Managing Farm Risk: Issues and Strategies in Plantain Production in Osun State, Nigeria  

Baruwa O. I.1 , Masuku M.B.2 , Alimi T.1
1. Agricultural Economics Department, Faculty of Agriculture, Obafemi Awolowo University, Ile-Ife, Osun State, Nigeria
2. Department of Agricultural Economics and Management, University of Swaziland, Swaziland
Author    Correspondence author
International Journal of Horticulture, 2015, Vol. 5, No. 10   doi: 10.5376/ijh.2015.05.0010
Received: 03 Jun., 2015    Accepted: 05 Aug., 2015    Published: 23 Sep., 2015
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Baruwa O.I., Masuku M.B. and Alimi T., 2015, Managing Farm Risk: Issues and Strategies in Plantain Production in Osun State, Nigeria, International Journal of Horticulture, 2015, Vol.5, No.10 1-11 (doi: 10.5376/ijh.2015.05.0010)

Abstract

The study examined various risks and their management strategies in plantain production under tropical condition. A multi-stage sampling procedure was used to select two hundred plantain farmers in the two ecological zones within Osun State, Nigeria. Primary data collected were analyzed using descriptive statistics and importance index. A comparison of the results of the two zones was undertaken. The results of the analyses revealed that shortage of capital, poor transportation system and shortage of labor (in that order of importance) were the important risks confronting plantain farmers in the study area. Diversification of income sources, native safeguard and diversification of farm enterprises were the most common strategies employed to manage the risks in the study area. Research effort should be directed at obtaining effective and efficient storage and processing technology to reduce or eliminate risk associated with the high perishable nature of plantain.

Keywords
Farm risk; Management strategies; Plantain; Production; Nigeria

Introduction
Risk is an unavoidable element in the business of agriculture (plantain production inclusive) especially in developing countries. Plantain is a seasonal crop with relative short shelf life hence; it is available for a limited period with high risk of post-harvest losses. Risk is a situation when all possible outcomes for a given management decision (action) and the probability associated with each possible outcome are known (Kay 1981). Production can vary widely from year to year due to unforeseen weather and market conditions, causing wide swings in commodity prices. But risk, while inevitable, is often manageable. Although farms vary widely with respect to enterprise mix, financial situation, and other business and household characteristics, the various sources of risk that are common to all farmers can be grouped into two namely, business risks and financial risks (Hardaker et al., 1997). Business risks include production risks, which are related to the unpredictable nature of the weather and to the uncertain performance of crops and livestock, and price risks, which refer to uncertainty of prices of farm inputs and outputs. Business risks also include social risks, this come from human factors such as theft, sudden death, accidents strikes, wars etc, which can lead to either unexpected decline in yield or total loss of output, and institutional risks, which originate from uncertainty about the impact of government policies on farm profits.

Financial risk occurs when enterprise profitability (rate of return) is less than the cost of capital. It is a risk related to the way a farm is financed. Barry and Frazer (1984) noted that the risk sources are as a result of gestation lag, biological nature of farmer and farming enterprise. The risk environment of farmers is changing. This is caused partly by a changing role of government, i.e., less intervention on one hand and more regulation on the other (Zulauf et al., 1996; Ritson & Harvey 1997; Harwood et. al., 1999), and partly by an increasing industrialization of agriculture (Boehlje & Lins, 1998). United State Department of Agriculture’s (USDA) Economic Research Services has examined the nature of farm business risk and explored the effectiveness of various management strategies and concluded that using risk management does not necessarily avoid risk altogether, but instead balances risk and return consistent with a farm operator’s capacity to withstand a wide range of outcomes. (Meuwissen et al., 2001) in their study on the pros and cons of risk-sharing strategies, observed that on both theoretical and empirical grounds, risk-sharing strategies provide opportunities for dealing with the new (and the old) risks with which agriculture is confronted. They concluded that theoretically, risk-sharing tools are in principle advantageous to both individual farmers and society as a whole. Empirically, farmers already perceive risk-sharing strategies (especially insurance) as important strategies to manage risks.

Farmers’ attitudes towards risk can vary greatly and are a key determinant in selecting risk management strategies. A farmer with a strong aversion to risk will be willing to pay more for a given level of risk reduction than a farmer with a weaker aversion to risk (USDA 1996). Taking more risks can increase a farmer’s profit. However, like most people, farmers are generally risk averse (Harrington & Niehaus 1999). Farmers are willing to pay premium to reduce exposure to risk. If farmers can trade away part of the risks on their farm at an acceptable cost, the expected utility for the farmer will increase (Arrow 1996). The risk sources vary in importance from one enterprise to another and from a group of farmers to another. The California agricultural producers ranked output price and input cost highest among their production and financial risks (Blank & McDonald 1995). The possibility of lower-than-expected yield is one of the risks identified in the USDA’s 1996 Agricultural Resource Management Study (ARMS) as a major concern to farmers, particularly those planting major field crops.

The objective of this study is to identify the risk sources and their relative importance in plantain farming under tropical condition and make comparison between two ecological zones – derived savannah and forest zones in the study area. This study will help the current and prospective plantain farmers to identify the existing and possible risk management strategies associated with plantain production at the individual farm levels in order to increase production and farmer’s productivity, which may lead to increase and steady supply of plantain to markets and to ensure high and stable income to plantain farmers.

Materials and Methods

Osun State is the study area. Osun State lies within 70 and 80 east of the Greenwich meridian. Agriculture is the major source of income for over 70 percent of the people in the area. The tropical climate in the area favor the growth of annual crops such as yam, cassava, maize, plantain and bananas and tree crops which  include cocoa, kolanuts and palm produce. The State is divided into three agricultural zones (OSSADEP, 1997). These zones are Iwo, Ife/Ijesa and Osogbo with headquarters at Iwo. Each zone is further sub-divided into blocks and blocks into cells. 

Multistage sampling technique was used in selecting respondents for the study. The three agricultural zones in the state were stratified into two ecological zones on the basis of climatic factors namely, forest (Ife/Ijesa zone) and derived savannah (Iwo and Osogbo zone). Iwo was selected as representative of derived savannah zone using simple random sampling technique and the remaining zone which is the forest (Ife/Ijesa zone) was chosen to obtain geographical spread of the areas where plantain is being grown in the State. Five blocks were selected from each ecological zone, four cells chosen from each block and five villages from each cell using simple random sampling technique at each sampling stage. A farmer was randomly selected from the list of plantain farmers in each village. In all a total of two hundred plantain farmers were selected. Data were collected from them with the aid of a structured questionnaire.

Descriptive statistics was used to describe various risk sources and risk management strategies while importance index was used to rank them in order of importance.

Importance Index: In order to determine the relative importance of risks to plantain production, importance index was constructed using the methodology adopted by (McLean-Meyinsse et al., 1994). For the construction of the index, plantain farmers were asked to give and rank the risks to plantain production on an ordinal scale, (1 being assigned to the most important, 2 to the next most important and sequentially in descending order of importance). For analysis, the scale was reversed for ease of index construction. The mean score computed for each identified constraint was multiplied by the percent of the plantain farmers identifying the constraint as the most important; to obtain the importance index. The importance index was constructed using matrices A, B and C as indicated below:




Matrix A gives the distribution of plantain farmers according to constraints to production. The matrix indicates that there are ‘m’ constraints, to be put in ‘n’ categories of rank.

Matrix B is the weight attached to each of the ranks, wi is the weight attached to rank j where i = j, i =1,2 .m and j =1,2 .n. w1 is the weight attached to rank 1,w2 to rank 2 etc matrix C gives the product of matrices A and B, (AB). It is the total value of importance attached to each constraint. For example C3 = f31w1 + . + f3nwm = total value of importance attached to constraint 3. Ci is the total value of importance attached to constraint i .
Importance rating for constraint i =

Where λi = fi. = n = total number of farmers selecting constraint i as important.
Importance index =

Such that fi is the number of farmers (frequency) ranking constraint i as the most important (highest rank). This will assist in ordering constraints to plantain production for attention to increase its production.

Results And Discussion

The identified risk sources and their ranking in order of importance are presented in Tables 1 and 2. Generally, in the two zones, unsecured land tenure was not an important risk source. None of the farmers considered it as an important risk source in Iwo zone and only 5 percent of the respondents in Ife/Ijesa zone considered it as one of the risk sources. The respondents in Iwo zone have high security to the right to use their farmlands. None of them anticipated land tenure insecurity in the nearest future that could affect their farming. This conforms with Alimi & Ayanwale (2005) who observed that none of farmers considered unsecured land tenure important risk in onion production in Kebbi State of Nigeria.

 
Table 1 Farmers’ ranking of risk sources in Iwo zone (n = 100) 

 
Table 1a: Relative importance of sources of risk in Iwozone 

 

Table 2 Farmers’ ranking of risk sources in Ife/ Ijesa zone (n = 100) 


 
Table 2a: Relative importance of sources of risk in Ife/Ijesa zone 


All the respondents in the zones (Iwo and Ife/Ijesa) mentioned pests and diseases and shortage of capital as important risk sources. In the zones, not less than 70 percent of the respondents considered theft, high input price, and non-availability of labor and poor transportation system as risk sources. Unlike in Ife/Ijesa zone where all the respondents (100 percent) considered poor transportation system as important risk source, 74 percent of the respondents in Iwo zone considered it as important risk. More than 60 percent of the respondents in Iwo zone ranked wind on a 1 to 6 scale (one being the most important and six being the least important), compared to Ife/Ijesa zone where only 25 percent of the respondents ranked it among the most important six. Out of 56 percent of farmers in Ife/Ijesa that considered bad weather as risk source, 45 percent of the respondents ranked it within 1-6 scale while in Iwo zone only 27 percent of the farmers stated it as risk source and only 16 percent of the farmers ranked it within 1-6 scale. Analysis of ranking of risk sources by plantain farmers on a 1 to 6 scale (Table 1a and Table 2a) indicated that respondents in the zones rated shortage of capital as the most important risk source. It was so important that none of the farmers in Iwo zone ranked it lower than fourth position in importance. This is followed by poor transportation system and non-availability of labor. Damage due to bad weather was rated as the least important factor. This shows that shortage of capital, poor transportation system and non- availability of labor were the most serious problems confronting plantain farmers in the zones.

Risk sources cause adversity in yield, prices and production units. Each or any combination of the outcomes of the risk sources (poor yield, poor prices, inadequate production units) lead to low farm income. Farmers take actions to reduce risk by the production, marketing, and financial organizational arrangements of the farm business (Boehije & Trede 1977). There are several strategies that risk - averse farm operators can use to reduce the farm exposure to business and financial risks. A number of the risk management strategies and the proportions of plantain farmers adopting each are presented in Table 3. A well-known risk management strategy by which farmers can share risks with others is to buy insurance for a specified risk (Boehije & Trede 1977). Formal insurance allows a means of substituting a certain small expense for the possibility of a large uncertain loss. The various types of insurance that could be used by a farm operator are crop, property and personal. Crop insurance prevents or reduces the technical risk of obtaining very low crop yield than expected caused by adverse weather condition, property insurance is the protection against destruction of farm assets by fire, wind, theft and accidental damage. Personal insurance protects farm operators and their families against losses in equity due to ill health or death of the insured individual (s). None of the plantain farmers in both Ife/Ijesa and Iwo zones used any formal insurance types stated above. The farmers explained that they did not know of any insurance package from any source, which they could patronized to assist them in situation of ‘bad’ uncertain occurrence such as adverse weather effects, drastic low price hicks, theft, and high incidence of disease and pest infestation. The confidence which farmers could have gained to invest in production through insurance policy to cushion their financial position in case of ‘bad’ happening might be lacked. This finding agrees with Harwood et al., 1999; Alimi & Ayanwale, 2005 who reported that none of the farmers used any of the formal insurance types because of their unavailability, where available there is lack of confidence in the programme. This lack of confidence would perhaps, compelled farmers to take risk adverse measures in plantain production which is a threat to food security.

 
Table 3 Farmers’ Use of Risk Management Strategies 


Technical method is another means of reducing production risks. It involves the use of improved seedlings, fertilizers, insecticides and irrigation to obtain high and stable yield. Only 10 percent, 8 percent, 58 percent and 4 percent in Ife/Ijesa zone and 25 percent, 40 percent, 66 percent and 3 percent in Iwo zone used improved sucker, fertilizers, insecticides and irrigation, respectively, as a means of reducing production risks. Most (72 percent and 80 percent in Ife/Ijesa and Iwo zones, respectively) plantain farmers used native safeguards. A strategy to stabilize farm household income is diversification. Diversification involves deriving income from two or more activities or enterprises.

The two general types are diversification of income sources and diversification of farm enterprises. Diversification of income sources occurs when a farmer does not rely entirely on income derived from farming only, that is, the farmer engages in off-farm employment. Diversification of enterprises is the production of two or more crop or livestock enterprises. In Iwo zone 42 percent of the respondents engaged in off-farm activities while in Ife/Ijesa zone only 38 percent of plantain farmers took farming as part time. More than half (61 percent) of the respondents in Iwo zone engaged in enterprise diversification while 21 percent of farmers in Ife/Ijesa zone used enterprise diversification as a strategy to stabilize farm household income; plantain production was combined usually with cocoa. This observation was confirmed by the report of Blank and McDonald, 1995; Alimi & Ayanwale, 2005 that most food crop farmers use enterprise diversification, and diversification of income sources. Alimi and Ayanwale, 2005 asserted that engaging in and earning of non-farm income will lower the variance of income to the farm family by providing a steady income regardless of the success of the agricultural enterprises in a given season.

Sequential marketing, forward contracting, hedging and cooperative marketing are some of the strategies that can reduce market risks. None of the farmers used sequential marketing because of the perishable nature of plantain for which effective storage and or processing facility is presently non-existent in Nigeria. Only 33 percent and 25 percent of the respondents in Ife/Ijesa and Iwo zones, respectively, engaged in cooperative marketing. None of the farmers engaged in either hedging or forward contracting. These coping strategies are not common in the study area. There was no government commodity programmes to assist farmers stabilize plantain prices or organized marketing of plantain. The use of outside equity capital is a strategy required for expanding production and reducing financial risk. None of the farmers used it. This is because of their cultural/religious belief that was against charging interest on loans, which therefore reduces loans availability, as there was no incentive to give them (loans).

Conclusion And Recommendations
Despite the ranking of capital risk as the most important in both zones, farmers did not apply any strategy to reduce the risk. because of their cultural/ religious belief that was against charging interest on loans, which therefore reduces loans availability. Diversification of income sources, diversification of farm enterprises and native safeguards were the most common strategies used by farmers to stabilize farm household income and theft risk respectively, in the study area.

None of the plantain farmers used any of the formal insurance to assist them in situation of ‘bad’ uncertain occurrence because of their unavailability. It was suggested that agricultural policy makers should make policies that will make government and private insurance companies developing insurance product for farmers to patronize and use as shock absorbers against uncertain events.

There was no government commodity programmes to assist farmers stabilize plantain prices or organized marketing of plantain. Farmers are encouraged to form formidable cooperatives to help manage marketing related problems. Research effort should be directed at obtaining improved suckers and effective and efficient storage and processing technology to reduce/eliminate the high perishable nature of plantain that is responsible for the risk.

Since the study had identified inadequate finance for the acquisition of farm resources inputs as the major constraints militating against plantain production in the study area, it is recommended that Federal Government should expedite action on restructuring Agricultural Credit Guarantee Loan Scheme so that small-scale farmers will have access to credit from commercial banks.

References

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Barry P.J., and Frazer D., 1984, Risk management in production, American Journal of Economics 9: 30-40
Blank S.C., and McDonald J., 1995, How California agricultural producers manage risk, California Agriculture, 49(2): 9-12
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