Journal of Risk Research

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Cattle farmers’ perceptions of risk and risk

management strategies: evidence from Northern
Ethiopia

Kinfe G. Bishu, Seamus O’Reilly, Edward Lahiff & Bodo Steiner

To cite this article: Kinfe G. Bishu, Seamus O’Reilly, Edward Lahiff & Bodo Steiner (2018) Cattle
farmers’ perceptions of risk and risk management strategies: evidence from Northern Ethiopia,
Journal of Risk Research, 21:5, 579-598, DOI: 10.1080/13669877.2016.1223163

To link to this article: https://doi.org/10.1080/13669877.2016.1223163

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Journal of Risk Research, 2018
Vol. 21, No. 5, 579–598, https://doi.org/10.1080/13669877.2016.1223163

Cattle farmers’ perceptions of risk and risk management

strategies: evidence from Northern Ethiopia
Kinfe G. Bishua,b*, Seamus O’Reillyc, Edward Lahiffc and Bodo Steinerd
a
Department of Natural Resource Economics and Management, Mekelle University, Mekelle,
Ethiopia; bCenter for Health Disparities Research, Medical University of South Carolina,
Charleston, SC, USA; cDepartment of Food Business and Development, University College
Cork, Cork, Ireland; dFaculty of Business and Social Sciences, University of Southern
Denmark, Kolding, Denmark
(Received 6 February 2016; final version received 19 July 2016)

This study analyzes cattle farmers’ perceptions of risk and risk management
strategies in Tigray, Northern Ethiopia. We use survey data from a sample of
356 farmers based on multistage random sampling. Factor analysis is employed
to classify scores of risk and management strategies, and multiple regression is
then used to investigate the relationship between scores and farmers’ characteris-
tics. The results demonstrate that shortage of family labor, high price of fodder,
and limited farm income were perceived as the most important risks. Use of
veterinary services, parasite control, and loan utilization were perceived as the
most important strategies for managing risks. Livestock disease and labor short-
age were perceived as less of a risk by farmers who adopted the practice of zero
grazing compared to other farmers, pointing to the potential of this practice for
risk reduction. We find strong evidence that farmers engage in multiple risk man-
agement practices in order to reduce losses from cattle morbidity and mortality.
The results suggest that government strategies that aim at reducing farmers’ risk
need to be tailored to specific farm and farmer characteristics. Findings from this
study have potentially important policy implications for risk management strate-
gies in developing countries.
Keywords: risk perception; risk management; livestock farming; multivariate
analysis; Ethiopia

1. Introduction
Small-scale livestock farmers, many of whom live in severe poverty, represent almost
20% of the world’s population and utilize most of the agricultural land in the tropics.
Intensification of livestock production is widely advocated to meet the increasing
demands for livestock products and to improve rural incomes (McDermott et al.
2010; Udo et al. 2011). Natural and human-induced risks, however, impose severe
constraints on farmers (Hardaker et al. 2004). Poor rural people in developing coun-
tries are exposed to numerous risks while often lacking the means to manage them
adequately, and so are highly vulnerable (Anderson 2003; Barnett, Barrett, and Skees
2008; Dercon 2002; Gilligan, Hoddinott, and Taffesse 2009; Tadesse, Shiferaw, and
Erenstein 2015). Previous studies reveal that in the arid and semi-arid environment of

*
Corresponding author: Email: [email protected]

© 2016 Informa UK Limited, trading as Taylor & Francis Group

580 K.G. Bishu et al.

East Africa the predominant risks are mainly related to drought and infectious disease
(Chantarat et al. 2007; Doss, McPeak, and Barrett 2008; Hill, Hoddinott, and Kumar
2013; Matsaert, Kariuki, and Mude 2011; Thornton et al. 2006; Yesuf and Bluffstone
2009).
While livestock farmers’ perceptions of risk and management strategies have
received some attention in developed economies, little specific attention has been
paid to developing economies (Ahsan 2011; Akcaoz, kizilay, and Ozcatalbas 2009).
In the absence of empirical studies, little is known about livestock farmers’ percep-
tion of risk, about their risk management strategies, or the determinants of such risks
and strategies (Gebreegziabher and Tadesse 2014). This paper, therefore, extends
previous work by examining livestock farmers’ risk perceptions in a developing
economy context and explores the relevance of a range of farmers’ risk management
strategies as well as their determinants. This provides the basis for an analysis of the
influence of demographic and farm characteristics on farmers’ perceptions of risk
and their risk management strategies, revealing significant differences between farm-
ers. This in turn supports a number of recommendations of potential importance to
policy-makers concerned with the development of the small-scale livestock sector in
developing countries such as Ethiopia.
The remainder of paper is organized as follows: Section 2 provides background
and discusses relevant literature; Section 3 deals with methods; Section 4 presents
discussion of the results; and Section 5 presents conclusions and implications.

2. Background and literature

Ethiopia’s livestock herd, the largest in Africa, is a major source of income for the
poorest section of the rural population. However, the sector’s contribution is far
below its potential due to low productivity, caused in turn by fodder shortages, high
incidence of livestock disease, and low levels of technology adoption (such as
improved cattle breeds, use of veterinary service, feed supplementation and market-
ing) (Degu 2012; Gebremedhin, Pender, and Tesfay 2004; Jibat, Mengistu, and
Girmay 2015). It is widely reported that farmers who are fearful of future loss of
earnings may be reluctant to adopt technological innovations that offer uncertain
returns (Fafchamps 2010). Dercon and Christiaensen (2011) reported that, despite
numerous efforts by development agencies, farmers’ adoption of new technology in
Ethiopia is relatively low due to the perceived risks. Such reluctance to adopt new
agricultural technology is often seen as a contributor to the persistence of rural pov-
erty (Fafchamps 2010). To reduce the impact of a range of risks, farmers practice
various risk management strategies such as diversification of their livelihood activi-
ties, saving, debt management, membership of marketing cooperatives, control of
pests and diseases and participation in public works programs (Akcaoz, kizilay, and
Ozcatalbas 2009; Akcaoz and Ozkan 2005; Andersson, Mekonnen, and Stage 2011;
Dercon and Christiaensen 2011; Ellis 2000; Gebreegziabher and Tadesse 2014;
Headey, Taffesse, and You 2014; Kazianga and Udry 2006). Such strategies may be
ineffective, however, when an entire community is hit by covariate risks such as
drought or disease outbreak (Castellani and Vigano 2015; Ellis 1998; Hill,
Hoddinott, and Kumar 2013; Meze-Hausken, Patt, and Fritz 2009).
In light of a lack of agreement on the meaning of the term risk (Legesse and
Drake 2005), the literature makes a useful distinction between uncertainty, as in
imperfect knowledge, and risk, as in exposure to uncertain economic consequences
 Journal of Risk Research 581

(Hardaker et al. 2004; Holton 2004; Legesse and Drake 2005). Following Legesse
and Drake (2005), risk is defined in this paper as the impact of an undesirable out-
come arising from natural events or human action.
Furthermore, we note that risk attitude and risk perception are two different con-
cepts. Whereas risk attitude refers to a decision-maker’s interpretation of the content
of the risk, and how much they like or dislike the risk (typically characterized as
risk-seeking versus risk-aversion), risk perception refers to the decision-maker’s
interpretation of the potential impact of the risk (Pennings, Wansink, and Meulen-
berg 2002). Risk perceptions are thus subjective measures of risk which are based
on evaluation by the individual (Georgakopoulos and Thomson 2005; Hansson
2010; McCarthy and Henson 2005). The terms ‘subjective risk’ and ‘perceived risk’
are used interchangeably in the literature (Hansson 2010). Risk management strate-
gies adopted by farmers reflect their personal perceptions of risk and other available
resources (Beal 1996). Risk prevention and mitigation are parts of the ex-ante risk
management strategies, while risk coping is part of the ex-post shock coping strate-
gies (Holzmann and Jorgensen 1999).
Taking into account the above-mentioned literature, it is argued that risk aversion
combined with inadequate risk management responses is a potentially important
contributing factor to poverty (Fafchamps 2010). An understanding of farmers’ risk
perceptions and how farmers respond to risk is therefore important in order to under-
stand the decision-making behavior of farmers under different economic and institu-
tional conditions, especially for agencies interested in agricultural development and
poverty alleviation (Flaten et al. 2005; Legesse and Drake 2005). Smallholders’ risk
perceptions and risk responses have an important bearing on the type of intervention
measures to be considered, and have therefore been a focus of interest for policy-
makers and researchers for some time (Legesse and Drake 2005; Sjoberg 2000).
Legesse and Drake (2005, 383) argue that: ‘If risk is excluded from the livelihood
analysis, then findings would be misleading and policy recommendations and ulti-
mate decisions on identification of relevant improvements and intervention measures
might be inappropriate.’ Similarly, Anderson (2003) and Barnett, Barrett, and Skees
(2008) argue that devising appropriate risk management strategies and supporting
the critically vulnerable are key pillars in an effective and sustainable rural poverty-
reduction strategy.
The recurrence of humanitarian disasters in the Horn of Africa has prompted
renewed interest in achieving sustainable development, particularly with regard to
enhancing the resilience of the region’s economy to withstand shocks (Andersson,
Mekonnen, and Stage 2011; Gebresilassie 2014; Gilligan, Hoddinott, and Taffesse
2009; Headey, Taffesse, and You 2014). Among government departments and devel-
opment organizations, however, there is little agreement on how to reduce the
region’s extreme vulnerability to shocks and stresses (Headey, Taffesse, and You
2014). Doss, McPeak, and Barrett (2008) investigate interpersonal, intertemporal,
and spatial variations of risk perceptions in East Africa, analyzing the relative level
of concern about risk among pastoralists, using risk ranking, and its determinants.
These authors identify a need for intervention in the areas of food security and pub-
lic health in order to mitigate the risks faced by pastoralists. Other recent studies of
risk management in livestock farming in East Africa have focused on the role of
insurance in poverty reduction (Chantarat et al. 2013; Matsaert, Kariuki, and Mude
2011).
582 K.G. Bishu et al.

Livestock is an integral part of agricultural livelihoods for most smallholder

farmers in Ethiopia (Haftu, Asresie, and Haylom 2014; Tegebu et al. 2012). The
country has a large livestock population but the contribution to the national econ-
omy remains low due to constraints associated with risk and inadequate management
responses. Therefore, it is important to understand the impact of risk and improve
the risk management strategies of farmers.

3. Methods
3.1. Study area and sampling design
This study is based on a survey of farm households carried out in 2011/2012 in rural
Tigray region, in Northern Ethiopia. The reason for choosing Tigray is the region’s
vulnerability to drought, high food insecurity, livestock feed constraints, and poor
animal health services (Abegaz, van Keulen, and Oosting 2007; Gebreegziabher and
Tadesse 2014; Haftu, Asresie, and Haylom 2014; Haileselassie et al. 2011; Tegebu
et al. 2012; Van der Veen and Gebrehiwot 2011). Tigray is located in the Northern
highlands of Ethiopia, stretching from 12° 15′ to 14° 57′N and 36° 27′ to 39° 59′E,
and covers an area of approximately 53,000 km2. The region is bordered in the north
by Eritrea, in the west by the Sudan, in the south by Amhara region of Ethiopia and
in the east by Afar region. In Tigray, 53% of the land is classified as lowland (less
than 1500 m above sea level), 39% as mid-highland (1500–2300 m above sea
level), and 8% as highland (greater than 2300 m above sea level). The mean annual
rainfall of the region varies from 200 mm in the east to over 950 mm in the south-
west, and the average annual temperature ranges from 15 to 25 °C (Birhane et al.
2011). According to the report of the 2007 housing and population census, the total
size of the Tigray population in that year was 4.3 million (5.8% of the Ethiopian
population). Of this population, 49.2% was male and 50.8% female. In terms of
settlement, 19.5% of the population was living in urban areas, whereas 80.5% was
living in the rural areas (CSA 2008). The region is divided into five administrative
zones, which in turn are subdivided into 34 rural woredas (districts) and 12 urban
woredas, further divided into 660 tabias (sub-districts).
Fieldwork was conducted in three out of the five zones of Tigray: North Western,
Eastern, and Southern. Multistage random sampling was used to account for spatial
distribution, agro-ecology, and accessibility (with regard to infrastructure), in order
to generate a representative sample of the regional population, resulting in a total
sample of 356 households. The woredas and tabias of the North Western zone
included in the fieldwork were Asgede Tsembela woreda (tabias of Lemlem and
Kesad-Gaba) and Tahtay Koraro woreda (tabias of Lemlem and May-Demu); in the
Eastern zone, Saesie Tsaeda-Emba woreda (tabias of Hadush Hiwot and Senkata)
and Kelete Awlaelo woreda (tabias of Adi-Kesandid and Mesanu) were included;
while in Southern zone, Ofla woreda (tabias of Hashenge and Hayalo) and Raya
Azebo woreda (tabias of Begae-Delebo and Hawelti) were included. A pilot survey
of 24 respondents was carried out in Enderta district (Romanat tabia), 8 km away
from Mekelle city, the regional capital, in preparation of the main household survey.
The main household survey was then conducted face-to-face with farmers with the
help of trained and experienced enumerators from Mekelle between October 2011
and January 2012.
 Journal of Risk Research 583

3.2. Data description

A cross-sectional design was implemented using a household questionnaire. The data
collected included information on household characteristics, village characteristics,
cultivated and grazing lands, and market conditions. Information on farmers’ risk atti-
tude was gathered using Likert scale questions regarding the categories of production,
market, finance and investment and technological risks. Farmers’ risk attitude was
recorded as compared with other farmers in the same locality (see Meuwissen,
Huirne, and Hardaker 2001 for similar treatment). The following statement was used
in our questionnaire to assess farmers’ risk attitude: ‘I am willing to take more risks
than others with respect to: production, marketing, finance and investment, and tech-
nological risks.’ Each respondent was asked to indicate their degree of agreement or
disagreement for each of these four sources of risk using a 5-point Likert scale
(1 = strongly disagree; 5 = strongly agree). The eigenvalue of the four statements of
risk aversion was found to be 3.05 in a single factor model with a Cronbach’s alpha
of 0.85. It is therefore possible to conclude that the four statements of risk aversion
items measured the same construct. Hence, the four risk aversion items were aggre-
gated to a single variable index (‘risk attitude index’), using factor analysis for further
regression analysis (see Flaten et al. 2005; Meuwissen, Huirne, and Hardaker 2001).
We used 37 Likert-scale questions for risk sources under the headings production
risk, market risk, financial risk, human risk, technological, risk and institutional
risks. Respondents were also asked to rate the importance of each risk source on a
Likert scale from 1 (very low) to 5 (very high). Likewise, a Likert scale was used to
capture the importance of various risk management strategies, scoring from 1 (very
low) to 5 (very high). We used a total of 53 Likert-scale questions for risk manage-
ment strategies under the headings financial management, diversification, sale or
transfer asset, disease prevention, market information, emergency assistance, feed
management, and community asset building.
Where one or more questions about risk sources or management strategies were
not answered by farmers (because they did not consider them relevant to their situa-
tion), these questions were treated as missing values. If remedies for missing data
are not applied, any observations with missing values on any of the items would
have to be omitted, resulting in a loss of precision as the sample size is reduced
(Hair et al. 2010). Our approach for dealing with missing data in these factor analy-
ses was, therefore, to first delete variables where more than 45% of the values were
missing (Hair et al. 2010). We then replaced the missing data points with the mean
value of that variable based on all valid responses (see Ahsan 2011; Flaten et al.
2005; Lien et al. 2006). As a result, from 37 risk source variables, 13 (35%) were
removed entirely from the factor analysis and for the remaining 24 variables any
missing values were replaced by the mean value of that variable. Out of those 24
variables, a further 12 were removed due to low communality as indicated by a
Kaiser–Meyer–Olkin measure of sampling adequacy (KMO) value less than 50%.
As a result, for risk sources, 12 variables out of 37 were considered for factor analy-
sis. Out of 53 risk management strategies, 18 (40%) of the variables were removed
from the factor analysis for having missing value of more than 45%. For the remain-
ing 35 variables, any missing values were replaced by the mean value of that vari-
able. However, a further 23 variables (43.4%) were removed due to low KMO
values (less than 50%). Thus, from the total of 53 risk management variables, 12
variables (22.6% of the originals) were included in the factor analysis.
584 K.G. Bishu et al.

3.3. Analysis
3.3.1. Method of estimation
Descriptive statistics were used to identify the various risk categories and risk man-
agement strategies of importance to livestock farmers. Factor analysis was employed
to reduce the large number of risk categories and risk management variables and to
derive indices, while principal component factoring extraction was employed to
analyze common factor variability.
Factors were considered with eigenvalues greater than 1. For the factor analysis
we assumed that standard parametric statistical procedures were appropriate for ordi-
nal variables in the form of Likert-type scales (Ahsan 2011; Flaten et al. 2005;
Meuwissen, Huirne, and Hardaker 2001). Orthogonal (varimax) rotation was used to
ensure, inter alia, that the factors were as independent as possible for subsequent
use in multiple regressions (Flaten et al. 2005). Standardized factor scores were used
(as dependent variables) for multiple regression analyses (Ahsan 2011; Flaten et al.
2005; Meuwissen, Huirne, and Hardaker 2001). Total variance accounted was found
to be 69% for risk sources and 76% for risk management strategies. Factor loadings
with absolute values greater than 0.50 were analyzed for interpretation of the struc-
tures (Hair et al. 2010). Ordinary least squares (OLS) multiple regression was used
to explore the relationship between socioeconomic variables and perceived risk and
management strategies. A high risk attitude index variable was associated with low
risk aversion (risk taking).

3.3.2. Diagnostic tests

The Kaiser–Meyer–Olkin measure of sampling adequacy (KMO) was used to check
the factorability of the correlation matrices, yielding KMO values of 81% for risk
sources and 85% for risk management strategies, which indicates that patterns of
correlation were relatively compact and factor analysis was appropriate (Ahsan
2011). Individual KMO values less than 50% were excluded from the analysis of
the risk sources and risk management strategies (see Hair et al. 2010).
In interpreting the retained factors, we only used variables with factor loading
greater than 0.50, which is generally considered to be above the minimal level for
interpretation of the structure (Hair et al. 2010). To check the internal reliability we
used Cronbach’s alpha. The Cronbach’s alpha value for risk sources was found to be
0.82, while the Cronbach’s alpha value for risk management strategies was found to
be 0.87, which is deemed high (Greiner, Patterson, and Miller 2009; Meuwissen,
Huirne, and Hardaker 2001). Variance inflation factors for all variables used in the
regressions were found to be less than 1.7, indicating no multicollinearity problems
(Gujarati 2004). Heteroskedasticity problems were detected using the Breusch–
Pagan test of post-regression models (Baum 2006; Breusch and Pagan 1979), which
suggested that heteroskedasticity was an issue for variables such as risk attitude
index and risk management strategies (disease control, diversification, safety net,
loan utilization) which were significant at p-values < 0.05. Where the usual assump-
tions of homoscedastic disturbance are not met, the loss in efficiency in using ordi-
nary least squares (OLS) may be substantial and, more importantly, the biases in
estimated standard errors may lead to invalid inferences (Breusch and Pagan 1979;
White 1980). A heteroskedasticity-robust standard error was estimated to avoid
biased estimated standard errors and inferences (Cameron and Trivedi 2005).
 Journal of Risk Research 585

Although all models presented are statistically significant at p-values < 0.001,
the goodness-of-fit measures (Adjusted R2) for some of the risk source regression
models were found to be relatively low. The appropriateness of these models, in
terms of the inclusion of all relevant variables, and specification error, was tested
with the use of ovtest and linktest (Musman et al. 2011). Both tests failed to reject
the null hypothesis at p-values < 0.05, which implies no evidence of omitted
variables or specification error.

4. Discussion of results
4.1. Demographic and farm characteristics
The average household size for the sample was found to be 6.1 (6.5 in Eastern, 6.3
in North western and 5.4 in Southern zones of Tigray), which is well above the
average household size of 4.7 at national level (CSA 2008). The mean age of the
sample household heads was 45 years, in a range from 22 to 84 years. Household
size ranged from 1 to 13 members, and averaged 6 members. The ratio of depen-
dents to adults of working age was 96.6%, out of which 92.1% were less than
15 years and 4.5% were greater than 64 years. The total dependency ratio in the
study area was found to be slightly lower than the national level of 92.3% (CSA
2008). In terms of literacy, 48.9% of household heads were illiterate (cannot read or
write). The average level of education for head of households, in terms of school
grades completed, was 2.3 (2.3 for Eastern, 1.9 for Northwestern and 1.8 for South-
ern zones). Education is important in that it may enhance farm productivity directly
by improving the quality of labor. The study also found that 20% of household
heads were female and 80% were male. The average land holding per household in
the survey area was 1.0 hectare (0.58 hectare for Eastern, 1.25 hectare for North-
western and 1.05 hectare for Southern zones). Land holdings in eastern zone are
much lower than the overall average, reflecting the high population density com-
pared to other zones.
The mean number of cattle per household was found to be 6.6, ranging from 1
to 49. With regard to geography, 20% of the sample households resided in highland
areas and 50% in midlands, and 30% in lowland areas (Table 1).

4.2. Perceptions of risk

The descriptive statistics on risk sources include mean values and standard deviations
for the Likert scale entries (Table 2). Shortage of family labor was found to be the
most highly rated risk, followed by high price of forage and small farm income. Our
findings can be compared with similar cattle studies, suggesting that labor scarcity
and forage prices (absolute levels and variability) are of general concern, irrespective
of the country of study. The study by Doss, McPeak, and Barrett (2008) found that
human illness, shortage of forage, and animal sickness were the major concerns of
residents of the arid and semi-arid lands of East Africa (Northern Kenya and South-
ern Ethiopia). Low milk yield due to feed shortage was identified as the top rated
source of risk in urban and peri-urban areas of Northern Ethiopia (Gebreegziabher
and Tadesse 2014). Studies on beef cattle producers in Texas and Nebraska in the
USA similarly found that drought, forage price variability, cattle diseases, and labor
availability were perceived as the major sources of risk (Hall et al. 2003).
586 K.G. Bishu et al.

Table 1. Summary statistics of variables used in regression.

Variables Mean Std.dev Min Max
Age of household head (years) 45.2 12.0 22 84
Household size (number of members in the household) 6.1 2.2 1 13
Education of head of household (years of schooling) 2.3 2.9 0 12
Log number of cattle (log of household’s cattle size) 1.6 0.7 0 3.9
Lowland dummy (1 = lowland area; 0 = otherwise) 0.3 0.5 0 1
Highland dummy (1 = highland area; 0 = otherwise) 0.2 0.4 0 1
Midland dummy (1 = midland area; 0 = otherwise) 0.5 0.5 0 1
Zero grazing (cut and carry system) dummy (1 = zero 0.2 0.4 0 1
grazing practice; 0 otherwise)
Log walking time to main road (log of walking distance 3.8 1.2 0 5.9
from homestead to nearest highway, in minutes)
Log income (log of household’s annual income in Birra) 8.9 0.8 6.4 11.4
Gender of the household head (1 = male; 0 otherwise) 0.8 0.4 0 1
Livestock packageb dummy (1 = if the household is member 0.8 0.4 0 1
of the livestock package program; 0 otherwise)
Risk attitude index (index from factor analysis) −0.0 1 −2.5 2.8
a
At a time of survey, 1 USD was equivalent to 17.2 Ethiopian Birr (as of 17 October 2011)
b
It is introduced to improve dairy and fattening production through promotion of improved feeding and
management practices (Degu 2012).

A factor analysis of 12 risk sources was conducted; four factors and their respec-
tive factor loadings are presented in Table 2. Factor loadings are the weights and
correlations between each source of risk and the various factors. Higher loadings are
more relevant in defining a factor’s dimensionality. The four factors were identified,
based on their loadings, were labeled as disease, financial, market, and labor risks.
Factor 1, disease risk, loads significantly on morbidity and mortality of livestock,
that is, disease risk had high loadings on epidemic and non-epidemic livestock
diseases, death and cattle accident. In other studies from developed economies
(Norway, Netherlands, and Northern Belgium), livestock farmers also perceived live-
stock diseases to be important (Flaten et al. 2005; Meuwissen, Huirne, and Hardaker
2001; Van Winsen et al. 2016). Factor 2, financial risks, had high loadings on small
farm income, cash shortage and lack of saving. Factor 3, market risks, had high-
loading variables on high price of forage, forage shortage, and livestock price vari-
ability. These sources of market risk were also found to be the most important in
previous studies of dairy farmers in Turkey and Ethiopia (Akcaoz, kizilay, and
Ozcatalbas 2009; Gebreegziabher and Tadesse 2014). Factor 5, labor risk, had high
loadings on shortage of family labor and shortage of herders.

4.3. Perceptions of risk management strategies

The descriptive statistics revealed that the use of veterinary service was rated by
farmers as the most important strategy for managing risk (Table 3). A study in Ada’a
district of Oromia region of Ethiopia reported that the public veterinary service was
considered as the preferred choice for livestock owners for its effectiveness and
affordability compared to private veterinary services in their areas (Jibat, Mengistu,
and Girmay 2015). Veterinary service provision in Ethiopia has been dominated by
the public sector. However, the available clinics are not well equipped with facilities
to provide adequate veterinary services (Desta 2015; Haftu, Asresie, and Haylom
Table 2. Varimax rotated factor loadings for the risk sources, n = 356.
Most important factors
a b
The risk sources Mean (n = 356) SD Communality Cronbach’s alpha (α) KMO Disease Financial Market Labor
Shortage of family labor 4.03 1.01 0.52 0.81 0.70 0.07 0.14 0.14 0.86
High price of fodder 3.98 1.01 0.74 0.82 0.67 −0.03 0.08 0.85 0.11
Small farm income 3.97 0.96 0.63 0.80 0.81 0.04 0.71 0.31 0.10
Forage shortage 3.76 1.02 0.52 0.81 0.79 −0.03 0.31 0.64 0.11
Cattle death 3.63 1.30 0.76 0.79 0.83 0.82 0.28 0.04 0.05
Shortage of herders 3.53 1.23 0.77 0.81 0.74 0.30 0.02 −0.01 0.82
Livestock price variability 3.45 1.09 0.68 0.81 0.82 0.28 0.12 0.76 −0.02
Epidemic livestock diseases 3.31 1.20 0.70 0.79 0.87 0.79 0.11 0.17 0.13
Non-epidemic livestock diseases 3.30 1.12 0.71 0.79 0.84 0.79 0.17 0.07 0.20
Cash shortage 3.92 0.93 0.73 0.80 0.83 0.20 0.82 0.13 0.03
Lack of saving 3.72 1.09 0.73 0.80 0.82 0.29 0.79 0.02 0.13
Cattle accident 3.24 1.15 0.56 0.81 0.86 0.66 0.05 −0.17 0.30
Total variance explained (TVE) (%) – – – – – 22.0 17.0 16.0 14.0
Cumulative TVE (%) – – – – – 22.0 39.0 55.0 69.0
Overall KMO – – – – 0.81 – – – –
Overall Cronbach’s coefficient alpha – – – 0.82 – – – – –
Note: Factor loadings greater than 0.50 are in bold.
a,b
Mean score and standard deviation for the Importance of risk source (1 = very low, 5 = very high).
Journal of Risk Research
587
 588

Table 3. Varimax rotated factor loadings for the risk management strategies, n = 356.
Most important factors
Cronbach’s Disease Safety Loan utiliza-
K.G. Bishu et al.

The risk management strategies Meana SDb Communality alpha (α) KMO control Diversification net tion
Use of veterinary services 4.5 0.65 0.84 0.85 0.88 0.89 0.13 0.05 0.16
Parasite control 4.4 0.71 0.81 0.86 0.86 0.87 0.03 0.07 0.19
Loan allocation 4.3 0.79 0.75 0.87 0.81 0.35 0.08 0.02 0.78
Disease prevention 4.2 0.80 0.85 0.85 0.89 0.84 0.29 0.20 0.10
Borrow from formal institution 4.1 0.73 0.83 0.88 0.70 0.06 0.08 0.09 0.89
Clean cattle shelter 4.0 0.98 0.69 0.85 0.93 0.72 0.30 0.27 0.05
Separate cattle pen 4.0 0.98 0.76 0.85 0.90 0.65 0.49 0.28 0.02
Off-farm/non-farm activities 3.9 1.2 0.64 0.86 0.89 0.34 0.69 0.11 0.16
Spatial diversification 3.7 0.95 0.59 0.87 0.91 0.10 0.75 −0.01 0.12
Productive safety net program 3.6 0.99 0.91 0.87 0.63 0.10 0.07 0.94 0.01
(PSNP)
Enterprise diversification 3.5 1.2 0.64 0.86 0.91 0.30 0.72 0.13 0.02
Food or cash for work 3.2 0.97 0.89 0.87 0.68 0.18 0.05 0.92 0.09
Total variance explained (TVE) (%) – – – – – 30.0 17.0 16.0 13.0
Cumulative TVE (%) – – – – – 30.0 47.0 63.0 76.0
Overall KMO – – – – 0.85 – – – –
Overall Cronbach’s coefficient alpha – – – 0.87 – – – – –
Note: Factor loadings greater than 0.50 are in bold
a,b
Mean score and standard deviation for the importance of risk management strategies (1 = very low, 5 = very high).
 Journal of Risk Research 589

2014). Parasite control was found to be the second most important risk management
strategy, followed by loan utilization. The standard deviation for each of these risk
management strategies was found to be less than 1, indicating consensus among
respondents.
The number of risk management items was reduced by applying factor analysis,
using principal component extraction. The factor analysis identified four factors with
eigenvalues greater than one, which accounted for 76% of the total variance. Table 3
shows the four factors and their respective loading items (items of absolute values
of greater than 0.50). According to the loadings, factors 1–4 are interpreted as dis-
ease control, diversification, safety net, and loan utilization. Farmers reported simi-
lar risk management strategies in Ethiopian urban dairy farming (Gebreegziabher
and Tadesse 2014).
The first factor, disease control, had high loadings on use of veterinary services,
parasite control, disease prevention, clean cattle shelter, and separate cattle pen.
Use of veterinary service and disease control measures such as sanitation, use of
cattle shed during hot weather, and avoiding mixing cattle with other herds are
important to minimize risks associated with livestock mortality and morbidity.
High loadings on off-farm/non-farm activities, and spatial and enterprise diversi-
fications, were found in factor two (diversification). In Ethiopia, farming is particu-
larly weather-sensitive and farmers face both market and production risks. Farmers
can benefit through cropping in different plots (spatial diversification) and combin-
ing farming with off-farm or non-farm activities. A study in Ethiopia by Legesse
and Drake (2005) found that diversification of assets and income were important risk
management strategies among smallholders, and these authors suggested that it is
essential to support farmers’ management of risk through diversification of assets,
incomes, and activities.
The factor safety net (factor three) had high loadings on Productive Safety Net
Program (PSNP) and food or cash for work. The PSNP provides food and cash to
poor and food-insecure farmers through participation in public works, such as soil
and water conservation, road making and school construction. In addition, direct
support in the form of food or cash is provided to households without able-bodied
members (e.g. where members are elderly or in poor health). In case of natural dis-
asters, farmers can supplement their income through food or cash for work, which
helps them avoid selling productive assets.
The fourth factor, loan utilization, included high loadings on loan allocation and
borrow from formal institution. Loans are important to farmers for buying agricul-
tural inputs, on-farm investment and wider non-farm investments. Farmers in the
study area borrow mainly from the formal micro-finance institution known as
DECSI (Dedebit Credit and Saving Institution). Lending is based on groups,
whereby all members of a group are responsible for loan default by any one mem-
ber. In this regard, proper loan utilization is an important tool for managing risk.

4.4. Perceptions of risk in relation to farm and farmer characteristics

OLS multiple regression analysis was used to assess the relationship between risk
attitude and perception of risks, and a range of farm and farmer characteristics. The
summary description of the variables used in the regression analysis is presented in
Table 1, while the regression coefficients, robust standard errors and the goodness-
of-fit measures of the models are reported in Table 4. All models were highly
590 K.G. Bishu et al.

significant at p-values < 0.001. Variables that are significant at p-values < 0.05 are
discussed (Table 4).
The results suggest that the household head’s level of education was positively
and significantly related to the risk attitude index (p < 0.05) (Table 4): farmers with
a higher level of education were found to be less risk-averse. This result is consis-
tent with a similar study conducted in the Netherlands (Meuwissen, Huirne, and
Hardaker 2001). An increase in log number of cattle owned was associated with risk
attitude index, suggesting that farmers owning larger herds could be characterized as
less risk-averse: this relationship is consistent with another study on dairy farmers of
Norway (Flaten et al. 2005). Zero grazing (whereby cattle are confined and fed with
fodder gathered by the farmer) was also positively and significantly associated with
the risk attitude index, indicating that farmers that used zero grazing were risk takers
relative to those who did not practice this strategy.
Income (log income) was positively and significantly related to the risk attitude
index: farmers in higher income households were found to be less risk-averse com-
pared to lower income households. A previous study measuring risk aversion using
experimental data from Ethiopia and Zambia found that wealthier farm households
were more willing to take risk in exchange for higher returns compared to poorer
households (Wik et al. 2004; Yesuf and Bluffstone 2009). Evidence from the Nether-
lands also suggests that higher income farmers were less risk-averse than lower
income farmers (Meuwissen, Huirne, and Hardaker 2001). Participation in the live-
stock package program (a public support scheme for livestock farmers) was posi-
tively and significantly related to risk attitude index. This implies that households
who participated in the livestock package program were less risk-averse than non-
participants. This could be because the livestock package program is integrated with
the agricultural extension program: the extension program adds knowledge and skills
on technology adoption, and farmers are becoming less risk-averse as a result.

Table 4. Multiple regression for risk attitude and the risk sources, n = 356.
Sources of riska
Risk
Independent Variables attitudea Disease Financial Market Labor
Age −0.00 0.01 0.00 0.01 0.01
Household size 0.00 −0.01 −0.00 −0.02 −0.11***
Education 0.04* −0.02 −0.02 0.00 −0.01
Log number of cattle 0.21* −0.05 −0.35*** −0.22* −0.08
Highlandb 0.11 −0.40** −0.29 −0.36* −0.13
Midlandb 0.06 −0.04 0.02 −0.09 −0.20
Zero grazing 0.43** −0.27* 0.36* 0.33* −0.40**
Log walking time to main −0.03 −0.05 0.09* −0.01 −0.05
road
Log income 0.38*** 0.08 0.24** 0.54*** 0.21**
Gender 0.164 0.23 −0.07 0.00 −0.28*
Livestock package 0.60*** 0.40* 0.13 0.15 0.07
Risk attitude index n.ic −0.17** −0.10 0.03 −0.07
Constant −4.3*** −1.0 −2.1*** −4.8*** −0.82
Adjusted R2 0.32*** 0.08*** 0.10*** 0.17*** 0.11***
Notes: Variables and models significant at *p < 0.05, **p < 0.01, ***p < 0.001. aRisk attitude and the
risk source indices extracted from the corresponding factor analysis. bGeography dummy (highland and
lowland) compared to the reference group (lowland), cstands for not included.
 Journal of Risk Research 591

Highland geography was negatively and significantly related to disease risks,

suggesting that farmers in highland locations perceive disease risks as less important
compared to households in lowland areas. In Ethiopia, the lowland areas are rela-
tively poorly served in terms of infrastructure and public services such as roads and
veterinary services, which may exacerbate cattle morbidity and mortality. In addi-
tion, livestock diseases are more prevalent in the moisture-stressed areas of the low-
land compared to highland and midland areas. Adoption of zero grazing was
negatively and significantly associated with disease risks; disease risk was perceived
as less important by households adopting zero grazing compared to their counter-
parts. This may be because the practice of zero grazing minimizes cattle contact with
neighbors’ animals and thereby lowers the likelihood of cattle diseases and injury.
Farmers who were members of the livestock package program perceived disease
risks to be higher than non-members. This may be due to the fact that members of
the livestock package program adopt cattle breeds (exotic or cross breeds, as encour-
aged by the program) that are more susceptible to disease, death, and accidental
damage compared to local zebu cattle. A study in Ethiopia and Kenya, Gari et al.
(2011), indicated that sickness, mortality rate, and output loss for Holstein Friesian
and crossbred cattle were significantly higher than in local zebu cattle. It may also
be a reflection of the selection effect that arises as only certain farmers (with certain
risk preferences) participate in this livestock package program. The risk attitude
index was found to be negatively and significantly associated with disease risks,
suggesting that less risk-averse farmers perceive disease risks as less important com-
pared to more risk-averse farmers.
Log number of cattle was found to be negatively and significantly associated
with financial risk. This suggests that farmers with larger number of cattle can mini-
mize financial risk (such as small farm income, cash shortage, and lack of savings)
compared to farmers owning smaller numbers of cattle. Farmers owning larger num-
bers of cattle have the means to hedge their risks, as they can sell relatively more
milk, butter and live animals in order to minimize financial constraints compared to
their counterparts.
Farmers adopting zero grazing perceived financial risks to be greater compared
to their counterparts. This may be because farmers who adopt zero grazing invest
more in better breeds of cattle, in feeding and in animal health, all of which
increases their financial vulnerability. Further, our results suggest that log walking
time to the main road is positively related to financial risks. The reason could be
that a longer walking time to the main road increases transaction costs – and thus
diminishes market access – for farm inputs and outputs, resulting in greater financial
constraints compared to those with a shorter distance to the main road.
Contrary to our expectation, higher income farmers perceived financial risks to
be greater compared to lower income farmers. As Laffont and Matoussi (1995) have
observed, risk aversion is typically assumed to be inversely related to wealth. In this
case, it appears that higher income farmers may participate in a greater range of farm
and off-farm activities, which require access to working capital, and are thus vulner-
able to financial constraints.
Unexpectedly, farmers with higher number of cattle perceived market risks to be
greater compared to farmers with lower number of cattle; market risks included high
price of forage, livestock price variability, and forage shortage; possibly, farmers
with more livestock are more market-oriented, and therefore more vulnerable to mar-
ket risk, while those with less cattle remain relatively insulated from the market.
592 K.G. Bishu et al.

Households in highland areas perceived market risk as less compared to those in

lowland areas. The reason could be that highland locations tend to have better
infrastructure in terms of roads and transport facilities that ease market constraints
compared to lowland locations. Market risk was perceived greater for households
adopting zero grazing as compared to other groups. This could be because house-
holds who adopt zero grazing worried more about high price of forage and forage
shortage compared to their counterparts who reply on natural grazing.
Perception of market risk was found to be greater for higher income farmers
compared to lower income farmers. It appears likely that higher income farmers are
more frequently engaged in market transactions that expose them to market con-
straints compared to lower income farmers.
Respondents with larger household size perceived labor risks to be less impor-
tant compared to those with smaller families. This is due probably due to the fact
that larger household size typically has more labor that can be engaged in livestock
activities such as herding, feeding, and cleaning shelters. Our results also suggest
that farmers who practice zero grazing tend to perceive a lower labor risk, probably
due to the fact that zero grazing demands less labor, particularly with regard to cattle
herding. Higher income farmers perceived human risks to be greater compared to
lower income farmers, possibly because higher income farmers require more farm
labor for their more extensive crop and livestock farming activities. Male farmers
perceived labor risk to be lower compared to female farmers. Female farmers are
strongly associated with poorer and smaller households (especially in terms of adult
labor). Female farmers typically lack a male spouse, whereas male-headed house-
holds nearly always have both a male and female adult member at a minimum. Key
agricultural risks, notably ploughing, are culturally reserved for men, putting women
at a considerable advantage and unsurprisingly, particularly susceptible to labor risk.

4.5. Perception of risk management strategies in relation to farm and farmer

characteristics
OLS multiple regression was used to assess the relationship between risk management
and both farm and farmer characteristics (Table 5). Four risk management indices were
extracted from the corresponding factor analysis and used as dependent variables
(Table 5). The results show that farmers with larger number of cattle perceived safety
net programs as relatively unimportant (p < 0.05), indicating that poorer rural house-
holds (those with less cattle) depend significantly on safety net programs as a risk man-
agement strategy. In Ethiopia, the safety net program provides opportunities to the
poorest households to be employed in public work in exchange for food or cash.
Farmers in the highlands perceive diversification as important but found safety
net less important compared to farmers in lowland geography. Farmers in the mid-
land location perceived diversification as more important and loan utilization as less
important compared to farmers in other locations. Increase in walking time to the
main road discourages farmers’ participation in diversification activities since it
results in higher communication, transport and other transaction costs.
Disease control, diversification and loan utilization are found to be important
risk management tools for higher income farmers, compared to their lower income
counterparts. Such farmers are likely to be in a position to better control the health
and sanitation of their livestock and to afford for use of veterinary services. Higher
income farmers are also more likely to own oxen necessary for ploughing and have
 Journal of Risk Research 593

Table 5. Multiple regression analysis for the perceived risk management strategies, n = 356.
Risk management strategiesa
Disease Safety Loan
Independent variables control Diversification net utilization
Age −0.00 −0.00 0.01 0.00
Household size 0.02 −0.02 0.02 −0.01
Education −0.02 −0.01 −0.00 −0.02
Log number of cattle −0.02 −0.06 −0.22* 0.01
Highlandb −0.05 0.29* −0.29* −0.07
Midlandb −0.13 0.32** −0.11 −0.30**
Zero grazing −0.01 0.15 0.22 −0.02
Log walking time to main −0.03 −0.07* −0.02 −0.01
road
Log income 0.24** 0.41*** −0.12 0.13*
Gender −0.08 −0.01 −0.05 −0.24*
Livestock package 0.05 −0.14 −0.17 0.17
Risk attitude index 0.22*** 0.18*** 0.09 0.26***
Diseasec 0.24*** 0.43*** 0.26*** 0.14**
Financialc 0.18** 0.08 0.06 0.01
Marketc 0.05 0.07 −0.06 0.07
Laborc 0.37*** 0.13** 0.14* 0.06
Constant −2.0*** −3.0*** 1.4 3.4***
Adjusted R2 0.48*** 0.47*** 0.16*** 0.23***
Notes: Variables and models significant at *p ≤ 0.05, **p ≤ 0.01, ***p ≤ 0.001. aRisk management
index extracted from the corresponding factor analysis. bGeography dummy (highland and lowland)
compared to the reference group (lowland), cthe risk source indices extracted from the corresponding
factor analysis.

access to loans, which may encourage them to engage in diversification such as cul-
tivation of different crops: a study in Ethiopia by Bezabih and Sarr (2012) showed
that household wealth in terms of ownership of oxen is positively and significantly
associated with farm diversification. Male farmers perceive loan utilization as a less
important management strategy compared to their female counterparts. Possibly,
female farmers are more careful when it comes to cash management, and less
extravagant than males, and thereby utilize their loans better. Disease control, diver-
sification, and loan utilization were perceived as important risk management strate-
gies by less risk-averse farmers. A comparable study from Norway showed that
disease prevention was perceived as an important management strategy by risk-tak-
ing farmers (Flaten et al. 2005).
The regression model also indicates that the perception of risk was significantly
associated with risk management decisions. Livestock farmers who perceived dis-
ease risks as important were associated with multiple risk management responses:
disease control, diversification, safety net, and loan utilization. This implies that
farmers are engaged in multiple management activities and coping strategies, such
as disease prevention, participation in off-farm activities, participation in safety net
programs and loan utilization when faced with the risk of cattle morbidity and mor-
tality. Concern about financial risk was found to be associated with disease control
as a risk management strategy. This indicates that such farmers focus on livestock
disease control in order to curb their financial risks. Farmers who perceived labor
risks as important emphasized disease control, diversification, and participation in
safety net programs as important risk management strategies.
594 K.G. Bishu et al.

5. Conclusions and implications

This study provides a survey analysis of households from Northern Ethiopia, explor-
ing perceptions of risk and the role of management strategies in smallholder live-
stock farming, through factor and multiple regression analysis. It adds to the small
but growing literature investigating livestock farmers’ perceptions of risk and man-
agement strategies in developing economies. Our results suggest that shortage of
family labor, high price of fodder and limited farm income are perceived as the most
important risks that impact on farmers’ livelihoods. Use of veterinary services, para-
site control, and loan utilization were perceived as the most important strategies to
manage risks.
Our results further suggest that farmers’ education and participation in livestock
support programs have a positive influence on farmers’ risk attitude by lowering their
risk aversion and increasing their willingness to adopt new technologies. This sug-
gests that the expansion of primary schools, adult education and agricultural exten-
sion programs in rural areas may contribute to greater technology adoption, thereby
improving farmers’ risk-taking behavior and potentially lowering poverty levels.
Our findings also provide new evidence on the relationship between risk sources
(namely, disease and labor risk) and zero grazing practices, thereby extending previ-
ous works (Flaten et al. 2005; Gebreegziabher and Tadesse 2014), that has, who
highlighted the role of disease prevention as a risk management strategy. Interest-
ingly, the importance of disease and labor risks were perceived lower by farmers
who adopted zero grazing. This may be because zero grazing practices reduce cattle
contact, thereby minimizing livestock diseases and accidental injury. It also appears
that adopting zero grazing practices reduces the need for labor involved in livestock
farming activities, thereby reducing the most important risk identified in the study,
namely labor risk. Although it goes beyond the scope of this paper, it should be
noted that a widespread switch to zero-grazing may have unintended consequences
for the wider community and environment, especially for very poor households that
reply on collection of dried dung for fuel. Results from factor analysis suggest that
livestock diseases are generally more prevalent in the moisture-stressed areas of the
lowlands compared to the highlands. Lowland areas are relatively poorly served in
terms of infrastructure and public services such as roads and veterinary services,
which may exacerbate cattle morbidity and mortality.
In a second step, our results from the factor analysis were employed as an input
for multiple regression analyses. The latter shows that three out of four risk manage-
ment strategies are perceived as important by higher income farmers, namely disease
control, diversification, and loan utilization. This suggests that higher income farm-
ers are in a position to better afford veterinary services to control livestock health
and sanitation, and are more likely to diversify their livelihood activities using loans
from formal financial institutions. Farmers who perceive disease risk as important
are associated with multiple risk management responses: disease control, diversifica-
tion, safety net, and loan utilization. This result highlights the central role that dis-
ease risk plays for livestock farmers. Farmers who were concerned about financial
risk prioritized disease control as an important risk management tool curbing their
financial risks. Overall, this evidence suggests that farmers engage in multiple and
concerted risk management and coping strategies in order to secure their livelihood,
and that these depend on both objective (e.g. environmental) and subjective (e.g.
attitudinal) factors.
 Journal of Risk Research 595

A strong policy implication of these findings is the importance of considering

farmers’ perception of risk and management strategies in policy design for the alle-
viation of poverty among livestock farmers in developing countries. The findings
highlight that cattle farmers’ perception of risk and management strategies are
heterogeneous, and shaped by both socioeconomic and agro-ecological factors.
Strategies that aim at reducing risk should be tailored to specific characteristics of
farmers including their individual risk attitude and their particular farming condi-
tions. Finally, we found important new evidence that the practice of zero grazing
has potential to mitigate the risks associated with cattle disease and labor shortages.
Further research is recommended in order to better understand different approaches
to risk by different social groups, especially along gender lines, and the wider eco-
nomic and environmental implications of a shift to zero grazing systems.

Acknowledgments
We are grateful for our funders for their support of this study under the collaboration between
University College Cork and Mekelle University for PhD Project. The views expressed in
this paper are solely those of authors. We would like to thank to Mr. Aregawi Abrha, Mr.
Samson Hailu, Ms. Tsehaynesh Weldegiorgis, and Mr. Dawit Temesgen who were involved
in data collection in remote rural areas. We would like to thank the farmers of Asgede
Tsimela, Tahtay Koraro, Saesie Tseda Emba, Kelete-Awlaelo, Rayaazebo, and Ofla woredas
who were willing to respond to our questionnaire. The authors wish to thank anonymous
reviewers for their invaluable comments on the draft version of the manuscript. Any remain-
ing errors are our own.

Disclosure statement
No potential conflict of interest was reported by the authors.

Funding
This work was supported by the International Foundation for Science (IFS) [Grant number
S/5154-1]; Rural Capacity Building Project, Ministry of Agriculture in Ethiopia [CDANR/
RCBP/35/2011].

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