Limited agricultural land potential, poorly integrated markets and low rural incomes are all interrelated problems for agricultural households in western China. Within the wide range of development options available, this paper focuses on the impact of forage-growing subsidies and reducing livestock feed trade barriers on agricultural household incomes and enterprise mixes in the Qingyang Prefecture of Gansu Province, China. A heterogeneous-agent model is used to assess the local consequences of these two policies. Data from a survey conducted in 2009 are used as inputs into the model. The results indicate that a simultaneous reduction in livestock feed trade barriers and an introduction of forage-growing subsidies lifts net household incomes by approximately 10%. Different scenarios have different impacts on incomes, land allocation decisions and grain purchases, with heterogeneity also found among household income responses. Livestock-development policies have the potential to lift household incomes however there are tradeoffs between income and grain self-sufficiency.