Farmers’ risk preference and the adoption of risk management strategies in Northern Ghana

Abstract

The study used the hypothetical lottery-choice questions to measure risk aversion and a detailed survey collected data on input use, farm production and non-farm activities to specifically assess whether risk aversion, risk perceptions, and socioeconomic factors affect the risk management strategies of farm households in Northern Ghana. Risk aversion significantly increases crop diversification strategies of households but marginally reduces herbicide use by households. Market risk significantly increases the use of improved seed varieties and the application of inorganic fertiliser but reduces diversification into livestock production. Production risk largely increases diversification into livestock production. Farmers’ risk management strategies are affected by socioeconomic variables such as access to extension services, area cultivated, age and gender. Policy effort focused on building pliable on-farm crop related risk management strategies should aim at considering the risk aversion and the perception of market risk whilst those focused on livestock should focus on production risk.