Risk response in Kenyan agriculture: The case of major export crops

Abstract

Summary In analyzing the effect of export earnings in less developed countries, the destabilization of producer incomes and farmers' risk response play an important role. If farmers behave as risk averters, unstable producer incomes will reduce sectoral output and thus possibly hamper economic growth. To test the hypothesis of farmers behaving as risk averters, an analysis has been made to quantify the effects of producer income instability on farmers' planting and supply decisions in coffee, tea and sisal production in the Kenyan large farm sector. Three alternative regression models based on data pertaining to acreage, output and producer prices for 1951–1975 have been applied in order to test this hypothesis. As a special case, the risk response for coffee and tea before and after independence (1964) are tested for possible differences. For these two main export crops both hypotheses had to be rejected, whereas for sisal the 5% confidence limit of statistical significance was narrowly missed. From these results some conclusions are drawn.