Risk management strategies of smallholder farmers in the eastern highlands of Ethiopia

Many risks with severe consequences affect the rural society in Ethiopia. Hence, risk reduction and mitigation would be of paramount importance to the rural households whose livelihoods are threatened. This thesis investigates the relationship between various types of agricultural risks and socio-economic-cultural characteristics of households, opportunity variables and other pertinent factors. For a fuller understanding of the contextual risks, the study utilises both qualitative and quantitative methods of data collection and analysis. The qualitative methods are envisaged to grasp the varying insights, perspectives and complexities of rural livelihoods. The quantitative analyses are used to enrich and contextualize the qualitative information. The results reveal that households in the Eastern Highlands of Ethiopia are vulnerable to a wide variety of risks that can materially disrupt different aspects of their livelihoods. In the first article, it is shown that the major risks are production risk, financial risk, health risk, institutional and political risk. These are both covariate risks that may take the form of widespread shocks such as drought, or idiosyncratic risks such as localised shocks or health problems. It emerges that risks are perceived by different local actors in varying ways depending on differences in asset endowments, locational settings and different dimensions of livelihood diversification strategies pursued by the farmers. Article II focuses on estimation and characterisation of perceived risks, mainly on income, price and yield variability. The analysis shows that drought, pests & diseases, higher prices of cereals at purchase, and drought coupled with pests & diseases are very frequent and distributionally neutral. Proximity to the market and the number of cattle owned by the households are found to be the strong determinants of household income during both 'good' and 'bad' years. Article III analyses what determines access to risk information and learning that is vital in the risk reduction and mitigation process. The main messages are that distances from markets and number of plots owned by the farmers have significant associations with access to information. Self-evaluation of knowledge, a proxy for learning, is found to be significantly associated with differences in gender, marital statuses and educational level of household head as well as number of cattle owned and farm size. Some important messages emerge from the fourth article. Firstly, farmers perceived that financial response; diversification and marketing responses are important management tools in risk mitigation and sustenance of their livelihoods. Secondly, responses to risks are differentiated across opportunity variables, wealth status, diversification and human capital- related variables. This dissertation argues that the trend of increased reliance on ex post responses to risks needs to be reversed as farmers would benefit more from invigorating ex ante, preventive, risk management instruments. The impetus of this study is that understanding varying perceptions of risks, risk information, learning and risk responses of farmers could serve as a solid basis in the efforts of articulating sensible grass-root level risk reduction strategies with the view of reducing various dimensions of poverty in the Eastern Highlands of Ethiopia.