Simultaneous adoption of contract farming and off-farm diversification for managing agricultural risks: the case of flue-cured Virginia tobacco in Pakistan

Abstract

Tobacco crop is of high economic significance for Pakistan in terms of valuable foreign exchange and being a high-value cash crop. However, changes in tobacco prices, input costs, effects of new tobacco law on producers and varying in economic conditions of the country have emerged as risk elements for tobacco production. This study was, therefore, designed to identify different risks that farmers encounter during the tobacco cultivation in Pakistan and to generate ideas for managing these risks. Various factors affecting farmers’ decision for simultaneous adoption of contract farming and off-farm diversification were analyzed in present research using bivariate and multinomial probit model. The data were obtained from April to September 2015 in selected districts of Khyber Pakhtunkhwa, Pakistan (that accounts for more than 94% of the total flue-cured tobacco production). The results suggest that socioeconomic and demographic characteristics of tobacco growers significantly affect the adoption of risk management tools. Similarly, farmers risk perception of flood, heavy rains and hailstorms, heavy winds, pest and diseases, fire in curing furnaces, drought and risk attitude of farmers are important factors that affect the utilization of agricultural risk management tools. The findings of the current study will help in better understanding farmers’ behavior under risk and as a guideline for policy makers to anticipate different risk sources related to the tobacco crop.