Adoption of On-Farm and Off-Farm Diversification to Manage Agricultural Risks

Abstract

Risk is an inherent part of agricultural production, so farmers often use management strategies to reduce the adverse impacts associated with their activities. Although the use of multiple risk management strategies is common practice in farming, literature on the simultaneous adoption of multiple risk management tools is limited. This study was designed to investigate the impact of various factors on farmers' decisions to adopt on-farm and off-farm diversification and the potential for simultaneous adoption using bivariate and multinomial probit models. The results suggest that the decisions to adopt both on-farm and off-farm diversification are correlated, and adopting one risk management strategy may make it more likely that the other will be adopted simultaneously. Moreover, farm and farm household characteristics, farmers' risk perceptions and their risk attitudes are important factors that shape their risk management adoption decisions.