Farmers’ risk rating and crop portfolio choice in Kewot Woreda, North Ethiopia

Abstract

Production risk and marketing risks are considered as critical factors in shaping farm decisions. This study is concerned with assessing crop risk rating by farmers and its impact on their crop portfolio choice. 392 farmers who were selected using “Multi-stage Random Sampling” technique and qualitative data from focus group discussions were employed in the analysis. The risk rating was done using a three-stage rank and Ordinary Least Square econometric regression was applied to identify the determinant factors. The study found sorghum, teff, onion and mung bean as major crops covering 95% of the total cultivated land. Results from descriptive statistics revealed that 73% of the respondents prioritize marketing over consumption in their crop choice decisions. Mung bean was identified as a riskier crop while onion risk rating showed higher variation among respondents. Findings on determinants of riskiness of the farmers’ crop portfolio choice showed that livestock ownership, education and number of crop types found positively associated with riskier crop portfolio while irrigation use and gender of the household head associate with portfolio riskiness negatively. The major contribution of this study is its explicit treatment of farmers own risk rating and farmers also rated crops not grown by them. The key policy implication is that to manage marketing issue better and achieve optimal crop choice, there is a need to develop marketing insurance and promote pre-contract for riskier crops. Keywords: Risk variation, consumption decision, contract, farm household, insurance