ABSTRACT
This study evaluated the risk management strategies of agriprenuers in South - East Nigeria. The specific objectives are to examine and analyze the socio-economic profile of the agriprenuers in the South East Nigeria, Identify the major types of risk of concern to the agriprenuers in the South East Nigeria, ascertain the level of adoption of risk management strategies (ex-ante) – risk identification, evaluation and mitigation - as a management practice and its effect on financial performance among agriprenuers in South East Nigeria, estimate the effect of the level of adoption of risk management strategies (ex-post) on financial performance of agriprenuers in South East Nigeria, assess the effect of risk exposure on agriprenuers’ investment decisions among the respondents in South East Nigeria, ascertain the determinants of risk attitude of owner-manager agriprenuers and factors influencing their attitude towards risk. The multistage random sampling technique was adopted in the selection of the agripreneurs that was used to select 300 respondents from Abia, Imo, Ebonyi, Enugu and Anambra States. Well structured questionnaires were used to elicit the required data from the respondents. Descriptive statistics, correlation analysis, multiple regression analysis, cost and returns, risk exposure analysis and multinomial logit were used to analyze the data. The major types of risks facing the agripreneurs are economic and financial risks, production risks, market risks, political risks, personnel risk and legal risks. The agripreneurs adopted risk identification, risk evaluation and risk communication as ex-ante risk management strategies while diversification, hedging, labour saving, consumption reduction and insurance policy are the significant ex-post risk management strategies. The mean risk exposures for all the agripreneurs are slightly high with a mean risk exposure of 0.69. Agripreneurs should be enlightened that risk is essential in the success of a business as entrepreneurs with high risk attitude may earn more returns. Government should come up with policies meant to protect agripreneurs from undue exposure and exploitation from the political environment to reduce the level of political risk.
TABLE OF CONTENTS
Title
Page i
Declaration iii
Certification
ii
Dedication
iv
Acknowledgements v
Table
of Contents vi
List
of Tables x
List
of Figures xii
Abstract xiii
CHAPTER 1: INTRODUCTION 1
1.1 Background of the Study 1
1.2 Statement of the Problem 7
1.3 Research Questions 11
1.4 Objectives of the Study 12
1.5 Research Hypotheses 12
1.6 Justification of the Study 13
CHAPTER
2: REVIEW OF RELATED LITERATURE 15
2.1
Overview 15
2.2
Risk, Uncertainty and
Risk Management 17
2.2.1 Risk 17
2.2.2 Uncertainty 19
2.2.3 Risk management 21
2.2.4 The importance of risk management 23
2.2.5 Risk perception 25
2.2.6 Risk measurement and assessment 28
2.2.7 Classification of risks in agriculture 31
2.2.7.1 Production (or yield) risk 33
2.2.7.2 Price (or market) risk 33
2.2.7.3 Political (or institutional) risk 34
2.2.7.4 Economic and financial risks 36
2.2.7.5 Other classifications of risk agriculture 37
2.3
Risk Management Planning Process 44
2.4 Risk Management Strategies 51
2.4.1 Ex-ante risk management strategies 54
2.4.2 Ex-post risk management strategies 55
2.4.3 General procedures for and concept of risk
management strategies 55
2.4.3.1 Risk avoidance 56
2.4.3.2 Risk reduction 56
2.4.3.3 Risk assumption/retention 58
2.4.3.4 Risk transfer 58
2.5 The Role of Government in Agricultural
Risk Management 60
2.6 Food
Security: Concept, Definition, Dimensions and Link to Agricultural
Risk
67
2.6.1 Concept and definitions 67
2.6.2 Dimensions of food security 70
2.6.3 Food security and agricultural risk 73
2.7 The Concept of Agriprenuership 79
2.7.1 Skills for agriprenuership 82
2.7.2 Role of agriprenuership in national economy
and development 88
2.8 The Concept of Performance and Financial
Performance 90
2.8.1 Measurement of financial performance 92
2.8.2 Risk management and financial performance 92
CHAPTER 3: METHODOLOGY 94
3.1 The Study Area 94
3.2 Sampling Technique 95
3.3 Method of Data Collection 96
3.4
Method of Data Analysis 97
3.4.1 Model Specification 97
CHAPTER 4: RESULTS
AND DISCUSSION 101
4.1 Examine
and A the Socio-Economic Profile of the Agriprenuers in the
South East Nigeria 98
4.2 Identify
the Major Types of Risk of Concern to the Agriprenuers in the
South East Nigeria 102
4.2.1 Major
types of risk of concern to the input agriprenuers in the
South
East Nigeria 103
4.2.2 Major
types of risk of concern to the production agriprenuers in the
South
East Nigeria 107
4.2.3 Major
types of risk of concern to the processing agriprenuers in the
South
East Nigeria 110
4.2.4 Major
types of risk of concern to the marketing agriprenuers in the
South
East Nigeria 113
4.2.5 Major
types of risk of concern to the support agriprenuers in the
South
East Nigeria 116
4.2.6 Risk
attitudes of the agriprenuers in the South East Nigeria 118
4.3 Ascertain
the Level of Adoption of Risk Management Strategies
(Ex-Ante) and its Effect on Financial Performance
among Agriprenuers
in South East Nigeria. 119
4.3.1 The
level of adoption of risk identification techniques 120
4.3.2
The level of adoption of risk
evaluation techniques 121
4.3.3
The level of adoption of risk
communication techniques 122
4.3.4
The financial performance of the
agripreneurs (ex-ante) 123
4.3.5 The
effect of risk management strategies (ex-ante) on the Financial
performance of the agripreneurs 128
4.4 Estimate the Effect of the Level of
Adoption of Risk Management
Strategies (ex-post) on Financial Performance of
Agriprenuers in
South East Nigeria. 131
4.4.1 Level
of adoption of risk management strategies (ex-post) 131
4.4.2 Financial performance of agriprenuers in
South East Nigeria (ex-post) 132
4.4.3 Effect
of the level of adoption of risk management strategies (ex-post) on
financial
performance of agriprenuers in South East Nigeria 135
4.5 Assess the effect of risk exposure on
agriprenuers investment decisions
among
the respondents in south East Nigeria. 138
4.5.1 Risk exposure of the agriprenuers 138
4.5.2
Effect of risk exposure on agriprenuers
investment decisions among the respondents
in South East Nigeria 139
4.6 Ascertain
the determinants of risk attitude of owner- manager
agriprenuers
and
factors influencing their attitude
towards risk. 140
CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATIONS 145
5.1 Summary 145
5.2 Conclusion 147
5.3 Recommendations 148
References
151
LIST OF TABLES
4.1: Socio- economic characteristics of the
agripreneurs 98
4.2: Socio- economic characteristics of the
agripreneurs (continued) 100
4.3: Agripreneurs areas of investment 102
4.4: Analysis of the input agripreneurs types
of risk 104
4.5: Analysis of the production agripreneurs
types of risk 108
4.6: Analysis of the processing agripreneurs
types of risk 111
4.7: Analysis of the marketing agripreneurs
types of risk 114
4.8: Analysis of the Support agripreneurs types
of risk 117
4.9: Risk attitudes of the agripreneurs in the
South East Nigeria 119
4.10: Risk
identification techniques by the agripreneurs in the
South East Nigeria 120
4.11: Risk
evaluation techniques by the agripreneurs in the South
East Nigeria 122
4.12: Risk
communication techniques by the agripreneurs in the 123
South
East Nigeria
4.13: Enterprises
cost and returns of agripreneurs in the
input agribusiness
subsector in the
South East Nigeria (ex-ante/avoidance)
4.14: Enterprises
cost and returns of agripreneurs in the
production
agribusiness
subsector in the South East Nigeria (ex-ante/avoidance) 125
4.15: Enterprises
cost and returns of agripreneurs in the processing agribusiness subsector in the South East Nigeria
(ex-ante/avoidance) 126
4.16: Enterprises
cost and returns of agripreneurs in the
marketing agribusiness 127 subsector in the South East Nigeria
(ex-ante/avoidance)
4.17: Enterprises
cost and returns of agripreneurs in the service agribusiness 128
subsector in the South East Nigeria (ex-ante/avoidance)
4.18: Effect
of the risk management strategies on agripreneurs financial
performance
in the South East Nigeria (ex- ante/avoidance) 129
4.19: Risk
management strategies (ex-post/coping) of the agripreneurs
in
the South East Nigeria 131
4.20: Enterprises
cost and returns of agripreneurs in the
input agribusiness
subsector
in the South East Nigeria (ex-post/coping)
4.21: Enterprises
cost and returns of agripreneurs in the
production
agribusiness
subsector in the South East Nigeria (ex-post/coping) 133
4.22: Enterprises
cost and returns of agripreneurs in the
processing
agribusiness
subsector in the South East Nigeria (ex-post/coping)
4.23: Enterprises
cost and returns of agripreneurs in the
marketing agribusiness 134 subsector in the South East Nigeria
(ex-post/coping)
4.24: Enterprises
cost and returns of agripreneurs in the
service agribusiness
subsector
in the South East Nigeria (ex-post/coping) 135
4.26: Risk
exposure of the agripreneurs in the South East Nigeria 136
4.27: Relationship
between risk exposure and investment of the agripreneurs
in
the South East Nigeria 138
4.28: Relationship
between Ex-post risk management cost and Ex-ante risk management cost of the
agripreneurs in the South East Nigeria 139
4.29: Multinomial
logit (MNL) for the determinants of risk attitude 141
4.30: Risk
attitude MNL proportional by chance accuracy 142
4.31: Risk
attitude MNL loglikelihood test 143
LIST OF FIGURES
2.1: Utility function 27
2.2: The “risk-box” 39
2.3: Risk management process 45
2.4: Agribusiness risk – food security balance 76
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The
Millennium Development Goals (MDGs) issued by world leaders in 2000 and set to
be achieved by 2015 did consider the first goal to be to “eradicate extreme
poverty and hunger” by means of reducing by “half the proportion of the people
who suffer from hunger” (Food and Agriculture Organization, 2010). However,
notwithstanding that the world population had increased by 1.9billion people
over the period between 2000 and 2015 (FAO, 2015), the number of undernourished
people in the world remained unfortunately high. Although the number of
undernourished people (or prevalence of undernourishment) is projected to decrease
in 2016 compared to 2000 from 929.6 (or 30% of population), 779.9 (or 12.9% of
population), 220 (or 23.3% of population) million people in the world,
developing region and sub-Saharan Africa respectively (FAO, IFAD and WFP,
2015), yet an unacceptable large number of people still lacked the food they
needed for an active and healthy life, especially people from the developing
region.
In
sub-Saharan Africa, just under one in every four people (as compared to just
over one in nine people) is estimated, according to Food and Agriculture
Organization (FAO) projections, to be undernourished in 2016 with the number of
undernourished people increasing by 44 million people between the period
1990-2016. (FAO, 2015). According to this report, this is the highest
prevalence of undernourishment for any region, with about 220 million hungry
people in 2016. It is safe, therefore, to conclude that, over all progress in
agriculture notwithstanding, hunger remains an everyday challenge for the 795
million people worldwide, including the 780 million people in the developing
region, from which sub-Saharan African (which includes Nigeria) captures a
significant 220 million hungry people.
Prior
to independence, agricultural production was the primary activity and the most
prominent sector of Nigeria economy (Nsikak, Arene, and Okpukpara (2014). It
accounted for 65% of GDP and provided the bulk of foreign exchange needed
through export of agro based products Yesufu, 1996). Manufacturing units that
were established were mostly agro-based firms and limited to primary production
of raw materials for export. With the advent of petroleum extraction, some
decades ago, Nigerian economy became almost entirely crude oil driven which is
a condition prone to world price shocks. This dependence was to the extent that
as at 2000, oil and gas export accounted for more than 98% of export earnings
and about 83% of federal government revenue, as well as generating more than
14% of GDP. It also provides 95% of foreign exchange earnings, and about 65% of
government budgetary revenue (Osundina,
Ebere and Osundina (2014). As a result, the Nigerian agricultural sector
has been experiencing poor investment performance. It is therefore not
surprising that the contribution of the agricultural sector to GDP dropped from
61% in 1960 to 7% in the 1970 – 1979 period (Oyedipe, 2008; Umar, 2008).
According to the Central Bank of Nigeria, CBN (2006) agricultural contribution
to GDP grew by 6.2% within the period of 1981-1991 and by 3% within the period
of 1991-2001, implying a declining growth rate within the period. Indeed,
growth in the agricultural sector has not met the needs and expectations of
Nigeria (National Planning Commission, 2009). Today, Nigeria is one of the
largest food importers in the world. According to Adesina (2012), Nigeria spent
over 1.3 trillion naira per year on import of wheat, rice, sugar and fish; in
2010 alone, Nigeria spent 635 billion naira on import of wheat, 365 billion on
import of rice (that means Nigeria spends 1 billion naira per day on foreign
rice alone), 217 billion naira on sugar imports and with all the marine
resources, rivers, lakes and creeks which Nigeria is blessed with, yet it spent
97 billion naira importing fish. Ijaiya (2000) and Iwayemi (1994) attributed
the dismal performance of the agricultural sector to the discovery of crude
oil. As a result of this, most agro-allied firms did go into liquidation while
others resorted to staff retrenchment, thereby further compounding the problem
of unemployment, low income, food security, urbanization alongside other
associated social vices.
It
is a truism, nonetheless, that, sectorally, for a developing country like
Nigeria, the primary segment of the structure of the economy captures the
mainstay and a significant proportion of the total economic activity. Given the
structure of the Nigeria economy, agriculture remains the mainstay of the
economy (Umebi and Mgabesa, 2002) accounting for 88% of the non-oil foreign
exchange earnings and employs 70% of the active labour force of the population
(Nwaru, 2006). It is dominated by the rural small-scale farmers who account for
over 80% of the total output while 60% of the country’s population earn their
living directly or indirectly from agriculture (Onyenweaku and Okezie, 2008).
Indeed,
in economic terms, the Nigerian agriculture is still in a state of
underdevelopment characterized by subsistence (peasant) activity (a way of
living) instead of a commercial activity (a way of earning a living) leading to
absolute lack of production plans, use of crude tools, adherence to traditional
attitudes, customs and beliefs and lacking in modern management practices
(Onyebinama and Onyebinama, 2010). Chijioke (2013) posits that the potential of
Nigeria’s agriculture and its dwindling fortune places urgent need to develop
arrangements that can support agricultural development that is presently
constrained by inappropriate technologies, institutional weakness and problems
of organization and management. It means, therefore, that for our agriculture
to remain competitive in the global economy, there needs to be injection of new
and creative ideas and processes for value creation in a sustainable manner.
There are little doubts, therefore, that the nexus to bringing agricultural
peasantry to agribusiness lies in adoption of modern management practices,
processes and structures in service of agriprenuership. In this sense,
agripreneurship as a concept specific to agriculture and drawn from wider agripreneurship
is very critical and urgent, and requires
application of energy and passion towards the creation and implementation
of new ideas and creative solutions which constitute essential ingredients to
taking calculated risks in terms of time, equity or career, and ability to
formulate an effective venture team, the creative skills to marshal needed
resources, and fundamental skill of building solid business plans and
recognizing opportunity where others see chaos, contradiction and confusion
(Kuratko and Hodgetts, 2004, Chijioke 2013 ).
Appreciating
this fact, the African Union Summit held in January 2015 adopted the Agenda
2063 framework as the basis for Africa’s long term socio-economic and
integrative transformation. Among the agreed actions was a recognition that
agriculture is expected to be productive, utilizing a blend of science,
technology, innovation and indigenous knowledge, and is expected that the use
of hard hoe in agriculture will cease by 2025, and that agriculture will be an
attractive investment proposition (African Union Commission, 2015).
The
needed transformation - by new practices and processes – will throw up new
challenges and opportunities consistent with the modernization of the ways we
manage agro-businesses and the structures through which the businesses are
delivered.
The
focus on Nigeria agricultural sector’s performance is deliberate and conscious.
It is predicated on the paradigm that one cannot separate the essence, progress
and importance of the agricultural sector from that of agripreneurship in that
the two phenomenon are self-reinforcing: progress in one catalysis progress in
the other, and vice versa. According to Shoji, et al (2014) agripreneurship can be understood as the profitable
marriage of agriculture and entrepreneurship. Hence, for a capitalist society,
development in the agricultural sector and the state of agripreneurship
constitutes the confluence of the drivers of public sector policies and
programs and private sector entrepreneurial practices and processes, which
ultimately streams the reality of economic performance of agriculture for food,
fiber, employment and income.
The
partnership between the public and the private sector in the transformation of
agriculture into agripreneurship is real in that, indeed, ultimately it is a
national government that creates an enabling environment in the sum total of the
macroeconomic policies that favour market and trade; the provision of inputs
and related physical infrastructure (such as roads and irrigation) and social
infrastructure (education and research etc) together with the accompanying
institution and regulations (Conway, 2012). While for the private sector the
establishment of a shared value perspective focusing on improving growing
techniques and strengthening the local cluster of suppliers and other
institutions in order to increase farmers’ efficiency, yields, product quality
and sustainability (Porter and Krama, 2011). This is because due to
globalization, agribusiness is becoming more complex on account of economic
liberalization, a reduced protection for agricultural market, and fast
changing, more critical society, necessitating that agricultural companies
increasingly have to adapt to the vagaries of the market, changing consumer
habits, enhanced environmental regulation, new requirement for product quality,
food safety, sustainability and so on. These changes have cleared the way for
new entrants, innovation, and portfolio entrepreneurship (Ngalakshmi and
Sudhakar, 2013).
The
economic performance of the agricultural sector is usually uncertain due to its
biological nature in addition to relying mainly on rainfed agriculture and of
livestock rearing under natural conditions (Luke, 2011). Although, a 1999 World
Bank study based on survey data found that agribusiness firms faced many of the
same constraints – vulnerability, operational, capacity, political and
regulatory constraints – as those reported by firms in other sectors, however,
important agriculture-specific factors such as seasonality and consumption
patterns resulted in different, additional risks (Jaffer, 1999). Luke (2011)
maintains that agricultural production is inherently risky because of
variability of rainfall, animal mortality due to livestock diseases and
fluctuations in output prices. The environment in most of developing countries
is characterized by crop diseases, flooding, illness of household members and
crop destruction by herdsmen, all these create uncertainty. (Capitanio, 2008).
These
risks and uncertainties easily trigger food shortages, deterioration in
nutritional status, destitution and agro-business failure (Pinstrup-Anderson, 2002).
This explains why risk analysis among agribusiness investments has become
increasingly popular obviously because agribusiness investment depends on
vagaries of the environment and nature (Nto, Mbanasor and Nwaru, 2011).
Consequently,
agriprenuers manage risk by preferring enterprises that provide satisfactory
levels of security even at the expense of higher income, and diversifying into
a number of activities to spread risk (Luke, 2011). They also prefer to use
established techniques of production and distribution, to be self sufficient in
food requirement at the expense of experimentation (Nyikal and Kosura, 2005).
Risk plays crucial role in farmer decision making and therefore affects
agricultural production, employment and thus growth and development. Lack of
institutional innovation like crop insurance and affordable credit in
developing countries to shift part of the risks from the private to the public
sector makes risk management an important part of the small holder production
decisions (Besley, 1995) even as private sector provided insurance products are
yet to develop due to problems of moral hazards and adverse selection (Hazzel,
2003).
Although
the agribusiness sector in sub-Saharan Africa, which includes Nigeria, is still
relatively small with an estimated contribution to Africa’s GDP of just under
$70 billion representing a total of 1 to 2% of world agribusiness GDP share
(Fusaka, 2007), however, the agricultural sector yet plays a significant role
for economies of sub-Saharan Africa with agriculture accounting for 34% of GDP
and 64% of employment (World Bank, 2008). Therefore given the importance of the
agricultural sector to the economies of the sub-Sharan Africa, agricultural
investment risks have the potential to influence their economies significantly
and policies to reduce risk could have major implications for both smallholder
and agribusiness investors (Julie and Hendrik, 2010).
1.2 STATEMENT OF THE PROBLEM
The
incidence of risk in agriculture is important to policy makers because problems
of risk and vulnerability within an agricultural production and marketing
system requires an understanding of the cross-cutting issues and the multiple
approaches to managing it (Calvin, 2008). Indeed risk is inherent in every form
of enterprise but is more intensive in input-output relation among agribusiness
productions (Kuyrah, Obare, Herrero and
Waishaka 2006, Odii, 1998).
Agribusiness
investors in Sub-Saharan Africa face high and varied risk and uncertainties (Julie
and Hendrick, 2010) collaborating with the assertion, Njavro (2009); NIPC
(2006); Dercon (2002) and Milchaylova (2005) added that risk sources to
agribusiness enterprises can be grouped into social, market, political,
economic/financial, production, environmental and foreign exchange risks. Of
concern is that the risks affect the efficient conversion of input to output
and invariably negatively affect the agriprenuers in achieving their set
objectives of good financial performance by profit maximization (Barry and
Frazer, 1984; Buaer and Bushe, 2003; Aneke, 2007).
According
to Sanusi (2011) cited in Olusanmi, Uwuigbe and Umuigbe, 2015) risk management
flaws was a major factor responsible for poor financial performance of many
enterprises in Nigeria. Nigeria being prone to a lot of environmental
inconsistencies requires a high degree of risk aversion strategy to break the circle
of poverty which engulfed over 70% of its population and also to achieve
increased food production to meet her 3.18% population growth rate (NIPC, 2007;
Ojo, 2003; Federal Republic of Nigeria Gazette, 2009; Alimi and Ayanwale, 2005,
FOS, 1996). Unfortunately, Nto and Mbanasor (2008) observed that not much
emphasis is given to risk management practices by farmers and policy makers in
Nigeria hence the obvious consequence of negative impact on crop yield, even as
Nto, Mbanasor and Nwaru, (2011); Alimi and Ayanwale (2005); Olarinde, Manyong
and Akintola (2007) reported that poor production yield will continue to be
observed in crop production in Nigeria considering the dependency of farmers on
changes in production environment and natural conditions, where upon Nto (2016)
posits that yield of some crops in Nigeria, like maize, are low because these
uncertainties are not factored into decision making process by farmers so as to
enhance yield through adequate risk management strategies. Therefore, Nigeria
may continue to face acute shortage of food and high rate of poverty unless
concerted efforts are given towards appropriate risk reducing methods, and this
is critical given that food supply is at a low rate of 2.5% while the demand is
at an alarming rate of 3.5% (Nto, Mbansor, and Osuala, 2013)
Jhingan
(2005) noted that a characteristic feature of less developed countries (LDCs)
is the lack of agripreneurial ability that is reinforced by a social system
which denies opportunity for creative faculties, all of which worsen the effect
of risk and uncertainties, culminating to a thin supply of agripreneurs. The
BMZ (2015) posits that there are significant challenges to the development of
an agripreneurial culture in the developing economies and that these include a
lack of information, skills, security resources and infrastructure, without
which it is difficult to establish new, vibrant and successful commercial
enterprises. There is no doubt, however, that risk hinders farmers from
pursuing their farming as a business (Luke, 2011). Farmers therefore hardly
take to agriculture as a way of earning a living. Developing countries equally
are characterized as being capital-poor, income-poor, low-saving and
low-investment as gross investment is 5-6% of GDP compared to 15-20% for
developed countries (Jhingan, 2005). It follows therefore that the investible
funds are quite low and limited in supply in a developing country like Nigeria
given that income (Y) is equal to consumption (C) and investment (I). It means
therefore that investible funds (or investment) is income less consumption.
In
an environment of low-income and low-saving, with a high proportion of income
spent on consumption, paucity of investible funds is a reality. Worst still is
the fact that investment in agriculture is least preferred to investment in
other sectors like service, manufacturing and commerce. This is so partly due
to low returns on investment (ROI) in agriculture and partly due to the various
dimension of risk and uncertainty which investors in agriculture are exposed
to. Then investors to agribusiness enterprises face the danger that what they
expect ex-ante may not be realized ex-post (Ndugbu, 2003) with the effect that
each time an investor borrows money for investment in agribusiness enterprise,
there is the possibility that the return on investment is less than the cost of
borrowed fund (Nto, Mbanasor, and Nwaru
2011). Idachaba (2004) argued
that the dwindling agricultural production in Nigeria is a confirmation of the
unattractiveness of agriculture as a result of low returns and compensation
which tend to discourage increased production and investment in the sector.
Thirdly,
another area of concern in agricultural risk management is weak government
institutions. In Nigeria, the business of insuring against agricultural risk is
left to Nigerian Agricultural Insurance Company (NAIC), a company directly
managed by the Federal Government of Nigeria, giving no role whatsoever for
private insurance companies. Public sector owned insurance firm is more of
subsidized insurance and is quite weak in deterring ad hoc disaster assistance
(OECD, 2011). In 2013, a significant proportion of Nigeria’s farm low lands
were covered by floods with all the deltaic farm lands and farmers homes
submerged by flood. Unfortunately, the NAIC had no plans or policies, and
indeed no capacity or statutory responsibility, to deal with or cover such
catastrophic risks. The government had to resort to the National Emergency
Management Agency (NEMA) in an ad-hoc and ad-interim basis. NEMA responses were
indeed like a sympathetic social ex-gratia which left the farmer-victims with
no claims in relation to their actual losses.
The
composite consequence of poor agripreneurial attitude, low and limited
investible funds and weak institutions in the midst of all the dimensions of
agricultural risk is the herculean task of how to strengthen the viability of farm
business and to provide an environment which supports investment in the sector
(OECD, 2011). In this light, therefore, the question remains: how has the
owner-managers of agripreneurship enterprises managed the dimensions of
agricultural risks in the all-important effort to transform agricultural
activities from agricultural peasantry (a way of living) to agriprenuership (a
way of earning a living) in order to maintain good financial performance as a
function of ensuring food security, employment, income enhancement, reduction
of poverty, mitigation of problems of urbanization, economic growth and
development generally.
The
effects and impact of agricultural risk management strategies on the attempt at
agricultural transformation and performance of agriprenuership enterprises seem
not to have been exhaustively evaluated. This study will fill in this knowledge
gap and attempt to establish the connecting strings between agricultural risk
management and financial performance of agriprenuership enterprises in South
East Nigeria.
1.3 RESEARCH QUESTIONS
i)
What are the
socio-economic profile of the agriprenuers in the South East Nigeria?
ii)
What are the major types
of risk of concern to the agriprenuers in the South East Nigeria?
iii)
What is the level of
adoption of risk mitigation strategies by the agriprenuers in the South East
Nigeria?
iv)
What are the effects of
the level of adoption of risk management strategies on financial performance of
agriprenuers?
v)
What are the effects of
risk exposure on agriprenuers investment decisions and among the respondents?
vi)
What is the attitude of
owner-managers of agriprenuers and factors influencing their attitude towards
risk?
1.4 OBJECTIVES OF THE STUDY
The
broad objective of this study is to evaluate the risk management strategies of
agriprenuers in South East Nigeria.
The
specific objectives are;
i)
examine and analyze the
socio-economic profile of the agriprenuers in the South East Nigeria
ii)
identify the major types
of risk of concern to the agriprenuers in the South East Nigeria
iii)
ascertain the level of
adoption of risk management strategies (ex-ante) – risk identification,
evaluation and mitigation - as a management practice and its effect on
financial performance among agriprenuers in South East Nigeria.
iv)
estimate the effects of
the level of adoption of risk management
strategies (ex-post) on financial performance of agriprenuers in South East
Nigeria.
v)
assess the effect of risk
exposure on agriprenuers investment decisions among the respondents in South
East Nigeria.
vi)
ascertain the determinants
of risk attitude of owner-manager agriprenuers and factors influencing their
attitude towards risk.
1.5 RESEARCH HYPOTHESES
Ho1: the ex-ante risk management strategies have
no significant effect on the financial performance of the agripreneurs
Ho2: the ex-post risk management strategies have
no significant effect on the financial performance of agripreneurs
Ho3: there is no significant difference in the
risk exposure of the input, marketing, processing, production and support
services agripreneurs
Ho4: the amount of money invested has no
significant relationship with the risk exposure of the agripreneurs
Ho5: ex-post risk management cost has no
significant relationship with the ex-ante risk management cost of the
agripreneurs
Ho6: capital, education, sex, experience,
household size, labour size, capital structure, collateral, cost of capital,
investment, income and source of capital
have no significant effect on the risk attitude of the agriprenuers
1.6 JUSTIFICATION OF THE STUDY
Nigerian
economy has been described as a mono-product economy due to the near exclusive
reliance on petroleum (Ogoegbunam, 2012). The economy as of today is facing
acute youth unemployment, food security challenges, import-dependency leading
to dire foreign exchange scarcity and attendant low foreign reserves, inflation
and flight of direct foreign investment capital. This is happening to Nigeria
in spite of her huge agricultural potentials. With an arable land potential of
98 million ha, out of which 84 million ha is cultivatable, Nigeria’s
agricultural potentials remains untapped as only 34 million ha or 48% of the
available land for agriculture is cultivated (Adisina, 2012). According to the
International Food Policy Research Institute, as quoted by Adesina (2012) the
value of agriculture in Nigeria at constant 2010 dollars was 99 billion
dollars. This is projected to grow to 256 billion dollars by 2030. The growth
is expected to come from yield expansion (44%), area expansion (33%) and
diversification into high value crops and animals (23%).
To
make progress, Nigeria must reverse the low productivity of current
agricultural firms, engage competition within the agricultural sector, develop
domestic policies, increase funding and improve management practices (Ayodele,
Obafemi and Ebong 2013)
The
above scenario places a huge demand on stakeholders – academics, agripreneurs,
policy makers in both private organizations and government agencies– to prepare
for the realization of this potential through increased investment in
agriculture and transformation of agricultural ventures into agriprenuership
concerns.
Risk
has important implications to agriculture in that it affects the type of
investments that farmers make (Luke, 2011). Risk also affects the level of
returns to agricultural investments and hence the level of investment in the
sector. Again, ultimately, it affects the level of agricultural output
achieved, the rate of employment creation in agribusiness, rural development
and economic growth especially in Nigeria where agriculture contributes up to 24.18%
GDP and 30% of employment (Ahungwa, Haruna, and Abdulsalam, 2012;
Yusuf, 2014; Osundina, Ebere, and
Osundina, 2014; Olajide,
Akinlabi, and Tijani, 2012).
Information
on the role of risk and risk management strategies among agriprenuership
enterprises represent important contribution to existing body of knowledge. It
will capture what needs to be done in the effort to transform agriculture from
peasantry to real agribusiness. This is important in that it will help
agriprenuers manage their businesses better and government in their effort at
agricultural transformation, food security, employment creation and rural
development.
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