“Irrigation Pumps and Milling Machines as Insurance against rainfall and Price Risks in Nigeria”

The majority of farmers in sub-Saharan Africa (SSA) lack the means to mitigate the impact of risks associated with rainfall and commodity prices due to financial constraints and the imperfect insurance markets in these countries. Because most SSA farmers are risk averse, they may be willing to invest in productive assets that can mitigate the impacts of such risks if their financial constraints are relaxed through external financial assistance. We analyze panel data on investment behavior of Nigerian farmers who received financial assistance for acquiring productive assets. The empirical results show that farmers facing higher rainfall risks are more likely to invest in irrigation pumps that can mitigate the impact of poor rainfall. Similarly, farmers facing the higher price fluctuations for unmilled cassava (gari) are more likely to invest in milling machines that enable them to sell milled cassava, an alternative cassava product with a more stable price. Public support for farmers’ acquisition of productive assets like irrigation pumps and milling machines will not only enhance their productivity but also help shield them from rainfall and commodity price risks.

NSSP Policy Note 33

by Hiroyuki Takeshima