This brief summarises the results of a recent analysis of a nationally representative farm household survey in Malawi linked with climate data to assess the impact of climate variability on farm household welfare, the patterns of diversification farmers adopt, and how different policy factors such as fertilizer subsidies, extension services and credit can affect diversification choices and ultimately welfare patterns. We look closely at three main factors that can affect both diversification choices and subsequent impacts on household welfare. First, “push” factors, such as high climate variability make farming a risky business, and can lead farmers to diversify in order to reduce that risk. However, this may lead to lower, though more stable, welfare levels. On the other hand, “pull” factors, such as greater education or wealth, enable households to take advantage of a wider range of opportunities not available to the less wealthy or poorly educated. These “pull” factors should increase welfare, but do not necessarily create greater stability. Finally, we look at the institutional context within which households are situated to evaluate how it impacts both diversification choices and resulting welfare outcomes.