The interaction of agricultural land cover area between land use systems and level of household income was identified. The annual cropland area was significantly higher than the natural pastureland and perennial cropland. The difference in household income earned was not significant between the annual crop and livestock. Such a difference however is not surprising because smallholder land system is a dual asset, and farm components are interrelated to and interdependent upon each other. In one season directly and simultaneously, the diversified forms of agricultural land provide food and feed that reduce the direct allocation of land for grazing. Nonetheless, decisions made in the household on the land use allocation for farm enterprise is neither random nor optional but are through behavioural adaptation of the system in changing condition, emerging opportunity and its ability to maximize choice and utility in the household. The study set up was initiated from the characterization of smallholder mixed crop-livestock systems divided into different agro-ecological zones for land use in South-western Ethiopia. Agricultural productivity in a smallholder system is chiefly an aggregate effect of interaction between elements and component, specialization and diversity in a farming system mainly found in food production biomass base. Several challenges, however, limit various positive significant balance reflected in the food and non-food production biomass base, as well as non-farm activities.