Price risk and farmers’ decisions: A case study from Benin
Achille Barnabé Assouto, Denis Acclassato Houensou, Gervasio Semedo
Abstract
Farmers face many types of risks that affect their behavior and well-being. Among these risks, the one related to the price of products appears the most economically sensitive. They develop various strategies to cope with this, either by taking decisions at the level of their exploitation, by using instruments offered by the market, or by diversifying their sources of income. This article analyzes, using a system Generalized Method-Of-Moment (GMM), the decisions made at the farm level to show that farmers are increasing their production and the areas that they sow in response to price volatility. Thus, price volatility exerts an incentive to increase maize production in Benin. This paper suggests taking the influence of risk aversion into account when defining policies to stabilize agricultural prices particularly in developing countries.