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Abstract
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Article Information:
The Role of Non-farm Investments in Agricultural Risk Management in Kenya
K. Korir Luke, K. Lagat Job and K. Njehia Benard
Corresponding Author: Luke Korir Kipkurgat
Submitted: 2011 February, 10
Accepted: 2011 March, 15
Published: 2011 August, 15 |
Abstract:
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While risk sharing institutions like national insurance and credit schemes that help reduce the burden
of risk to farmers are weak in Kenya, private sector insurance products have failed to develop. Farmers have
opted for self-insurance strategies that include diversification and social mechanisms. Non-farm investments
are one of the diversification strategies whose effectiveness in risk management in Kenya has not been
established. This study sought to investigate farmers’ risk management strategies and the effectiveness of nonfarm
investments. Data was collected from 100 randomly selected farm households using a structured
questionnaire that was administered by trained enumerators. In order to identify the most prevalent risk
management strategies, descriptive statistics were computed. Effectiveness of non-farm investments in risk
management was assessed by simulating the effect of replacing the weight of farm income with that of nonfarm
income on the coefficient of variation of total household income. Non-farm self-insurance strategies
included engagement in wage or salary earning activity, non-farm investment and membership in social groups.
The simulation revealed that an increase in non-farm investment income lowered the coefficient of variation,
indicating that a marginal increase in non-farm investment income stabilized total household income, while a
decrease in non-farm investment income weight increased variability of total income. Government policies and
institutional mechanisms that reduce risk (such as crop insurance and irrigation technologies) and those that
facilitate farmers’ access to productive assets like non-farm investments are required in order enable farmers
to manage risks in farming.
Key words: Coefficient of variation, non-farm investment, risk aversion, risk, simulation, ,
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Cite this Reference:
K. Korir Luke, K. Lagat Job and K. Njehia Benard, . The Role of Non-farm Investments in Agricultural Risk Management in Kenya. Current Research Journal of Economic Theory, (2): 62-68.
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ISSN (Online): 2042-485X
ISSN (Print): 2042-4841 |
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