Abstract:

Arable farming is an intrinsically risky enterprise. Therefore, managing risks and uncertainties in agriculture is very important as it affects all sectors of the economy of a developing country like Pakistan. To do so, a whole suite of options is available to the farming community to safeguard against any type of risk. However, farmers’ behavior of the concurrent adoption of multiple risk management tools is largely ignored in previous studies and has formed the rationale for this research. Thus, the current study is intended to investigate farmers’ decisions of adopting risk management strategies (contract farming, off-farm income diversification, and farm credit use) and to examine the impacts of a variety of factors on farmers’ risk management decisions. The present study is carried out in four districts of Punjab province, Pakistan with a focus on hybrid maize growers. A multivariate probit model is used to evaluate the impacts of independent variables on growers’ choices of adopting contract farming, off-farm income diversification, and farm credit use to manage farm risks keeping in view the potential for the concurrent adoption of these risk management strategies. Results show that 78% of farmers are risk-averse and hence ready to manage risks. The top risk faced by farmers is price risk followed by biological, climatic, and financial risks. Contract farming is the most popular strategy (61% farmers) followed by off-farm income diversification (49% farmers), and the use of farm credit (42% farmers). The findings also reveal that the decisions of adopting risk management strategies are interlinked while the adoption of one risk management tool complements farmers’ decision to adopt other risk management strategies. In addition, the risk management strategies’ adoption choices are affected by the number of factors including socioeconomic characteristics, farmers’ risk perceptions about risk sources, and their attitude towards risk. The study recommends the provision of timely information (climatic, extension) along with easy access to farm credit and the streamlining of contractual arrangements.

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