya

This paper investigates the effects of crop genetic diversity on farm income and production risk using a large panel dataset of rural households in Kenya. We consider three different metrics of in situ crop diversification (richness, evenness and concentration) and test the effects of each strategy on crop income and crop income vulnerability. We apply a comprehensive econometric approach that differentiates climatic shocks, weather and climate change. Welfare implications of diversity are evaluated using a partial moments-based approach. The results suggest that the benefits from higher diversification in terms of enhanced land productivity and lower production costs surpass the foregone benefit from higher efficiency in more concentrated production systems. Crop richness and evenness each reduce exposure to risk, especially for more vulnerable farmers producing below the expected revenue threshold. Farmers relying on greater crop specialisation, on the contrary, are more exposed to risk. In the absence of financial insurance for hedging, crop diversification may be a useful adaptation strategy.