Abstract
In this study the perceptions of small-scale commercial farmers in Eritrea of the importance of various risk responses are ascertained and analysed to gain insight into their risk-management strategies. Data were elicited through a survey of 186 small-scale commercial farmers conducted in three zobatat (regions) of Eritrea. Factor Analysis is used to investigate heterogeneity in sample farmers’ responses. Results indicate that relatively more important risk responses include the use of internal and external sources of information, on-farm and off-farm diversification, choice of production system and product marketing arrangements. Farmers’ perceptions of risk responses vary according to farm type, geographical location, farm and farmer characteristics, as well as the existence of enterprise specific risk responses (e.g. livestock insurance) and differences in the marketing regulations of various agricultural products.
Highlights
Risk refers to potential adversity due to unanticipated or random variation (Barry et al, 2000: 661), and may be described using the heuristics of the probability distribution of an outcome
Decision-making under risk, refers to a choice between alternatives, each associated with probability distributions; and risk management is the systematic application of management policies, procedures and practices to the tasks of identifying, analysing, assessing, treating and monitoring risk (Hardaker et al, 1997: 12)
Commercial agriculture in Eritrea is characterised by high levels of social, political and environmental risks (Bekuretsion, 2002), risk management is an essential component of farm management in Eritrea
Summary
Risk refers to potential adversity due to unanticipated or random variation (Barry et al, 2000: 661), and may be described using the heuristics of the probability distribution of an outcome. Risk-management strategies are developed to provide some shield in situations in which the consequences of a decision are not known at the time the decision is made, without excessively sacrificing gains. They typically comprise a bundle of risk-management responses, which include options for reducing risks, transferring risks and increasing risk-bearing capacity. The range of suitable risk responses may vary between farms and over time due to factors such as differences in characteristics of farms (e.g. farm type, size and proximity to markets), farmers (e.g. education, risk preference and capacity to bear risks), and institutional arrangements (e.g. whether or not efficient markets exist for agricultural insurance markets or futures markets) (Barry et al, 2000: 220). To the authors’ knowledge, no published research has reported on risk preferences and factors affecting risk preferences of Eritrean farmers
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