Firms’ sustainability has economic, social and environmental aspects. In the case of suburban farms, a diversification strategy plays an essential role for promoting farm sustainability. By exploiting urban residents’ demand for agricultural products and related services, suburban farms can diversify into activities such as direct marketing or agri-tourism. Moreover, these farms develop trust relationships with urban residents and demonstrate urban agricultural multifunctionality through farm diversification. However, the fit between diversification strategy and organizational capabilities common to each enterprise can affect management performance. Thus, the objective of this study is to clarify the synergistic effects of diversification and managerial capabilities on farm sustainability, using survey data of suburban agriculture where farm diversification is most common in Japan.

As measures for farm diversification, in addition to the Herfindahl Index (hereafter HDI), relatedness between enterprises is calculated on the basis of farmers’ subjective evaluation on enterprise functions. Factor analysis is utilized to identify five managerial capabilities. Economic sustainability is measured as the degree of marketing innovation. Social sustainability is measured as both family participation in farm management and the level of achievement of multifunctionality. A regression analysis is applied and the cross-term effects between diversification and managerial capabilities on sustainability are checked. Survey data is obtained from 317 farms located in Yokohama City, Kanagawa Prefecture, in Ichikawa City, and Matsudo City, Chiba Prefecture.

Of these farms, 78％ have diversified into several activities. The average number of marketing tools adoptes is 1.12. Business cards are the most popular marketing tool and a social network service is the least popular. The regression analysis identified unrelatedness and inversed HDI as positively affecting marketing tool adoption. On the other hand, the indicators have no effect on social sustainability. Total managerial capability positively affects all sustainability measures. Especially, customer relationship to management promotes marketing-tool adoption and multifunctionality. Knowledge management and labor management promote family participation in management. Moreover, the unrelatedness and total managerial capability has synergistic effects on social sustainability. Lastly, sustainable diversified farms are classified according to the regression results. When compared to other farms, diversified farms establish social capital and diversify into various enterprises such as processing or farming experience farm.

These results suggest that improvement of the managerial capabilities is essential for farmers who aim at effective farm diversification. Especially in the case of farm succession through diversification, labor management capability is needed. At present, there are a great deal of unsustainable diversified farms in suburban agriculture. This should suggest to policy makers that the package of supports for both diversification and skill training can be effective for suburban agricultural sustainable development.