Economic Costs of Managing Climatic Risks in Agriculture: Evidences from Khyber Pakhtunkhwa Province of Pakistan

Exposure of agriculture to natural environment makes this sector more vulnerable to climate changes and climate induced risks including rising temperature, changes in rainfall patterns, floods, droughts and heavy rains etc. Farmers adopt available risk coping tools to minimize the impacts of such risks at farm level however, these adoptions require farmers to incur cost or forgo part of the potential benefits from agricultural production. These costs (explicit or implicit) are referred to as the cost of risk management. Previous studies on risk management in agriculture however have ignored such costs. The present study is therefore designed to investigate how adoption of risk coping tools affect farm productivity in Khyber Pakhtunkhwa Province of Pakistan. 330 wheat growers were selected using multistage sampling technique and Analysis of Variance was used to compare the average wheat yield of farmers using different combinations of the two risk coping tools namely, off-farm diversification and precautionary savings. The results suggested that adoption of risk coping tools, particularly the simultaneous adoption of multiple tools at the same time, significantly reduced wheat yield. The research suggested that future studies should identify ways to minimize such costs associated with risk management at farm level.