IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v11y2018i1p29-d192225.html
   My bibliography  Save this article

Adoption of Contract Farming and Precautionary Savings to Manage the Catastrophic Risk of Maize Farming: Evidence from Bangladesh

Author

Listed:
  • K M Mehedi Adnan

    (College of Economics and Management, Huazhong Agricultural University, No.1 Shizishan Street, Hongshan District, Wuhan 430070, China
    Department of Agricultural Finance & Banking, Sylhet Agricultural University, Sylhet-3100, Bangladesh)

  • Liu Ying

    (College of Economics and Management, Huazhong Agricultural University, No.1 Shizishan Street, Hongshan District, Wuhan 430070, China
    Hubei Collaborative Innovation Center for Grain Industry, Yangtze University, Jingzhou 434025, China)

  • Swati Anindita Sarker

    (School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100101, China
    Department of Agricultural Economics, EXIM Bank Agricultural University Bangladesh, Chapainawabganj 6300, Bangladesh)

  • Muhammad Hafeez

    (School of Economics and Management, Beijing University of Posts and Telecommunications, No 10, Xitucheng Road, Beijing 100876, China
    The Center of Industrial Economics and Green Development, Beijing University of Posts and Telecommunications, No 10 Xitucheng Road, Beijing 100876, China)

  • Amar Razzaq

    (College of Economics and Management, Huazhong Agricultural University, No.1 Shizishan Street, Hongshan District, Wuhan 430070, China)

  • Muhammad Haseeb Raza

    (College of Economics and Management, Huazhong Agricultural University, No.1 Shizishan Street, Hongshan District, Wuhan 430070, China)

Abstract

Agricultural production faces several types of risk, and risk management tools vary by place, season, and crop type. Most farmers use multiple risk-minimizing tools to reduce the effects of various hazards. However, previous research has overlooked the potential connections between different risk management tool utilization decisions. This study examines farmers’ decisions of adopting risk management tools (contract farming and precautionary savings) and investigates the impacts of various factors on farmers’ risk management decisions by using bivariate and multinomial probit models. The study was carried out in four different agro-ecological regions of Bangladesh with 350 farmers chosen through multistage stratified random sampling procedures. The findings revealed that the farmers’ decisions towards adopting risk management tools are correlated, and the adoption of one risk management tool may induce farmers to adopt other risk management tools at that time. Moreover, the results revealed that age, education, income, and land ownership are the major factors affecting the adoption of risk management tools, and most farmers are risk-averse in nature. Both models provide interpretation and information for the development of a better understanding of the current situation of rural farm households, which may serve as a platform for policymakers who are anticipating appropriate risk management tools for the farmers.

Suggested Citation

  • K M Mehedi Adnan & Liu Ying & Swati Anindita Sarker & Muhammad Hafeez & Amar Razzaq & Muhammad Haseeb Raza, 2018. "Adoption of Contract Farming and Precautionary Savings to Manage the Catastrophic Risk of Maize Farming: Evidence from Bangladesh," Sustainability, MDPI, vol. 11(1), pages 1-19, December.
  • Handle: RePEc:gam:jsusta:v:11:y:2018:i:1:p:29-:d:192225
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/11/1/29/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/2071-1050/11/1/29/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. J. Hope & J. Lingard, 1992. "The Influence Of Risk Aversion On The Uptake Of Set‐Aside: A Motad And Crp Approach," Journal of Agricultural Economics, Wiley Blackwell, vol. 43(3), pages 401-411, September.
    2. Moschini, Giancarlo & Hennessy, David A., 2001. "Uncertainty, risk aversion, and risk management for agricultural producers," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 2, pages 88-153, Elsevier.
    3. Bishwajit Ghose & Barmon Razib & Ghosh Sharmistha, 2014. "Reviewing the status of agricultural production in Bangladesh from a food security perspective," Russian Journal of Agricultural and Socio-Economic Sciences, CyberLeninka;Редакция журнала Russian Journal of Agricultural and Socio-Economic Sciences, vol. 25(1), pages 19-27.
    4. Quang Nguyen & Colin Camerer & Tomomi Tanaka, 2010. "Risk and Time Preferences Linking Experimental and Household Data from Vietnam," Post-Print halshs-00547090, HAL.
    5. Z. Bar‐Shira & R.E. Just & D. Zilberman, 1997. "Estimation of farmers' risk attitude: an econometric approach," Agricultural Economics, International Association of Agricultural Economists, vol. 17(2-3), pages 211-222, December.
    6. Johann Kirsten & Kurt Sartorius, 2002. "Linking agribusiness and small-scale farmers in developing countries: Is there a new role for contract farming?," Development Southern Africa, Taylor & Francis Journals, vol. 19(4), pages 503-529.
    7. Marilou P. Lucas & Isabelita M. Pabuayon, 2011. "Risk Perceptions, Attitudes, and Influential Factors of Rainfed Lowland Rice Farmers in Ilocos Norte, Philippines," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 8(2), pages 61-78, December.
    8. Alma Cohen & Liran Einav, 2007. "Estimating Risk Preferences from Deductible Choice," American Economic Review, American Economic Association, vol. 97(3), pages 745-788, June.
    9. Jensen, Farrell E. & Pope, Rulon D., 2004. "Agricultural Precautionary Wealth," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(1), pages 1-14, April.
    10. Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2007. "Estimating Risk Attitudes in Denmark: A Field Experiment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 341-368, June.
    11. Sonit Singla, 2012. "Integrated risk management in agriculture: an inductive research," Journal of Risk Finance, Emerald Group Publishing, vol. 13(3), pages 199-214, May.
    12. Ashok K. Mishra & Hung‐Hao Chang, 2009. "Factors affecting precautionary savings of self‐employed farm households," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 69(3), pages 300-313, November.
    13. Velandia, Margarita & Rejesus, Roderick M. & Knight, Thomas O. & Sherrick, Bruce J., 2009. "Factors Affecting Farmers' Utilization of Agricultural Risk Management Tools: The Case of Crop Insurance, Forward Contracting, and Spreading Sales," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 41(1), pages 107-123, April.
    14. Wainaina, Priscilla W. & Okello, Julius Juma & Nzuma, Jonathan M., 2012. "Impact of Contract Farming on Smallholder Poultry Farmers' Income in Kenya," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126196, International Association of Agricultural Economists.
    15. Bellemare, Marc F., 2012. "As You Sow, So Shall You Reap: The Welfare Impacts of Contract Farming," World Development, Elsevier, vol. 40(7), pages 1418-1434.
    16. Farhad Zulfiqar & Raza Ullah & Muhammad Abid & Abid Hussain, 2016. "Cotton production under risk: a simultaneous adoption of risk coping tools," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 84(2), pages 959-974, November.
    17. K. J. Arrow, 1964. "The Role of Securities in the Optimal Allocation of Risk-bearing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 31(2), pages 91-96.
    18. Martinez, Stephen W., 2002. "A Comparison of Vertical Coordination in the U.S. Poultry, Egg, and Pork Industries," Agricultural Information Bulletins 33773, United States Department of Agriculture, Economic Research Service.
    19. Mishra, Ashok K. & El-Osta, Hisham S., 2002. "Risk Management Through Enterprise Diversification: A Farm-Level Analysis," 2002 Annual meeting, July 28-31, Long Beach, CA 19711, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    20. Bellemare, Marc F. & Bloem, Jeffrey R., 2018. "Does contract farming improve welfare? A review," World Development, Elsevier, vol. 112(C), pages 259-271.
    21. Tomomi Tanaka & Colin F. Camerer & Quang Nguyen, 2010. "Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam," American Economic Review, American Economic Association, vol. 100(1), pages 557-571, March.
    22. Greiner, Romy & Patterson, Louisa & Miller, Owen, 2009. "Motivations, risk perceptions and adoption of conservation practices by farmers," Agricultural Systems, Elsevier, vol. 99(2-3), pages 86-104, February.
    23. Lucas, Marilou P. & Pabuayon, Isabelita M., 2011. "Risk Perceptions, Attitudes, and Influential Factors of Rainfed Lowland Rice Farmers in Ilocos Norte, Philippines," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 8(2), pages 1-17, December.
    24. Fawole, Pippy & Thomas, Kehinde A., 2011. "Effects of Contract Farming Scheme on Cassava Production Enterprise in Oyo State, Nigeria," Journal of Rural Economics and Development, University of Ibadan, Department of Agricultural Economics, vol. 20, pages 1-7, June.
    25. Wencong Lu & Abdul Latif & Raza Ullah, 2017. "Simultaneous adoption of contract farming and off-farm diversification for managing agricultural risks: the case of flue-cured Virginia tobacco in Pakistan," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 86(3), pages 1347-1361, April.
    26. Martinez, Stephen W., 2002. "Vertical Coordination Of Marketing Systems: Lessons From The Poultry, Egg, And Pork Industries," Agricultural Economic Reports 34051, United States Department of Agriculture, Economic Research Service.
    27. Larry D. Makus & Biing-Hwan Lin & John Carlson & Rose Krebill-Prather, 1990. "Factors influencing farm level use of futures and options in commodity marketing," Agribusiness, John Wiley & Sons, Ltd., vol. 6(6), pages 621-631.
    28. Haque, T., 2000. "Contractual Arrangements in Land and Labour Markets in Rural India," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 55(3), September.
    29. Bruce J. Sherrick & Peter J. Barry & Paul N. Ellinger & Gary D. Schnitkey, 2004. "Factors Influencing Farmers' Crop Insurance Decisions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(1), pages 103-114.
    30. Kisaka-Lwayo, Maggie & Obi, Ajuruchukwu, 2012. "Risk perceptions and management strategies by smallholder farmers in KwaZulu-Natal Province, South Africa," International Journal of Agricultural Management, Institute of Agricultural Management, vol. 1(3), pages 1-12.
    31. Prescott, Edward Simpson & Townsend, Robert M., 2002. "Collective Organizations versus Relative Performance Contracts: Inequality, Risk Sharing, and Moral Hazard," Journal of Economic Theory, Elsevier, vol. 103(2), pages 282-310, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wencong Lu & Abdul Latif & Raza Ullah, 2017. "Simultaneous adoption of contract farming and off-farm diversification for managing agricultural risks: the case of flue-cured Virginia tobacco in Pakistan," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 86(3), pages 1347-1361, April.
    2. K M Mehedi Adnan & Liu Ying & Zeraibi Ayoub & Swati Anindita Sarker & Rashid Menhas & Feiyu Chen & Man (Mark) Yu, 2020. "Risk Management Strategies to Cope Catastrophic Risks in Agriculture: The Case of Contract Farming, Diversification and Precautionary Savings," Agriculture, MDPI, vol. 10(8), pages 1-16, August.
    3. Dilshad Ahmad & Muhammad Afzal & Abdur Rauf, 2019. "Analysis of wheat farmers’ risk perceptions and attitudes: evidence from Punjab, Pakistan," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 95(3), pages 845-861, February.
    4. Farhad Zulfiqar & Raza Ullah & Muhammad Abid & Abid Hussain, 2016. "Cotton production under risk: a simultaneous adoption of risk coping tools," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 84(2), pages 959-974, November.
    5. Jamal Shah & Majed Alharthi, 2022. "The Association between Farmers’ Psychological Factors and Their Choice to Adopt Risk Management Strategies: The Case of Pakistan," Agriculture, MDPI, vol. 12(3), pages 1-24, March.
    6. Raza Ullah & Ganesh P. Shivakoti & Farhad Zulfiqar & Muhammad Nadeem Iqbal & Ashfaq Ahmad Shah, 2017. "Disaster risk management in agriculture: tragedies of the smallholders," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 87(3), pages 1361-1375, July.
    7. Sepahvand, Mohammad H, 2019. "Agricultural productivity in Burkina Faso: The role of gender andrisk attitudes," Working Paper Series 2019:3, Uppsala University, Department of Economics.
    8. Keil, Alwin & Nielsen, Thea, 2012. "Accounting for farmers’ risk preferences in investigating land allocation decisions in marginal environments: a test of various elicitation measures in an application from Vietnam," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126054, International Association of Agricultural Economists.
    9. J. François Outreville, 2015. "The Relationship Between Relative Risk Aversion And The Level Of Education: A Survey And Implications For The Demand For Life Insurance," Journal of Economic Surveys, Wiley Blackwell, vol. 29(1), pages 97-111, February.
    10. Minot, Nicholas & Sawyer, Bradley, 2016. "Contract farming in developing countries: Theory, practice, and policy implications," IFPRI book chapters, in: Devaux, André & Torero, Maximo & Donovan, Jason & Horton, Douglas E. (ed.), Innovation for inclusive value-chain development: Successes and challenges, chapter 4, pages 127-158, International Food Policy Research Institute (IFPRI).
    11. Ihli, Hanna Julia & Chiputwa, Brian & Musshoff, Oliver, 2016. "Do Changing Probabilities or Payoffs in Lottery-Choice Experiments Affect Risk Preference Outcomes? Evidence from Rural Uganda," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(2), May.
    12. Muhammad Farhan & Muhammad Asim Yasin & Khuda Bakhsh & Rafaqet Ali & Sami Ullah & Saad Munir, 2022. "Determinants of risk attitude and risk perception under changing climate among farmers in Punjab, Pakistan," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 114(2), pages 2163-2176, November.
    13. Insaf Bekir & Faten Doss, 2020. "Status quo bias and attitude towards risk: An experimental investigation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(5), pages 827-838, July.
    14. Marwa, Erick & Manda, Julius, 2021. "Do Youth Farmers Benefit from Participating in Contract Farming: Evidence from French Beans Youth Farmers in Arusha, Tanzania," 2021 Conference, August 17-31, 2021, Virtual 315907, International Association of Agricultural Economists.
    15. Sudip Adhikari & Aditya R. Khanal, 2021. "Economic Sustainability and Multiple Risk Management Strategies: Examining Interlinked Decisions of Small American Farms," Sustainability, MDPI, vol. 13(4), pages 1-13, February.
    16. Kerri Brick & Martine Visser & Justine Burns, 2012. "Risk Aversion: Experimental Evidence from South African Fishing Communities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(1), pages 133-152.
    17. Jonathan Chapman & Erik Snowberg & Stephanie Wang & Colin Camerer, 2018. "Loss Attitudes in the U.S. Population: Evidence from Dynamically Optimized Sequential Experimentation (DOSE)," NBER Working Papers 25072, National Bureau of Economic Research, Inc.
    18. Bernard, Kévin & Bonein, Aurélie & Bougherara, Douadia, 2020. "Consumer inequality aversion and risk preferences in community supported agriculture," Ecological Economics, Elsevier, vol. 175(C).
    19. Matthew P. Taylor, 2017. "Information Acquisition Under Risky Conditions Across Real And Hypothetical Settings," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 352-367, January.
    20. Xiaodong Du & Hongli Feng & David A. Hennessy, 2017. "Rationality of Choices in Subsidized Crop Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 732-756.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:11:y:2018:i:1:p:29-:d:192225. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.