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Abstract In many regions of the world, the adoption of new livelihood strategies that compete with traditional strategies is one driver of competition over land, resulting in unforeseen impacts on the livelihoods of land users and accelerating land degradation. One example is the Borana Zone in southern Ethiopia, where the expansion of crop cultivation into communal pasturelands undermines traditional livestock‐based livelihoods. The trend of pastureland conversion may be creating a vicious circle involving forage shortages, overgrazing, land degradation and an erosion of resilience as households become more vulnerable to losing their livestock and being forced to adopt crop cultivation. The mechanisms that drive the emergence of such a vicious circle, however, are still poorly understood. In this paper, we analyse the key dynamics of land use competition and its effect on smallholder food security using an agent‐based simulation model. The model is a stylized representation of current land use trends in the Borana zone and includes dynamic interactions between pastoralist livestock production, cropland expansion and household livelihoods. We take a long‐term perspective to assess the possible unsustainable side effects of cropland expansion and rangeland fragmentation. For this, we compare different scenarios of household density, cultivation restrictions and environmental conditions. In general, we find that crop cultivation provides an immediate benefit by reducing the overall number of food insecure households. However, more households experience shorter periods of food insecurity, and in the long term, those who remain food insecure experience larger consumption deficits. This leads to greater inequality in food security between households, indicating that cropland expansion can indeed set a vicious circle in motion. These results lay the ground for identifying policy and management options that promote the coexistence of livestock grazing and crop cultivation while at the same time preventing further degradation of the rangeland ecosystem. Read the free Plain Language Summary for this article on the Journal blog.