Perceptions and management of risk by commercial farmers in Eritrea.

Abstract

A survey of 186 commercial farmers from three Zobas (provinces) of Eritrea was conducted between November 2002 and February 2003 to examine farmers' perceptions of risk, to determine the most important sources of risk affecting farmers' decisions, to identify managerial responses to risks and to identify information use. As part of the main survey, 74 randomly selected commercial dairy farmers were also interviewed to identify factors that affect the purchase of livestock insurance. Findings show that whilst some risks are of concern to most farmers, others are more enterprise or region specific. In general, changes in weather, changes in the labour force, and diseases, pests and weeds were identified as being important sources of risk for most farmers. Factor analysis was used to analyse heterogeneity amongst farmers' perceptions of various risks. Results indicate that programmes designed to assist farmers in Eritrea to manage production and price risks should vary between enterprises and between regions. Policy implications of this research include that the government of Eritrea should disseminate information to clarify agricultural tax and land policies, and its demobilization and rehabilitation programmes. Relaxing foreign exchange rate controls may reduce price risks in agricultural input markets. Increased use of information sources, choice of production system, keeping production records, and diversification of farm enterprises were found to be the main production responses to risk. Important marketing responses included indirect selling (e.g. to the grain board or wholesalers) and use of marketing information, while important financial responses were keeping financial records and investing off-farm. Factor analysis was used to analyse heterogeneity amongst farmers' managerial responses to risk. Results indicate that farmers respond differently to different types of risk attributed to enterprise type. Policy implications of this research include that the government of Eritrea should create a more conducive environment for business, train farmers with appropriate record keeping skills and improve road and communication infrastructure. Results also show that farmers' sources of information vary according to farm type. While poultry and dairy farmers depend largely on information provided by the government, horticulture and crop farmers rely mostly on their own sources of information or non-governmental sources. Policy recommendations include additional and appropriate record-keeping training for farmers, improving the road and communication infrastructure, promoting commercial information providers, and periodically publishing an agricultural magazine by the Ministry of Agriculture in a way that farmers can understand the information. The results of a logit model of the adoption of livestock insurance indicate that formal education of the farmer and the farmer's awareness of livestock insurance increase the probability of insurance adoption, whereas farming experience, poor location and use of alternative risk management strategies, such as off-farm investments and farm enterprise diversification, reduce the probability of livestock insurance adoption. Further insight into the socioeconomic factors influencing farmers' adoption of livestock insurance may assist policy makers and the National Insurance Corporation of Eritrea in their future plans. Results of this study have some policy implications, such as the need for a variable rather than fixed insurance premium, improving the know-how of farmers concerning risk assessment, improving Zobas' infrastructure and a need for a thorough study to be conducted on the demand for agricultural insurance in Eritrea.