Poverty reduction through rural development can be supported by the engagement of smallholders in commercial value chains that are based on rewarding market prices for the creation of inclusive rural livelihoods. It is increasingly acknowledged that engagement in cash crop activities by smallholder farmers (and rural workers) meets several structural constraints for guaranteeing farmer welfare and food and nutrition security.

In this paper we assess the net incomes of smallholder farmers in eight specific agricultural VCs in seven Sub-Saharan countries and their contributions for guaranteeing living income conditions as well as other household welfare goals. We look at potential strategies focussing on (technological) yield improvements, area expansion, better output prices (increasing margins) and/or engagement in off-farm employment as strategic pathways for supporting further rural poverty reduction.

Our study relies on an analytical framework for deriving the living income gap for family farms engaged in specific commercial commodity chains, using a stylized income analysis framework that combines information on cropping area, yield and production with data on prices, wages, profits and production costs, making assumptions for the share of land and labour required for their production. This framework is used to assess how the current income gaps could be reduced. We identify four specific pathways for land-constrained, yield- constrained, price-constrained and labour-constrained smallholders.

We find that almost all smallholder farmers face binding land constraints. Strategies for reducing the existing yield gaps and increasing the output price have considerable potential for reducing the living income gap. Value chains that are strongly market-oriented have more options available for overcoming income constraints. In addition, in some cases outside options for engagement in off-farm work provide viable additional income opportunities.

We outline some major consequences of living income gaps for household nutrition, for gender disparities and for the constraints to adoption of innovation. Finally, we discuss implication for selection appropriate policy instruments for reducing the living income gap by enhancing access to resources and information or through market- or institutional reforms.