Invited paper presented at the 6th African

Conference of Agricultural Economists,

September 23-26, 2019, Abuja, Nigeria

Copyright 2019 by [authors]. All rights reserved. Readers may make verbatim copies of this
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Production risk and risk preference among small-scale pig
enterprises in Southwestern Cameroon

By

Mbah Leslie Tembei

Centre for Independent Development Research,
P.O. Box 58 Buea, SWR, Cameroon

Ernest L. Molua, PhD

Department of Agricultural Economics and Agribusiness
Faculty of Agriculture, University of Buea, Cameroon,
P.O. Box 63 Buea, SWR, Cameroon.

Mr Ajapnwa Akamin
Department of Agricultural Economics and Agribusiness
Faculty of Agriculture & Veterinary Medicine
University of Buea, SWR, Cameroon
*
Corresponding author: Email: akaminajap@gmail.com

1
Production risk and risk preference among small-scale pig enterprises
in Southwestern Cameroon

Abstract

This article analyses average pig production and output variability in southwestern
Cameroon. After testing for the presence of production risk, the feasible generalised least
squares (FGLS) technique is used to estimate the mean and variance functions and
identify sources of output variability in pig production. Both descriptive and econometric
results converge on the fact that pig producers become more risk averse when exposed to
production risk. Income diversification and variable input use are identified as the main
factors influencing expected output. Meanwhile, of all factors posited to cause variability
in output, activity diversification alone tends to increase output risk.
Keywords: Pig production, risk, risk preferences, Cameroon

Introduction
The agriculture sector is the key sector of Cameroon’s economy, employing more of the active
population than any other sector and contributing very significantly to the country’s gross domestic
product (76.38% in 2017) (MINADER 2018). Over the years, the country has witnessed an
upward trend in agricultural output (albeit a less than proportionate increase in productivity) which
can be attributed to an expansion of the size of cultivated area rather than to an increase in
productivity and efficiency in the agricultural sector (Dewbre & Borot de Batisti 2008).
Cameroon’s agribusiness sector plays a vital role in the economy, not only at the national level but
also at household level, as it provides a source of food, employment and livelihood.

Meat production is a particularly lucrative business in Cameroon both in terms of its contribution
to the country’s GDP, as well as serving as a source of food and livelihood for many. Meat
production includes ruminants, birds, as well as other livestock. Pig production contributes about
15% of the country’s total meat production, significantly lower than cattle (54%), but just slightly
above sheep and goat (13%). Meanwhile, poultry and rabbits contribute 17% and 1% respectively
(GESP 2011). The pig agribusiness in Cameroon is dominated by small-scale subsistent producers.

Figure 1. Evolution of pig production in Cameroon

Source: Authors’ computation using FAOSTAT data.

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Agribusinesses by their nature attract a lot of risk. As a result, decision-making is a complex issue
for most agribusinesses (both small- and large-scale), because production is often subject to
uncertainty and risk (Moschini & Hennesy 2001). Many sources of risk exist which influence
agribusiness decisions, some of which include; political risk (war, political unrest, administrative
bottlenecks), economic risk (financial, price, and credit risk), environmental risk (disease outbreak,
climate and weather risk), amongst others. The focus of this study is on production risk only.

Uncertainty and risk are inherent features of the agricultural production process - both crop and
livestock. Two main forms of these are fluctuations in output (production risk) and prices (price
risk), and their combined effect significantly influences farm income. Production risk often arises
because agricultural production depends on natural biotic and abiotic processes which cannot be
controlled entirely by man. Various sources of production risk in agriculture and agribusiness
include weather vagaries, plant and animal diseases, natural disasters, amongst others. Risk
associated with crop and animal production is thus more pronounced in less developed agrarian
economies as the technology available to them to curb output risk is limited compared to more
industrially advanced countries (Asche & Tveteras 1999). As such agribusiness decision-making
(under uncertainty) is best analysed by taking into consideration the risk preference behaviour of
the latter. Conceptually speaking, agribusinesses exhibit three possible attitudes towards risk; risk-
averse, risk-neutral, and risk-friendly preferences.

Materials and methods

Conceptualisation of risk in agriculture
Throughout this study, risk is viewed as the chance of a bad event occurring relative to the
producer’s expected outcome. Risk is likely to have a potentially negative impact on the
profitability of investments in the agribusiness sector. The various sources of uncertainty and risk
in agriculture and agribusiness can be classified under four main categories; economic/financial,
social, environmental, and political risk. Institutional risk - unpredictable changes in the provision
of services from institutions that support farming – is also known to affect the functioning of
agribusinesses. Such institutions can be both formal and informal and include banks, cooperatives,
marketing organizations, input dealers and government extension services. Price support,
subsidies, food quality regulations for export crops, rules for animal waste disposal and the level
of price or income support payments are examples of decisions taken by government that can have
a major impact on the farm business. Meanwhile, marketing risk refers to variations in prices
beyond the control of the individual farmer. The price of farm produce is affected by its supply
and demand, as well as the cost of production (Kahan 2008).

Risk preference refers to the level of tolerance agribusinesses exhibit when faced with risk. Risk
aversion can thus be defined as the willingness to accept lower expected returns in a bid to reduce
risk involved. Meanwhile, risk-loving agribusinesses will exhibit willingness to accept higher
expected returns even if it means incurring higher risk in the process. Risk preference analysis is
therefore very important for understanding why and how agribusinesses make decisions when
faced with uncertain outcomes. Usually, smallholders either do not adopt or only partially adopt
new technologies, even when these technologies could generate higher returns than the existing
technologies. One possible explanation for this reluctance among smallholders in developing
countries could be the perceived risk profile associated with these technologies (Hardaker et al.
2015). For instance, Smale et al. (1994) show that production risks lead to slow adoption of new
technologies in maize production. Production decisions are thus greatly influenced by the level of
risk preference of the agribusiness (risk averse, risk friendly or risk neutral).

The effects of production risk, if not properly managed, could result in misallocation of resources,
low productivity, inefficiency, low investments and consequently slow rate of business growth.
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Production risk influences agribusiness decisions in many ways. Agribusiness managers decide
what inputs to use, where, when and how, depending on their level of tolerance to the associated
production risks. This is particularly true for small-scale agribusinesses whose management
decisions are highly influenced by exogenous processes. Such high dependence leads these
agribusinesses to exhibit high aversion towards risk. In addition, micro agribusinesses usually lack
adequate technology to mitigate the effects of the risks they face. As such the low investments lead
to low productivity and by extension lower expected profits for the agribusiness (Cole et al, 2017).

In order to cope with production risk, farmers in developing countries adopt a range of risk-
management strategies, ranging from income diversification and production strategies to common
risk-sharing mechanisms based on kinship and social networks. The latter approach is more
appropriate for covariate shocks as opposed to idiosyncratic shocks. Evidence suggests that in the
absence of formal risk management, less risky but less profitable farming practices are adopted,
resulting in lower productivity (Antonaci et al. 2014). In this paper, we focus on production risk.
This refers to output uncertainty caused by the vagaries of the weather and other production-related
shocks in the course of the production cycle. Production risk arises because agricultural production
depends on natural and environmental processes which cannot entirely be controlled by the
producer or agribusiness - weather, animal disease outbreak, political instability, and natural
hazards, amongst others. It also arises from uncertainty around the use of technologies. As such,
farmers decide to produce amid uncertainty about ex post production (Kahan 2008). The
identification of the sources of risk is important because it helps to choose the appropriate risk
management strategy: these strategies can either be ex-ante or ex-post.

Although awareness of the existence of risk is clearly important, the latter needs to be clearly
identified and analysed for effective risk management to follow. Risks and the associated impacts,
are best assessed by quantifying three main variables: hazard, vulnerability, and exposure. Hazard
can be measured in terms of frequency of occurrence, severity of the risk and the extent of the risk
(World Bank 2011). Given the highly susceptible nature of crop and livestock production in
developing countries to production risk (Roll et al. 2006), and the attendant effects on food security
and livelihood, it is important to understand the causes and consequences of agricultural
production risk in these countries. Modelling production decisions made under such circumstances
also helps to unravel information about why farmers make certain decisions when faced with risk.

Analytical framework
Many approaches have been used in the literature to model production risk. One of such is the
coefficient of variation, which measures randomness relative to the mean yield value (Hardaker et
al. 2015). Other researchers have exploited this output variance method to determine the extent to
which production risks influence production. Many attempts to explain risky decisions are
however couched on the expected utility hypothesis refined by Neumann & Morgenstein (1944).
According to this theory, the agribusiness decision-maker may choose between risky or uncertain
prospects by comparing their expected utility values - the weighted sums obtained by adding the
utility values of outcomes multiplied by their respective probabilities. Thus, agribusinesses chose
activities with the highest expected utility, where utility quantifiable as satisfaction with regard to
a particular production goal. In agricultural production, it may be derived from output, business
profits, or in some other form. Maximizing expected utility is thus assumed to be the main goal of
the agribusiness.

A common starting point in agricultural output analysis is the assumption that increasing inputs
not only leads to an increase in output, but it also increases variation in output. Just and Pope
(1978, 1979) introduced the parametric stochastic function which has become the most popular
framework used in analysing production risk. Many studies that use this approach, such as
Kumbhakar (2002), focus only on risk in agricultural production. Meanwhile, some other studies
4
ignore production risk and analyse product price risk only, while some analyse both production
and price risk separately (for instance Sandmo [1971]). Production and price risk are however
weakly separable in agricultural production since quite often expected outcomes of production are
usually either output or profit (the latter being a function of the output price).

The expected utility theory can be used to illustrate a pig producer’s preference towards risk using
the income variance approach. Assume a pig producer with an expected utility (EU) function EU
= P1.U (I1) + P2.U (I2) and EMV = P1.I1 + P2.I2, where EMV is the expected money value, I1 and I2
are income levels, and P1 and P2 are their respective probabilities. Suppose a certain income level
IA. If IA< EMV but both yield the same level of utility (that is the producer is indifferent between
IA and EMV) and if the producer chooses IA and forgoes an amount of income equivalent to EMV
– IA, then he is said to be risk-averse. Generally, a producer is risk-averse if E(U) ≤ U{E(X)} and
vice versa. In the presence of risk and uncertainty, agribusinesses do not always choose the option
with the highest expected outcome.

The Just-Pope production function

The Just-Pope framework allows for modelling the marginal effects of inputs and environmental
factors on output and production uncertainty. The Just-Pope production function takes the form

𝑦𝑦 = 𝑓𝑓(𝑥𝑥; 𝛼𝛼) + ℎ(𝑧𝑧; 𝛽𝛽)𝜀𝜀 (1)

Where f(x;α) is the mean production function, h(z;β) is the output variance function or risk
function), x and z are input vectors with parameters α and β respectively. The function f(.)
comprises factors of production while g(.) contains factors that are variance-increasing or variance
decreasing vis-à-vis expected output. Parameters of both average output and risk functions could
be identical or distinct. Meanwhile, production shock is captured by a homoscedastic disturbance
term ε. The specification in equation (1) above enables us to rewrite the variance function as an
additive (heteroscedastic) error term such that the production model becomes

𝑦𝑦 = 𝑓𝑓(𝑥𝑥; 𝛼𝛼) + 𝑢𝑢 (2)

Where E(u) = 0 and Var(u)=[h(.)]². The Just-Pope Framework has been used in many cases to
analyse production risk and estimate risk preferences (for instance Kumbhakar & Tsionas 2010;
Czekaj & Henningsen 2013). The derivation of production risk preferences involves incorporating
the expected utility theory into the agribusiness’ production function based on the objective of the
business, or the businesses’ expected outcome at the end of the production season. The main
business objectives usually adopted in production risk analysis are profit and output maximization,
although producers could seek to achieve other objectives such as cost minimisation (Kumbhakar
and Tsionas 2010).

Risk preference among pig producers

Pig farming in the South West region of Cameroon is relatively small-scale, mostly practised by
farm households. To simplify our analysis, we assume that, for all the pig farmers, the sole
objective is to maximise expected utility derived from profits obtained from pig farming.

Thus 𝑀𝑀𝑀𝑀𝑀𝑀 𝐸𝐸𝐸𝐸 (𝜋𝜋), where 𝜋𝜋 is profit from the pig farming business.

However, 𝜋𝜋 = py – rx, where y is output, x is the input vector, and p and r are the vectors of output
and input prices respectively. Substituting equation (1) in the profit function yields

5
 𝜋𝜋 = 𝑝𝑝[𝑓𝑓(𝑥𝑥) + 𝑔𝑔(𝑥𝑥)𝜀𝜀] − 𝑟𝑟𝑟𝑟 (3a)
𝜋𝜋 = 𝑝𝑝𝑝𝑝(𝑥𝑥) − 𝑟𝑟𝑟𝑟 + 𝑝𝑝𝑝𝑝(𝑥𝑥)𝜀𝜀 (3b)

The objective of the pig farmer therefore, will be to

𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀(𝜋𝜋) = 𝑝𝑝𝑝𝑝(𝑥𝑥) − 𝑟𝑟𝑟𝑟 + 𝑝𝑝𝑝𝑝(𝑥𝑥)𝜀𝜀

For the first-order conditions for a maximum to be satisfied,

𝐸𝐸𝐸𝐸 ′ (𝜋𝜋)[𝑝𝑝𝑝𝑝(𝑥𝑥) − 𝑟𝑟 + 𝑝𝑝𝑝𝑝(𝑥𝑥)𝜀𝜀] = 0

′ (𝜋𝜋)𝑝𝑝𝑝𝑝(𝑥𝑥)
𝐸𝐸𝐸𝐸 + 𝑝𝑝𝑝𝑝(𝑥𝑥)𝐸𝐸𝐸𝐸′(𝜋𝜋)𝜀𝜀 = 𝑟𝑟[𝐸𝐸𝐸𝐸′(𝜋𝜋)]
𝐸𝐸𝑈𝑈 ′ (𝜋𝜋)𝜀𝜀
𝑝𝑝𝑝𝑝(𝑥𝑥) + 𝑝𝑝𝑝𝑝(𝑥𝑥) � 𝐸𝐸𝑈𝑈 ′ (𝜋𝜋) � = 𝑟𝑟 (4)

Therefore,
𝐸𝐸𝑈𝑈 ′ (𝜋𝜋)𝜀𝜀
𝑓𝑓(𝑥𝑥) + 𝑔𝑔(𝑥𝑥) � 𝐸𝐸𝑈𝑈 ′ (𝜋𝜋) � = 𝑟𝑟/𝑝𝑝 (5)
𝑓𝑓(𝑥𝑥) + 𝑔𝑔(𝑥𝑥)Θ = 𝑟𝑟/
𝑝𝑝 (6)
(6
)

𝐸𝐸𝑈𝑈 ′ (𝜋𝜋)𝜀𝜀
Where Θ = � 𝐸𝐸𝑈𝑈 ′ (𝜋𝜋) � is the risk preference function for pig producers whose aim is to maximise
expected utility from obtained profits.

Generally,
= 0 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 − 𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
Θ = � > 1 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 − 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
< 0 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 − 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝

Production decision-making entails taking into consideration the risks involved with the associated
inputs. Although several factors influence the production decisions of farm enterprises, we
however consider only the socio-economic and demographic characteristics of farmers, the
expected returns from the farm enterprise and the risks involved in production. As such, a pig
farmer’s production decision based on the expected utility framework, is a function of expected
output (profits) and risks associated with production.

Description of variables
Variables in the production function
The production function of pig-farm enterprises depends on both output and inputs of the
production process. However, most of the conventional production inputs are not used in pig
production in the Southwest region. As such, for most of the pig producers, zero values would be
recorded for these variables. This is not uncommon for small-scale agriculture. In line with this,
we follow the approach of Di Falco et al. (2007) where for most of the factors identified as likely
to influence pig production or variability in output, we use dummies to control for their use or
effect. The variables included in the production function in this research include:
Output (Q): This refers to the total quantity of production at the end of each season, which in this
case refers to the total quantity of pigs produced for sale by the farmer at end of the season. It
could also be understood to mean expected returns at the end of the season.

6
Variable inputs: This refers to material inputs used in pig production such as pig feed, nutrients,
and treatment, amongst others. These inputs are jointly assessed because pig farmers use a mixture
of them throughout the production cycle, and so find it difficult to quantify a particular type. In
addition, application is sometimes spontaneous for some of these inputs. As such, controlling for
these variable inputs was done using a dummy which takes a value of one if the pig producer
used at least some of these inputs, and zero otherwise.

Technology plays a very important role in pig production. In our model, this comprised biological
capital mainly in the form of new or improved pig breeds and improved feed. As was the case
with variable inputs, technology was captured using a dummy. Given that most of the pig
producers live not far from the main town of Buea, and with other big towns in proximity, we also
considered the effect of the pig producer engaging in another income generating activity, in
addition to pig farming. In reality, most pig producers are either full-time farmers or engage in off-
farm employment. They therefore seldom rely solely on pig production. So, we introduced a
dummy for pig producers with second employment aside pig production. Additional dummies
were included to capture male-female production differentials and formal schooling. We assume
that expected output and its variability are increasing in inputs and ambivalent in terms of the other
variables.

Factors influencing pig production decision

The decision whether or not to keep pigs is determined by an array of factors that include
demographic, socioeconomic, household and market characteristics. All these jointly determine
the producer’s propensity to take or avoid risk with regard to pig production.

Pig production is economical if the pigs are sold on maturity to avoid wasting feed for marginal
increase in size and weight. However, demand for pork, though regular, is affected by seasonality.
Pig demand fluctuates with season as some periods (for instance festive periods) experience high
increase in demand and consequently price and profits. Thus, the risk of having mature pigs during
off-peak periods also influences a farmer’s decision to produce pigs as well as the quantity of pigs
to be produced. Biological risk, as well as outbreaks and epidemics, also significantly influence
pig production. The occurrence of outbreaks such as swine flu, and other diseases affecting pigs
constitute a major risk for these businesses which significantly influence the pig producer’s
decision to produce or not.

Technology-related risk in the form of output uncertainty vis-à-vis the adoption of new
technologies constitutes another major risk factor for the pig business. The adoption of new
technologies may not always yield the desired or desirable outcomes. Other factors that could
influence risk aversion or risk seeking among pig producers and consequently production decision
include age, sex and education. Here, we distinguish farmers who have achieved at least some
formal schooling, from those who have never been to school at all. Also, we arbitrarily sort pig
producers into teenage and non-teenage producers. We expect that, in general, pig producers are
risk-averse vis-à-vis the aforementioned factors.

Estimation strategy
Variability in expected output will normally appear in the form of heteroscedasticity. We first
check for heteroscedasticity. If the presence of heteroscedasticity is confirmed, then a suitable
estimator that downplays its effect (that is heteroscedasticity-consistent) can be used to estimate
average output, as the latter not only provides reliable estimates but also allows for valid inference.
This holds as long as focus is on expected output (Asche & Tveterås 1999). However, since we
are also interested in the sources of output variability, the output variance (risk) function is equally
estimated. For this purpose, the feasible generalised least squares (FGLS) technique was used to
estimate the mean production and risk functions. With regard to the assumption of risk aversion in
7
terms of production decision, we do not empirically verify it using econometric techniques, but
resort to exploratory and descriptive tools.

Description of study area and data

The study was conducted in the Buea municipality in Fako division, Southwest region of
Cameroon. Fako is located at latitude 4° 10' (4.1667°) north and longitude 9° 10' (9.1667°) east,
with an average elevation of 2,833 meters. It covers a surface area of 2093 km² and its population
as at 2005 was estimated at 466, 412. The following sub-divisions make up Fako division: Buea,
Idenau, Limbe, Muyuka and Tiko. Because of its location at the foot of Mount Cameroon, the
climate of Fako is humid, with neighbourhoods at higher elevations (for example Buea, Muea, and
Idenau) experiencing cooler temperatures while low-lying towns like Muyuka, Tiko, Limbe,
Mutengene, and Ekona experience a hotter climate. Extended periods of rainfall, characterised by
incessant drizzles which can last for weeks, are common during the rainy season, as are damp fogs,
rolling off the mountain into the town.

Figure 2: Map of Study Area in the Fako division.

Source: Limbe Meteorological station data.

The data for this study was collected through a survey with the use of a structured questionnaire
administered to pig farmers in Buea. The study population comprised pig farmers and enterprises
in Fako. Field visits were organised and a random sample of 60 male and female pig farmers was
selected. The questionnaire used for the collection of the data was structured into three sections:
demographic information, output and input information, and production risk information.

3. Results and discussion

Socio-economic and demographic characteristics and production decision
Of the pig farmers sampled, 36 were male (60%) while 24 were female (40%). Based on responses
elicited from the producers, it was found that 50% of the male producers sampled were risk-averse,
while 58% of the female producers revealed a risk-averse attitude. Usually, more educated farmers
are more open to information, better at input application and are generally more productive than
uneducated ones. This also influences their attitudes towards risk and thus production decisions
8
they adopt when faced with risk and uncertainty. Everything being equal, farmers with no formal
education are more risk averse than farmers with some formal schooling (Cárcamo & von Cramon-
Taubadel 2016). Training feeds producers with more information about imminent risks related to
agriculture (technology, price, environmental) as well as strategies to manage these risks. Risk
perception is also considerably influenced by the socio-economic characteristics of the farmers
and of their farm business.

It was observed that of all the total respondents, 20 had no other income-generating activity other
than pig farming while 40 (66%) engaged in other activities. This indicates that everything being
equal, most producers keep pigs only part-time and either have a full-time job with the public
service or some other non-farm employment. The results revealed equal frequencies of both risk-
averse and risk-friendly farmers below the age of 20 and above 40 years of age, while farmers
aged 20-40 are generally more risk friendly. The relatively lower risk aversion among farmers
aged 20-40 could be a result of their limited dependence on the pig business which puts them under
relatively lesser pressure to produce when they are faced with risk. This contrasts with teenagers
and producers above 40 whose income may highly depend on the outcome of the production (due
to lack of alternative sources of income for the former and family responsibilities for the latter).
High dependence on business outcomes usually leads to higher levels of risk aversion amongst
farmers.

Interaction of socio-economic indicators and production decision

Gender, occupation, education and risk preference
First, we considered the interaction between gender and other occupation to see how it influences
farmers’ decision making or risk preference. Figure 3 below shows that both male and female
educated pig agribusiness owners are more risk friendly than the less educated ones. In addition,
both male and female producers with a second economic activity have higher propensity to take
risk. This supports the finding of Sulewski & Kłoczko-Gajewska (2014) who observed that farmers
with an off-farm employment are less risk-averse. Next, we disaggregate by gender, the effect of
education on production decision. Both education and gender are key demographic indicators of
farmers. However, their interaction effect on production decision could be different from their
individual effects. It is observed that uneducated women and educated men are more risk-loving,
while uneducated male and educated female pig producers are risk neutral.

Figure 3. Gender and education relationship to risk preference.

9
Age-education and risk preference
The relationship between age and educational level is a very important indicator of producer
behaviour. Educated farmers of a certain age group might react to risk differently from those of
other age groups or compared to their uneducated counterparts. Our results showed that both
educated and uneducated farmers between the age of 20 and 40 are more risk friendly as they will
choose to produce when faced with risk. In terms of the relationship between male farmers’
educational status, other occupation and risk preference, educated male farmers, both with and
without other occupation, as well as less educated male farmers without other occupation, are more
risk friendly. Meanwhile, female farmers are more risk-averse than their male counterparts.
Irrespective of educational status, with or without a second employment, female pig farmers
exhibited a risk-averse behaviour. This had earlier been observed Cárcamo & von Cramon-
Taubadel (2016).

Input, policy, technology, biological and market risk also have a significant influence on the
decision to rear pigs. Variable inputs have been shown to be risk-increasing and thus influence
producers’ production decision (Guttormsen & Roll, 2013). It was observed that the pig farmers
are generally sceptical vis-à-vis the adoption of new technologies, as most of the pig farmers prefer
the common breed of pigs and feed quality. About 65% of the pig producers reported that their
decision to produce is strongly determined by their expectations of future demand for pigs.

Determinants of expected output and production uncertainty

We ran a couple of tests prior to estimating our econometric models. As shown in tables 1 and 2,
first, the choice of variables for our analysis was based on Akaike’s information criterion (AIC)
and the Bayesian information criterion (BIC) which were estimated. Variables and the model
retained was that with the least AIC (1,501.981) and BIC (1,514.547). Next, the Breush-Pagan test
was used to verify whether the Just-Pope framework is suitable for our analysis. The null
hypothesis of homoscedasticity is strongly rejected at 1% level, with the main source of variability
in expected output being participation in a second income-generating activity, in addition to pig
production.

Table 1. Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Variable Chi-squared Degrees of freedom p-value (unadjusted)

Variable input 0.97 1 0.3259
Technology 4.53 1 0.0334
Sex 5.67 1 0.0173
Education 0.26 1 0.6112
Other employment 9.38 1 0.0022
Simultaneous 15.17 5 0.0097
Ho: Constant variance

Table 2. Akaike's information criterion and Bayesian information criterion

Model Observations Log- Log- Degrees of AIC BIC

10
 likelihood likelihood freedom
(null) (model)
Model1 60 -756.9728 -744.979 7 1503.958 1518.618
Model2 60 -756.9728 -744.605 8 1505.21 1521.965
Model3 60 -756.9728 -744.9904 6 1501.981 1514.547
Model4 60 -756.9728 -744.979 7 1503.958 1518.618
Note: N=Obs used in calculating BIC; see [R] BIC note.

The FGLS estimation results for the expected output function and the variance function are
reported in Table 3. The mean production function was estimated by fitting a simple linear model
while the dependent variable of the risk function was log-transformed. Most of the explanatory
variables had the expected sign in line with production theory. The average production function is
more or less monotonic in inputs. In fact, apart from education, all variables in the model have
positive marginal effects on average output. The results show that engaging in another economic
activity apart from pig production and investment in, or the use of, variable inputs, have the highest
and most significant positive marginal effects on expected pig production. Both coefficients are
positive and statistically significant at 1% level and 5% level respectively). On average, pig
producers who engaged in at least one other economic activity earned about 76,000 FCFA
(US$131) more than their counterparts. Meanwhile, the application of pig feed, treatment and
other variable inputs increased pig production and consequently pig income by 33,000 FCFA
(US$57) on average. The adoption of improved production technologies has a positive effect on
pig production and income but this effect is statistically infinitesimal. Same applies to the
difference in average output between male and female pig producers, which is statistically zero.
Conversely, educational attainment has a negative but statistically insignificant effect on mean
production.

Table 3. FGLS estimates of average pig production function and variance function.

Mean production function Risk functiona

VARIABLES (Linear) (Log-lin)
Variable inputs 2,789** 0.0964
(14,115) (0.466)
Technology 874.3 0.2699
(13,664) (0.408)
Sex 9,299 0.3703
(13,457) (0.438)
Education -1,494 -0.330
(16,443) (0.513)
Other employment 76,334*** 2.4522***
(13,871) (0.438)

Weight 142,444***
(18,580)
Constant 20.06***
(0.628)
R-squared 0.920 0.176
Notes: a Reported coefficients for the risk function are obtained by transformation of the original
�
coefficients using the formula100��𝑒𝑒 𝛽𝛽𝑖𝑖 � − 1�. Standard errors in parentheses; *** p<0.01, ** p<0.05,
* p<0.1.

11
With regard to estimated coefficients of the output variance function, all the variables posited to
influence fluctuations in expected output have the same sign as in the mean function. Although
almost all the variables are found to be risk-increasing, the effect is statistically significant only
for the variable other employment. In other words, the purported influence of education, sex,
technology, and variable inputs on fluctuations in expected pig production can be attributed to
mere chance. It is interesting to note that involvement in a second activity has a very significantly
large influence on variation in mean output. However, although technology adoption in the form
of improved feed or breed appears to increase variability in output, this effect is not statistically
significant.

The contribution of income diversification to average output lends support to theories of the
development of peasant households and time (re)allocation. The literature highlights two main
pathways via which off-farm 1 participation increases household income & welfare (Kousar and
Abdulai 2013; Hoang et al. 2014; Adjognon et al. 2017). First, off-farm employment opportunities
that burgeon as a result of transformation of the economy enable households to increase their non-
farm income and by extension, their food and non-food consumption expenditures. Second, off-
farm income provides financial capital for poor households who are almost always cash-
constrained and this enables then to purchase inputs and carry out investments that boost expected
agricultural output (Barrett et al. 2001; Kilic et al. 2009; Oseni & Winters 2011). Our finding that
pig producers who diversify their income suffer higher exposure to fluctuations in their average
pig production, is an indication that the second activities carried out by pig producers are often
spontaneous and transitory, generating irregular income. The results are in line with those of
Pandey & Pandey (2004). Our finding reveals interesting information vis-à-vis previous research.
The results show that although production inputs increase expected output, they are not
accountable for any fluctuations is expected pig production as argued in the literature (neither do
they decrease output variability).

4. Conclusion and recommendations

Agribusiness is very lucrative in Cameroon but production risks remain a major constraint in this
sub-sector. The aim of this study was to identify factors influencing average pig production and
output variability, as well as to explore determinants of production decision against the backdrop
of production uncertainty. Although both descriptive and econometric techniques revealed a
number of results, they all converge on the fact that pig producers become more risk averse when
exposed to production risk. Variable input use and income diversification were identified as the
main factors influencing expected production. Meanwhile, all factors posited to cause variability
in output were found to have no statistically significant effect, apart from activity diversification
that tends to increase output risk.

Due to imperfections in the credit and input markets, pig producers are predisposed to diversify
their income sources by engaging in a second economic activity and this generates positive
spillovers as the non-farm income facilitates investments have positive effect on average pig
production. As such, our paper corroborates claims of the importance of off-farm employment for
poor households. However, diversification in itself is not a silver bullet as it leads to higher
fluctuations in expected output. This is subject to the caveat that certain important environmental
variables have not been considered.

Based on the finding of this study, the following recommendations can be made:

1
In the literature, off-farm employment generally refers to economic activities other than crop and livestock production.
This is also sometimes called rural non-farm employment (RNFE) or off-farm income. However, the term as used in
our empirical analysis refers to “non-pig” production only.
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 • Better policies should be put in place to reduce and/or manage risk in agriculture and
agribusiness. Crop and livestock insurance can significantly increase investments in the
production of crops and livestock. Insured farmers are more likely to decide to keep
animals and thus allocate a larger share of their agricultural inputs to pig production.
• Policies that differentiate between various societal strata ought to be effective given the
differences in the preferences of the different groups as seen in the results above.
• Increasing access to credit and encouraging diversification through farm and non-farm
entrepreneurship are amongst measures that can help to boost production, notably via
providing credit-constrained producers with financial capital for investment in pig
production.
• Government input subsidies can be a useful way of boosting production should not only
enable production but also ensure the effects of risks from purchasing such inputs are
minimized.
• Enhancing the competitiveness of the agribusiness sector should also be an effective means
of making farmers/producers more risk friendly.
• The uptake/adoption and use of new technologies in production (which also depends on
agribusinesses’ risk preference) needs to be to strengthened as the effect of technology
adoption on pig production or output variability is yet to be felt.
• Proper education and information available to agribusinesses as to the sources of risks and
their expected consequences on the businesses will also enable these farmers to develop
risk-coping strategies to minimize these production risks.

Production risk leads to investment disincentive, timid technology adoption and low productivity.
For risk-averse producers, these problems are likely to persist unless adequate and appropriate
measures are taken to encourage investment and the use of new technologies in production. This
entails concerted efforts from the concerned stakeholders.

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