Analysis of Effects of Financial Risk on the Welfare Status of Cocoa Farmers in Southwest Nigeria

Abstract

Cocoa farming supports rural livelihoods, yet farmers face financial risks that threaten their welfare. Thus, this study examines the impact of financial risk on the welfare of cocoa farmers in Southwest Nigeria. A multi-stage sampling method was employed to select 396 respondents from two states known for high cocoa production and certification program involvement. Data were analyzed using descriptive statistics and a Seemingly Unrelated Regression Equation (SURE) model to determine the effects of financial risk on welfare indicators such as household income, food security, and poverty status. The findings reveal that 74.5% of respondents were classified as non-poor, with certification program adopters and non-adopters showing similar poverty levels. Key variables influencing welfare included farm size, cooperative membership, education, and financial risk. While larger farms and cooperative memberships positively impacted household income and food security, financial risk was associated with both increased income and heightened food insecurity and poverty risk. The study recommends the need for targeted interventions to mitigate financial risks, including expanded access to credit, financial literacy training, and cooperative support.