In many cases diversification can lead to improved agricultural productivity and income, through integrated resource management and by responding to changing markets and advances in technology. Important issues for diversifying into market-oriented production systems include: developing markets and market access, managing risks, targeting small-scale farmers, and promoting an enabling policy environment. Donors and governments will need to provide the training, infrastructure, and analytical support necessary to improve farmers’ ability to make the transition to diversified production systems that are economically viable and environmentally sustainable. Diversification at the farm level is the adoption of multiple production activities that are complementary in economic and/or ecological dimensions. This complementarity contributes to the overall sustainability of the farming system. The diversification process generally involves introducing new activities into the farm enterprise (for example, new crops, livestock, or processing methods) and reflects a reallocation of production resources and inputs as well as a change in production methods and the outputs produced. This note discusses the framework that will encourage market-driven diversification conducive to sustainable intensification, through improved crop rotations, complementarities among different farm enterprises (livestock and crop), and improved risk management. Need to Adjust to Changing Market Forces Increasing international migration, global media and marketing systems, rising average incomes, and urbanization are rapidly changing the structure of consumer demand throughout the world. This is true for markets in both industrial and developing countries, and for food and nonfood products (figure 4.2). These changes give rise to new market opportunities (both domestic and export) at a time when prices for traditional commodities—such as rice, cotton, coffee, and tea—are declining. On the supply side, technological advances have expanded the range of production possibilities at the farm level. Improved agricultural machinery, biotechnology, new herbicides, and IPM have facilitated better use of the sources of competitive advantage unique to developing countries (for example, unique microclimates and soil types, low labor costs, and counter-season production). New technologies have also increased the feasibility of integrating different systems within any one “mixed” farming system (multipurpose machinery for integrated crop rotations). Supply-side changes that expand the range of feasible options, and demand-side factors that alter the relative profitability of those options, are requiring that farmers make a transition from traditional enterprises (often monoculture) to new and unfamiliar ones. The new enterprises can be more environmentally sustainable while also responding to market signals profitably.   
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