The present study has examined land degradation and its impact on livelihood security of farm households. Specifically, it has estimated the impact of sodic soils at farm level in terms of resource use, productivity and profitability of crop production and has examined income, employment and household consumption behaviour for ensuring better livelihood. The study conducted in the Ramanathapuram and Tuticorin districts of Southern Tamil Nadu, is based on data collected from 160 affected and 80 non-affected sample households. Sources of productivity differences between affected and non-affected farming situations have been identified by decomposing the productivity changes. To find the relationship between income, household expenditure and activity diversification, the simultaneous equation model (3 SLS estimation) has been estimated. The study has indicated that output from agriculture is substantially lower in the degraded farms. The contribution of sodic salts is higher in the yield differences. The occurrence of pebbles (CaCO3) at higher rate, poor maintenance of canal and higher application of fertilizers are the significant factors for the yield damage in crops. The estimated parameters of simultaneous equation model have revealed that consumption expenditure is largely influenced by the magnitude of income and income-generating activities. The activity diversification and land quality variables have depicted a larger influence on the household income. Land quality being one of the variables with a negative, but significant coefficient of considerable magnitude, warrants immediate attention. The study has suggested that in the resource-degraded areas, activity diversification while reducing uncertainty, would increase opportunities to earn more income for the better livelihood opportunities in the rural areas.