Effects of risk attitude on the technical efficiency of small-holder rice farmers in Ogun State, Nigeria

Abstract

The growth and development of the agricultural sector in developing countries is largely dependent on technological enhancements, because merely expanding the area of farm cultivation is no longer sufficient to meet the increasing food needs of growing populations. This study examined the effects of risk attitudes on the technical efficiency of smallholder rice farmers in Ogun State, Nigeria. Primary data were collected for the study using a multi-stage sampling technique, and 180 rice farmers were selected from the study area. The data were analyzed with descriptive statistics, stochastic frontier analysis and a simple lottery-choice experiment. The findings revealed that 36.1% of the farmers were between the ages of 31 and 40. Farmers who were 41 years and over were seen to be more risk averse than their younger counterparts. In this age group, 76.66% of rice farmers were risk averse, while 23.34% were risk tolerant. The result of the maximum likelihood estimate (MLE) of the parameters of the stochastic frontier analysis revealed that farm size positively and significantly influenced rice output (β = 0.16, p < 0.1), as did quantity of seed (β = 0.74, p < 0.01) and use of chemicals (β = 0.26, p < 0.01). Years of farming had a negative effect on technical efficiency (β = 0.64, p < 0.01), as did severe risk aversion (β = 0.57, p < 0.1). The study concludes that small-holder farmers are generally risk averse, negatively influencing technical efficiency in the study area. The study recommends that the design of government programs should incorporate farmers' risk attitudes as an important variable.