Many dryland regions are considered less favoured areas as they face a variety of either biophysical or socio-economic constraints to agricultural production and sustaining livelihoods. Growing population numbers, limited infrastructure and market access, land tenure problems as well as increasing degradation problems due to poor management of soils prone to erosion, steep slopes or low rainfall quantities are some of the limitations for agricultural production that have led in many areas to growing numbers of poor people. The paper describes a framework, using land and labour opportunity costs, for classifying dryland production systems and devising a set of development strategies based on initial resource use endowments and resulting land use. In this way policy options for dryland development are tied to the wider economic context within a country. Policy strategies for dryland areas are discussed which take the varying starting points for development into account. Options discussed include land management strategies where the provision of ecosystem services enhances agricultural productivity for areas with high opportunity costs of land. Under high labour, but low land opportunity costs conditions, land unproductive for agricultural production could have good potential for land uses that produce non-agricultural ecosystem services. Mapping out these varying land management strategies can thus help to tailor policy measures to specific dryland area conditions.