Risk Management Strategies to Cope Catastrophic Risks in Agriculture: The Case of Contract Farming, Diversification and Precautionary Savings

K M Mehedi Adnan,Liu Ying,Rashid Menhas,Swati Anindita Sarker,Man (Mark) Yu,Zeraibi Ayoub,Feiyu Chen

doi:10.3390/agriculture10080351

Abstract

Risk management is an essential way for farmers to reduce uncertainty. In this research, a stratified random sampling method was used to survey 350 maize farmers in four different agro-ecological regions in Bangladesh. Using the multivariate probit model, this study explored the possible correlation between farmers’ perceptions of catastrophic risks and their attitudes towards risk sources—as well as the possible correlation between contract farming, diversification and precautionary savings as risk management strategies. The results confirm the relevance of risk management adoption decisions and reveal that the use of one risk management tool may simultaneously influence the use of another risk management tool. In addition, the research results also show that age, education level, extension experience, monthly household income, farming areas, land ownership and risk aversion nature are the most important factors that affect the adoption of risk management strategies. The research results provide further explanation and information and provide a platform for decision-makers to predict appropriate risk management strategies.

Highlights

Risk is an integral part of agriculture [1]
Themanagement main research content of this study is to find outsocioeconomic the possible between the different strategies based on the hypothesis that, correlation between the different adopted risk management strategies based on the hypothesis characteristics, risk perceptions, and risk attitude have a significant impact on adoption decisions.that, The socioeconomic characteristics, risk perceptions, and risk attitude havethe a increase significant impact on purpose of this study is to explore better risk management policy to ensure of agricultural adoption decisions
It is found that the correlation coefficient of contract farming, diversification and precautionary savings are assessed with the help of probit estimation

Summary

Introduction

Risk is an integral part of agriculture [1]. Producers often use different risk management strategies because it is an extremely risky sector [2]. The major risks faced by producers are categorized into five forms such as production, marketing, financial, human capital and environmental risk [3]. Global climate change has become a considerable concern over the last few decades that is one of the most influencing sources of production risk [4]. Natural catastrophes—for example, floods, Agriculture 2020, 10, 351; doi:10.3390/agriculture10080351 www.mdpi.com/journal/agriculture. Agriculture 2020, 10, 351 droughts, heavy rains, hailstorms, etc.—produce uncertainties for farmers about their production [5]. Throughout the world climate change is an alarming concern [6]. During the 20th century, the average global temperature increased by 0.8 ◦ C over land and 0.5 ◦ C at sea due to global warming [7]

Objectives

Results

Conclusion