Does farmland conversion improve or impair household livelihood in smallholder agriculture system? A case study of Grain for Green project impacts in China’s Loess Plateau

•Smallholder agriculture contributes to the rural economy of China, and the Grain for Green project (GGP) is a land retirement policy making land use change in smallholder agricultural systems (SASs).•This study aims to find the effect of GGP on the transformation of SAS and household livelihood in Ansai County, China’s Loess Plateau.•Using survey data collected in 2010, a structural equation model (SEM) was developed to confirm that the GGP intervention of converting farmland and paying compensation did give opportunities to improve land use patterns and household livelihood but also provoked the loss of land and labor in the SAS.