Price risk perceptions and adoption of management strategies by smallholder rice farmers in Mbeya region, Tanzania

Abstract

One of the main risks that tend to affect the profitability and well-being of smallholder rice farmers in Tanzania is volatile rice prices. Improving the capacity of farmers to manage price risks is essential to increase rural incomes. This article applies descriptive statistics, exploratory factor analysis, and probit model to examine price risk management strategies of smallholders rice farmers, and factors affecting their use. Results have shown that most rice farmers prefer to manage price risk through spot market strategies, even though forward contracts perform better. The factors that significantly affected the adoption of the risk management tools were farm income, technological intensity, income diversification activities, access to market information, and storage facilities. Findings suggest that policies aimed at establishing and promoting commodity- derivative markets, improving market information systems, supporting the construction of warehouse facilities in rural areas, and improving access to credit for farmers could enhance farmers’ ability to manage price risks. Governments can also set up price guarantee schemes to help farmers cope with the loss of income resulting from catastrophic events or major market disruptions.