<p>Poverty is deeply rooted in developing countries, particularly in Africa, where smallholder agriculture serves as the foundation of livelihoods and national economies. Consequently, agricultural development holds significant potential for poverty alleviation in these regions. However, agriculture in developing countries today demands an innovative approach to transform the sector and enhance its competitiveness. One such approach is cluster farming—an initiative Ethiopia has promoted since 2014 as a means to drive sustainable agricultural growth and alleviate poverty. Nevertheless, empirical evidence on its effect on poverty reduction, particularly from a multidimensional poverty perspective, remains scarce. This study aims to fill this gap by examining cluster farming’s impact on multidimensional poverty reduction in northwestern Ethiopia, utilizing survey data from 421 farming households. The Rural Multidimensional Poverty Index and the Endogenous Switching Regression (ESR) model were employed to measure poverty and assess the effect of cluster farming, respectively. Results indicate that 55% of respondents are multidimensionally poor, with approximately three-quarters of them being non-participants in cluster farming. The ESR analysis reveals that 77.9% of non-participants are multidimensionally poor, compared to only 30% of cluster farming participants. Furthermore, counterfactual analysis suggests that 70.5% of participants would have been multidimensionally poor without participation, whereas participation could reduce poverty among non-participants to 58.9%. These results robustly demonstrate cluster farming’s substantial role in alleviating multidimensional poverty, aligning with its intended goals in the study area. Therefore, scaling up this farming practice is recommended, based on awareness creation and farmers' willingness.</p>