Journal of Integrative Agriculture 2019, 18(2): 460–470

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ScienceDirect

RESEARCH ARTICLE

Maize production under risk: The simultaneous adoption of off-farm

income diversification and agricultural credit to manage risk

Shoaib Akhtar1, LI Gu-cheng1, Adnan Nazir1, Amar Razzaq1, Raza Ullah2, Muhammad Faisal1,
Muhammad Asad Ur Rehman Naseer2, Muhammad Haseeb Raza1

1
College of Economics & Management, Huazhong Agricultural University, Wuhan 430070, P.R.China
2
Institute of Agricultural and Resource Economics, University of Agriculture Faisalabad, Faisalabad 38000, Pakistan

Abstract
Farmers in Pakistan continue to produce maize under various types of risks and adopt several strategies to manage
those risks. This study is the first attempt to investigate the factors affecting the concurrent adoption of off-farm income
diversification and agricultural credit which the farmers use to manage the risk to maize production. We apply bivariate and
multinomial probit approaches to the primary data collected from four districts of Punjab Province in Pakistan. The results
show that strong correlations exist between the off-farm diversification and agricultural credit which indicates that the use of
one risk management strategy leads to another. The findings demonstrate that education, livestock number, maize farming
experience, perceptions of biological risks and risk-averse nature of the growers significantly encourage the adoption of
diversification as a risk management tool while farm size inversely affects the adoption of diversification. Similarly, in the
adoption equation of credit, maize farming experience, farm size, perceptions of price and biological risks and risk attitude
of farmers significantly enhance the chances of adopting agricultural credit to manage farm risks. These findings are
important for the relevant stakeholders who seek to offer carefully designed risk minimizing options to the maize farmers.

Keywords: maize, off-farm diversification, credit, multinomial probit, Pakistan

These risks include biological risks such as insects, pests

1. Introduction
Agriculture is a risk prone activity and a large number of
farmers in developing countries continue to operate under
uncertain and risk conditions (Akcaoz and Ozkan 2005).
Received 21 December, 2017 Accepted 12 March, 2018
Correspondence LI Gu-cheng, Mobile: +86-18986231362,
E-mail: lgcabc@mail.hzau.edu.cn
© 2019 CAAS. Published by Elsevier Ltd. This is an open
access article under the CC BY-NC-ND license (http://
creativecommons.org/licenses/by-nc-nd/4.0/)
doi: 10.1016/S2095-3119(18)61968-9
and diseases; climatic risks such as droughts and floods;
price risks such as uncertainties in input and output prices,
and financial risks such as unavailability of timely credit
and fluctuations in interest rate, etc. (Saqib et al. 2016a;
Thieken et al. 2016; Zulfiqar et al. 2016). Although farmers
only manage some part of the production process, the risk
management at farm level is highly important because the
inability to cope will result in loss of incomes and livelihoods
for millions in the developing countries (Zulfiqar et al. 2016).
In addition, every other decision maker in the agricultural
supply chain has to face risks in their decision-making
(Jones et al. 2012; Garrett et al. 2013). However, currently
the farmers in developing countries have a lower capacity
to manage agricultural risk at farm levels.
 Shoaib Akhtar et al. Journal of Integrative Agriculture 2019, 18(2): 460–470
Past research has shown that farmers are very vigilant
about the enterprises which involve high investments,
high risk in expected output, and demand extra measures
to avoid production failures (Adebusuyi 2004; Alderman
2008; Almadani 2014). These farmers adopt a number
of risk management strategies to reduce risk. The risk
coping strategies adopted by farmers can be divided into
two categories: (1) formal strategies (2) informal strategies.
The formal strategies are provided by the public institution
and these may include agricultural credit, crop insurance
schemes, price stabilization policies, information systems,
and input subsidies. Informal strategies, on the other hand,
are mostly adopted at the farm level and these may include
diversification of income, precautionary savings, selling-
off assets, and crop diversification, etc. (Kurukulasuriya
and Rosenthal 2003; Santeramo et al. 2014; Saqib et al.
2016a, b).
Like many other developing countries, agriculture plays
a key role in the socio-economic development of Pakistan.
However, Pakistani farmers face a variety of agricultural
risks, e.g., production risks, market risks, and financial
risks (Abdullah et al. 2015). The existence of these risks
has led the producers to adopt numerous risk management
strategies. These strategies include both the ex-ante and
ex-post risk management strategies (Walker and Jodha
1986; Barrett et al. 2001; Singla and Sagar 2012).
After wheat and rice, maize is the third most important
cereal crop in Pakistan. Most of the maize production
comes from hybrid maize which has offered significant yield
increases to farmers over the past two decades. However,
the significant gains in maize production have not translated
to increased incomes for farmers in Pakistan. The maize
farmers continue to face a variety of risks which include
price or market risk (Musser and Patrick 2002; Zulfiqar et
al. 2016), climate and biological risk (World Bank 2011),
financial risk (Musser and Patrick 2002; Akhtar et al. 2018).
The price or market risk is a consequence of uncertainty
about prices and quantities of inputs and outputs at the time
that production decisions are taken (Musser and Patrick
2002; Adnan et al. 2018). Climate risk arises from variability
in temperature and rainfall as well as due to extreme
events (World Bank 2011). The biological risk is faced by
farmers because of pests, diseases and contamination
(World Bank 2011). Financial risk is related to the ability
of paying back the borrowed funds along with the interest,
to have enough finance to continue farming, and to avoid
bankruptcy (Musser and Patrick 2002; Akhtar et al. 2018).
Financial risks stem from insufficient credit facilities available
to farmers. The small farmers are often forced to get credit
from local agents (arthis) who charge very high interest
rates on inputs purchased by the farmers. In addition, these
informal credit arrangements also bind the farmers to sell
461
their products only to the local agents who offer them lower
prices than the market prices.
Among many others, off-farm income diversification is
one of the best risk management strategies in agriculture,
which is used for managing the production risk and income to
ensure the stability of the farmers (Velandia et al. 2009; Ping
et al. 2016). Himanshu et al. (2011) stated that involvement
in off-farm activities that generate more income is necessary
for the progress of agriculture and to minimize the production
risk, particularly in the countryside areas. To manage the
multidimensional risks, agricultural household use income
or livelihood diversification techniques at the farm level
(Hussein and Nelson 1998), which include working and
investing in off-farm jobs and businesses to promote the
agriculture (Tangermann 2011). Due to diversified income,
the farmers might be able to get steady income and avoid
selling their product at minimum prices (Ullah and Shivakoti
2014).
Agricultural credit is yet another essential measure
to reduce/minimize the agriculture risk. The agricultural
credit also has a significant impact on farmer’s production,
income, and food security, particularly for those who are
vulnerable to heavy rains, thunder storms, pest and insect
attacks, and other natural hazards. Several studies have
explored the role of agricultural credit in agriculture and
livestock production in Pakistan and found that credit plays
a significant role in increasing farm productivity as well as
livestock production (Romney et al. 2003; Fayaz et al. 2006;
Akram and Hussain 2008; Burki and Khan 2008; Abedullah
et al. 2009; Ayaz et al. 2011).
Due to the existence of heavy risk in maize production,
it is important to know how farmers perceive these risks,
how they are coping with these risks, and what strategies
are the best suited for them. Particularly, it is unknown
whether a correlation exists between these risk management
decisions. Therefore, this study aims to explore farmers’
attitude and perception toward risk and their choice of off-
farm income diversification and agricultural credit as the risk
management strategies.
2. Data and methods
2.1. Sampling framework and study area
The present study focuses on concurrent adoption of
agricultural credit and off-farm income diversification as
management strategies to cope with farm-related risk among
hybrid maize growers in rural Punjab, Pakistan. Through
a farm household survey, primary data were collected
between September and November in 2016. The required
sample households for data collection were selected using
multistage random sampling technique. In the first stage,
462 Shoaib Akhtar et al. Journal of Integrative Agriculture 2019, 18(2): 460–470
Punjab Province was purposively selected for the study.
The main criteria for selecting Punjab Province as the
study area include that: i) Punjab shares 53% of the overall
agriculture GDP and 74% for the entire cereal production of
the country (Akhtar et al. 2018; Abid et al. 2015); ii) 81.3% of
the total hybrid maize crop, and all of spring hybrid maize is
produced in Punjab Province only (GOP 2016b). The main
focus of the paper is on maize farming. Maize is grown all
over the country, however, major areas include districts of
Faisalabad, Okara, Chiniot and Sahiwal. Therefore, these
districts were selected purposively in the second stage.
In the third stage, one village in each selected district is
randomly selected for data collection. In the fourth stage, a
total of 400 hybrid maize respondents are randomly selected
using the below equation as suggested by Yamane (1967).
N (1 if growers adopt agricultural credit as a risk management
n= (1)
1+Ne2
Where, n=sample size in each village; N=total number
of farming households in a village; e=precision which is set
at 15% (0.15).
2.2. Types of risk
Four main types of risk are involved in maize production:
Price risk Fluctuation in input and output prices, losses
and below average profit.
Biological risk Related to insects, pests, and other
biological crop diseases.
Climatic risk Related to income losses borne by
growers due to crop failure, heavy rain, wind, temperature
fluctuations, lodging of crops, and low yield of the crop.
Financial risk Related to the fluctuation of interest rate,
unavailability of production loan.
2.3. Management strategy
The study considered two dominant risk management
strategies are prevailing in the study area, i.e., off-farm
diversification of income and use of agricultural credit.
Diversification of off-farm income has been used as a
basic approach to managing the risk since mankind started
farming (Tangermann 2011). Choice of diversification of
off-farm income is the best management strategy for risk
managing (Ullah and Shivakoti 2014). By diversifying
their income, farm household smoothes their income and
minimize the shocks related to farming. In the current
study, hybrid maize growers also used off-farm income
diversification as a risk management tool. We used the
off-farm income diversification as a binary variable in our
model (1 if farmers adopt off-farm income diversification as
a risk management strategy, and 0 otherwise).
Agricultural credit plays a vital role in rural economy
commercialization and in agricultural modernization
(Abedullah et al. 2009). Farmers also use agricultural credit
as a risk management tool and it has a positive impact on
farm production (Skees 1999). The adoption of agriculture
credit also has a positive impact on farmers’ income and
risk management (Ullah and Shivakoti 2014; Abdullah et al.
2015; Saqib et al. 2016a). For instance, when the business
goes down, the credit is proved to be the best tool to liquidate
the business (Anderson 2003). In our model, agricultural
credit is used as the dependent variables. Although,
agricultural credit may have several uses in the farming
sector, yet in this study its value depends on the maize
grower’s decision to use credit as a risk management tool.
We used agricultural credit as a binary variable in our model
tool, and 0 otherwise).
2.4. Estimation procedure
Bivariate probit approach The impacts of various factors
on the adoption of the two risk management strategies are
assessed using a bivariate probit model. The bivariate probit
model is described below:
Yij=xijβj+εij (2)
Where, Yij (j=1, ..., m) represents risk coping options.
Here, m=2, i.e., management strategies adopted by the ith
farmer (i=1, ..., n), xij is a 1×k vector of the observed variable
that affects the decision of risk management strategies, βj
is a k×1 vector of unobserved parameters which are to be
estimated and εij is unknown error term. In this condition,
each Yj is a binary variable, and thus eq. (2) is a system of m
equations (m=2) to be estimated (Ullah andShivakoti 2014):
Y1*=α1+Xβ1+ε1
Y2*=α2+Xβ2+ε2 (3)
Where Y1* and Y2* are two latent variables underlying
each of the risk managing decision such that Yj=1 if Y*j>0;
otherwise 0. The conditional marginal effects of the bivariate
probit model have also been figured out. The explanation
of the marginal effects then refers to a reference variable.
Where the marginal effect of an explanatory variable
illuminates that what fraction will change the probability that
reference variable is taking part in dependent variables if
a value of that explanatory variable is augmented by one
unit (Adnan et al. 2018).
Multinomial probit approach In addition, the multinomial
probit approach was also used to examine the impact of the
independent variables on the adoption of a combination of
risk management strategies. Four possible combinations
of these management strategies are used as dependent
variables in the multinomial probit model (Velandia et al.
 Shoaib Akhtar et al. Journal of Integrative Agriculture 2019, 18(2): 460–470
2009; Ullah andShivakoti 2014). There are four possible
combinations: (1) Using no risk management strategy, (2)
adopting off-farm income diversification only, (3) adopting
agricultural credit only and (4) adopting both strategies
concurrently (off-farm income diversification and agriculture
credit).
Following model can describe multinomial probit
approach:
Yi=Xi β+εi (4)
Where, Y i indicates the risk management strategy
combination (Yi=1, ..., m) which the ith farmer (i=1, ..., n)
chooses; Xi is a 1×k vector of the observed variable that
affects the risk managing combinations chosen by hybrid
maize growers, β is a k×1 vector of unknown parameters to
be estimated, and εi is the error term which is unobserved.
To estimate the unidentified parameters, maximum likelihood
method is applied using eq. (4).
2.5. Variables used in the analysis
Socioeconomic factors Past research shows that
numerous socioeconomic factors influence the choice of
risk management strategies. For instance, if the age and
farming experience of a farmer increases, farmers are more
likely to adopt risk management tools (Dadzie and Acquah
2012; Lu et al. 2012; Abdullah et al. 2015; Ullah et al. 2015;
Saqib et al. 2016a). Education has also a substantial impact
on the concurrent adoption of off-farm diversification and
agricultural credit as a risk management strategy because
educated farmers manage the farm related activities more
wisely than uneducated farmers (Deressa et al. 2010;
Kouamé 2011). Likewise, farming experience has a
constructive impact on the adoption of risk management
strategy (Abedullah et al. 2009; Velandia et al. 2009; Saqib
et al. 2016a). In addition, the number of livestock holding
and landholding size also have an impact on the choice of
risk management strategies (Iqbal et al. 2016).
Risk perception Farmers face various risks in maize
production and these hazards include climatic risk, market
risk, biological risk, and financial risk. To measure their
risk perception about these four types of risk, farmers were
asked to score the severity and incidence of each risk source
on a Likert scale of 1–5 (1 being very low and 5 being very
high). After that, the risk factor (RF) was calculated by
summing the consequence (c) and likelihood (P) (Cooper
2005). Rosenberg et al. (1999) and Cooper (2005) framed
a risk matrix (Fig. 1) using the risk factor, and this RF
score was further classified as low if RF score is between
2 and 5, and high if RF score is between 6 and 10 (Ullah
and Shivakoti 2014). The variable of risk perceptions thus
generated is a binary variable (1 if farmers considered a risk
as high for maize crop, and 0 otherwise).
463
5 6 7 8 9 10
4 5 6 7 8 9
Incidence
High
3 4 5 6 7 8
Low
2 3 4 5 6 7
1 2 3 4 5 6
1 2 3 4 5
Severity
Fig. 1 Risk matrix.
Risk attitude An equally likely certainty equivalent (ELCE)
model was used to figure out the behavior of farmers
toward risks. Certainty equivalents (CEs) were derived for
a sequence of risky outcomes and then matched with utility
values (Binici et al. 2003). For example, the farmers were
asked to place a monetary value to a certain outcome that
made them indifferent for a choice amid two risky outcomes
such as total PKR 80 000 (total annual household income)
and PKR 0 with same probability (in this example the utility
related to PKR 80 000 is 1, and PKR 0 is 0). Suppose
that the farmers place a monetary value of PKR 41 000;
this is the CE of the farmers for the income level of PKR
80 000 and PKR 0 with equivalent chances. The farmer was
once more enquired to state the monetary values of a sure
outcome that make him indifferent between the two risky
outcomes of PKR 41 000 and PKR 0 with equal probability.
This process continued till appropriate data points were
identified. The parallel process is exercised for the other
half of income distribution to get the CE and match them
with utility values. The farmer’s response to PKR 41 000
is the CE for uncertain payouts of PKR 80 000 and PKR 0
with equal probabilities (0.5 each) and utility values for this
CE is calculated as:
u(41 000)=0.5u(0)+0.5u(80 000)=0.5(0)+0.5(1)=0.5
After finding quite a few certainty equivalents and
matching them with utility values, a cubic utility function
was applied for assessment of the utility of each individual
respondent. The equation of cubic utility function is given as:
u(w)=α1+α2w+α3w2+α4w3
This cubic utility function is related to risk aversion, risk
preferring, and risk indifferent attitudes (Binici et al. 2003).
The utility is frequently estimated on an ordinary scale,
though the shape of utility function on an ordinary scale can
be transmuted into a quantitative measure of risk aversion
called absolute risk aversion (Arrow 1964; Pratt 1964;
464 Shoaib Akhtar et al. Journal of Integrative Agriculture 2019, 18(2): 460–470

Raskin and Cochran 1986). The absolute risk aversion is
arithmetically written as:
u´(w)
ra(w)=–
u´´(w)
ra(w) is a parameter of absolute risk aversion, u´ and
u´´ are first and second order derivatives of wealth (w),
respectively. Following Olarinde et al. (2007), income is
substituted for wealth. If the individual is risk averse, then
the coefficient of absolute risk aversion is positive, it is
negative if the individual is a risk-taker, and zero if individual
is indifferent to risk. The risk attitude of the farmers thus
calculated is included in the model as 1 if individual reflects
risk-averse nature, and 0 otherwise.
3. Results and discussion
3.1. Descriptive statistics of the variables
The descriptive statistics of the variables used in the analysis
are provided in Table 1. Two types of variables were used
in the analysis, i.e., discrete choice dummy variables and
the continuous variables. The results divulge that mean
age of hybrid maize farmers was 45 years with 7 years of
average educational background. On average, farmers had
12 years’ experience of maize farming. The mean farm size
in the study area was found to be 33 acres. An average
livestock size was 6.93 livestock heads in the study area.
Analysis also showed that about 79% of the farmers showed
risk-averse behavior as they were not ready to embark upon
any type of opportunity that involves any type of risk. Ellis
(2000) studied farmers’ decision related to farm production
by using income approach and defined risk-averse attitude
as, “A person is described as risk averse if he prefers a
situation in which a given income is certain to a situation
yielding the same expected value for income but which
involve uncertainty”. Similar to what is also reported by
Dadzie and Acquah (2012), our results indicated that risk of
high input prices was the most perceived risk by more than

Table 1 Descriptive statistics of variables used in the analysis

Variables Mean SD Description
Dependent variables
Bivariate probit model
Diversification (binary) 0.49 0.50 Dummy takes the value 1 if off-farm, 0 otherwise
Agriculture credit (binary) 0.42 0.49 Dummy takes the value 1 if credit access, 0 otherwise
Multinomial probit model
No strategy (Base outcome) (binary) 0.11 0.39 Dummy takes the value 1 if no strategy uses, 0 otherwise
Off-farm diversification only (binary) 0.23 0.45 Dummy takes the value 1 if only off-farm, 0 otherwise
Agriculture credit only (binary) 0.21 0.42 Dummy takes the value 1 if only credit access, 0 otherwise
Both (ii) and (iii) simultaneously (binary) 0.45 0.48 Dummy takes the value 1 if credit and off-farm, 0 otherwise
Explanatory variables
Farm and farm household characteristics
Age (year) 44.77 9.93 Continuous
Education (year) 6.89 4.02 Continuous
Livestock (number) 6.93 7.33 Continuous
Maize experience (year) 12.20 5.45 Continuous
Maize farm size (acre) 33.32 33.93 Continuous
Risk perceptions
Price risk (binary) 0.79 0.41 Dummy takes the value 1 if price risk value above 5, otherwise 0
Climate risk (binary) 0.69 0.46 Dummy takes the value 1 if climate risk value above 5,
otherwise 0
Biological risk (binary) 0.72 0.45 Dummy takes the value 1 if biological risk value above 5,
otherwise 0
Financial risk (binary) 0.61 0.49 Dummy takes the value 1 if financial risk value above 5,
otherwise 0
Risk attitude
Risk aversion (binary) 0.78 0.42 Dummy takes the value 1 if farmer has risk averse behavior,
otherwise 0
Combination of different management strategies No. Percentage (%)
Off-farm income+Credit 180 45
Off-farm only 92 23
Credit only 84 21
No strategy 44 11
Total 400 100
Authors' calculation based on own survey data during September–November 2016.
 Shoaib Akhtar et al. Journal of Integrative Agriculture 2019, 18(2): 460–470 465

three fourth of the hybrid maize farmers while the financial
risk was least perceived by hybrid maize farmers. About
69% perceived the climate risk whereas biological risk was
perceived by 72% farmers (Table 1).
3.2 Estimated parameters of bivariate and individual
probit models
The estimated coefficients of both the bivariate and individual
probit models are shown in Table 2 for comparison. The
signs and significance of the coefficients in both models are
similar. However, the likelihood ratio test of ρ is significant
and positive (1.77) with a significant Wald Chi-squared test
value (66.34) that allows us to reject the H0 of conjoint nullity
of the variables included in the estimation. The results show
that the factors significantly affecting the adoption of off-farm
income diversification as a risk management tool include the
education, number of livestock heads at farm, maize farming
experience of the farmers, the maize farm size, farmers’
perception of biological risk, and the risk aversion attitude
of the farmers. Although the variable of farmer’s age is not
statistically significant, yet the outcomes of both the bivariate
and individual probit model propose that the more aged
farmers do not resort to the adoption off-farm income as a
promising risk management strategy. The risk aversion may
grow with age, and the older farmers may tend to choose
less risky investments by adopting more risk management
strategies. However, our results indicate otherwise and
are in line with other studies (Ashfaq et al. 2008; Mesfin
et al. 2011; Ullah et al. 2015; Lu et al. 2017), where age
was found to have a negative effect on the adoption of risk
management strategies. Similarly, Jensen and Pope (2004)
and Velandia et al. (2009) found a negative relationship
of age with various risk management strategies, i.e., crop
insurance, forward contracting, precautionary savings and
spreading sales.
The education of farmers has a positive and significant
effect on the farmers’ decision to adopt off-farm income
diversification as risk management tool. These results are
in line with previous studies which also found a positive
relationship between education and adoption of risk
management strategies (Ashfaq et al. 2008; Kouamé 2011;

Table 2 Estimated parameter of bivariate probit model for off-farm diversification and credit
Explanatory Bivariate probit approach Individual probit approach Marginal effects
variables Diversification Credit Diversification Credit Diversification Credit
Age –0.0122 –0.0123 –0.0122 –0.0124 –0.0043 –0.0047
(0.0081) (0.0080) (0.0081) (0.0080) (0.0029) (0.0030)
Education 0.0445** –0.0178 0.0442** –0.0180 0.0157*** –0.0068
(0.0176) (0.0172) (0.0176) (0.0172) (0.0061) (0.0064)
Livestock number 0.0409*** 0.0095 0.0409*** 0.0095 0.0145*** 0.0036
(0.0096) (0.0094) (0.0096) (0.0094) (0.0032) (0.0035)
Maize farming 0.0502*** 0.0274* 0.0502*** 0.0274* 0.0178*** 0.0103*
experience (0.0157) (0.0150) (0.0158) (0.0150) (0.0054) (0.0056)
Maize farm size –0.0105*** 0.0069*** –0.0104*** 0.0069*** –0.0037*** 0.0026***
(0.0025) (0.0022) (0.0025) (0.0022) (0.0008) (0.0008)
Perception of 0.1593 0.2038** 0.1563 0.2025** 0.0555 0.0761**
price risk (0.1651) (0.1020) (0.1650) (0.1014) (0.0584) (0.0606)
Perception of 0.1837 0.0872 0.1824 0.0874 0.0648 0.0329
climate risk (0.1460) (0.1438) (0.1460) (0.1438) (0.0515) (0.0540)
Perception of 0.0407** 0.0118* 0.0416** 0.0113* 0.0148** 0.0042*
biological risk (0.0107) (0.0131) (0.0140) (0.0125) (0.0136) (0.0101)
Perception of 0.0582 0.0960 0.0600 0.0931 0.0213 0.0350
financial risk (0.1367) (0.1341) (0.1367) (0.1340) (0.0485) (0.0503)
Risk aversion 0.2203** 0.0121*** 0.2204** 0.0125** 0.0783** 0.0047***
attitude (0.1023) (0.0054) (0.1122) (0.0058) (0.0573) (0.0051)
Log likelihood –510.54 –262.548*** –262.548**
LR test χ2(10) – 56.410 18.480
Pseudo-R2 – 0.10 0.03
Wald χ2(20) 66.34*** – –
LR test of ρ=0, 1.77* – –
χ2(1)
Correlation 0.4056***
coefficient
Total respondents 400
Data in parentheses are standard errors. *, ** and *** represent statistical significance at 10, 5 and 1% level, respectively.
Authors calculation from own survey data during September–November 2016.
466 Shoaib Akhtar et al. Journal of Integrative Agriculture 2019, 18(2): 460–470
Ullah et al. 2015; Ping et al. 2016; Saqib et al. 2016a).
However, this result is in contrasts with the findings of
Mesfin et al. (2011) who found that more schooling levels
discourage farmers from adopt diversification to manage
farm income variability. Farming experience also has a
positive and significant impact on the farmers’ choice to
adopt off-farm income diversification as risk management
tool. This result is in line with Ashfaq et al. (2008) and Ullah
et al. (2015), but different from Ping et al. (2016). The results
also show that number of livestock heads at the farm has
a significant and positive effect on the adoption of off-farm
income diversification as a risk management tool. This
result might be because the possession of more livestock
by a farmer is also an indicator of wealth and socioeconomic
status, and being a liquid asset, the livestock can act as a
buffer to offset the unexpected weather or climatic shocks.
For instance, the farmers who have more livestock at the
farm are in a better position to cope with risks experienced
on farm and off farm. They can finance their emergency
cash needs by selling-off their livestock instantly. Hence,
the farmers having more livestock at their farms are more
likely to adopt the off-farm income diversification as a risk
management tool.
The results further indicate that maize farming experience
is a key factor that significantly influences not only the off-
farm income diversification but the credit participation as
well. This relationship is positive, and it may be because
the more experienced maize farmers are well-aware of the
risks they might encounter during maize production. Also,
the skilled growers may have more social contacts, and are
familiar with the ways to obtain agricultural credit. Finally,
the area under hybrid maize cultivation (i.e., the maize farm
size) also positively affects the farmers’ decision to adopt
off-farm diversification and credit. A similar relationship
between these variables was found by Ping et al. (2016). In
the context of credit, this result might be because the large
farmers must fix the large capital in maize production, and
they need funds to cope with the related risks. Therefore,
the choice of credit as an ex-post risk management strategy
is higher for large farmers as compared to small farmers.
In theory, the perception of all four types of risks
considered in this study should encourage an improved
adoption of risk management strategies. For instance, the
climatic and biological risk may lead to crop failure and have
a key impact on the livelihoods of the farmers. These risks
alter farmer income and they should encourage the use of
off-farm diversification. The financial risk, and the price risk
can also lead to reduced incomes for farmers either due
to high input prices, or the lower output prices. However,
our findings reveal that the perception of biological risk is
the most important factor that encourages the adoption
of off-farm income diversification as a risk management
tool. This implies that perceptions of other types of risk
such as price risk, the climate risk are not strong enough
to change the behavior of sampled farmers. For the
adoption of credit as risk management tool, the significant
factors are the perception of price risk and perception of
biological risk. Since the price risk is closely related to
the financial risk, therefore, this result is plausible in the
context of credit adoption. Farmers who perceive price
risk are more likely to obtain agricultural credit to manage
this type of risk. In addition to the perception of the various
type of risks, the risk aversion attitude of farmers has
a significant and positive effect on the adoption of off-
farm income diversification and agricultural credit as risk
management tools. This implies that the more risk averse
a farmer is, the more he or she is likely to adopt these
risk management strategies. This result is in line with
previous studies (Kouamé 2011; Ullah and Shivakoti 2014).
The bivariate probit approach allows us to calculate the
conditional marginal effects (i.e., marginal effects conditional
on the adoption of the other risk management tool) while
the individual probit approach does not allow such
calculation (Velandia et al. 2009).
Table 2 indicates the frequency and percentage of
farmers using these four risk-reducing combinations. These
results show that the most common risk management
strategy used by farmers (about 45% farmers) is the
combination of off-farm income diversification and credit.
3.3. Parameter estimates of multinomial probit model
There is always the choice that a farmer will use more
than one risk management tool or a combination of risk
management strategy concurrently. This research considers
two risk management tools - off-farm diversification and
agricultural credit, therefore, four combinations of risk
management tools are possible. Farmers will select only
one combination out of the existing four combinations of risk
management strategies.
Table 3 shows the estimated coefficient from the
multinomial probit approach for different risk management
combinations. The findings of multinomial probit model are
different from the bivariate probit results discussed above.
This is because in the multinomial model, the focus is on
the combinations of the risk management tools, and thus
the different results. For instance, the age of the farmer is
significantly and negatively related to off-farm diversification
in the multinomial probit approach; yet, the effect of this
factor is not significant in the bivariate probit approach. Also,
the perception of financial risk is negative in the multinomial
model while it had a positive impact on the adoption of off-
farm diversification in bivariate probit approach. However,
similar to the results of the bivariate model, the effect of
 Shoaib Akhtar et al. Journal of Integrative Agriculture 2019, 18(2): 460–470 467

Table 3 Estimated parameter of multinomial probit model for off-farm diversification and credit
Explanatory variables Diversification Credit Diversification and credit
Age –0.0207* –0.0225* –0.0281**
(0.013) (0.0131) 0.0137
Education 0.0249 –0.0499* 0.0402
(0.027) (0.0293) (0.0298)
Livestock Number 0.0507*** 0.0154 0.0622***
(0.015) (0.0168) (0.0165)
Maize farming experience 0.0883*** 0.0673*** 0.0909***
(0.024) (0.0248) (0.0271)
Maize farm size –0.0080** 0.0103*** –0.0053
(0.004) (0.0034) (0.0044)
Perception of price risk 0.6524** 0.8247* 0.9434**
(0.0511) (0.0026) (0.1828)
Perception of climate risk 0.4468* 0.7668** 0.5301*
(0.0012) (0.1365) (0.0508)
Perception of biological risk 0.0308*** 0.0198** 0.0422***
(0.0043) (0.001) (0.0021)
Financial risk –0.0763 0.0779 0.0993
(0.2140) (0.2240) (0.2332)
Risk aversion attitude 0.2223** –0.0406** 0.4856***
(0.0132) (0.0100) (0.0251)
Log likelihood value –506.3331
Wald χ2(30) 72.76***
Total respondents 400
Data in parentheses are standard errors. *, ** and *** represent statistical significance at 10, 5 and 1% level, respectively.
Authors' calculation based on own survey data during September–November 2016.

financial risk perception is not significant in the multinomial
model. Likewise, the coefficient of farmer’s age is marginally
significant (α=10%) in predicting the choice of agricultural
credit in the multinomial model, however, it was insignificant
in the bivariate probit approach. The risk-averse attitude of
farmers has a negative impact on the adoption of agriculture
credit in multinomial probit model, while it is positive in the
bivariate probit approach.
The findings of multinomial probit estimates, especially
those related to the combination of off-farm diversification
and credit, require further discussion since it is the most
common risk management strategy used by most farmers
in the study area. According to the results, education, total
livestock holding and maize farming experience are the
factors that encourage the use of off-farm diversification
and agricultural credit concurrently.
In addition, the perception of all risk sources, except for
financial risk, have a positive impact of concurrent adoption
of off-farm diversification and agricultural credit. The risk-
averse behavior also has positive impact on the concurrent
adoption of these risk management strategies.
Previous studies have also documented a similar effect
of these explanatory variables on grower’s decisions of
using risk management strategies in such a combination
(Kouamé 2011; Ullah and Shivakoti 2014; Ullah et al. 2015;
Zulfiqar et al. 2016; Lu et al. 2017). Substantial perceptions
of risk and risk-averse behavior of the hybrid maize growers
force them to use sophisticated risk managing strategies to
lessen different type of risks related to the maize production.
The use of bivariate and multinomial probit approaches
give richer insights and better understanding of the process
of decision making regarding risk management at farm level.
Using multiple risk management tools at the same time is a
common practice among the farming communities. However,
there is a dearth of literature on simultaneous adoption of
the available risk management tools particularly for hybrid
maize farmers. The bivariate probit model provide useful
information on the simultaneous adoption of the given risk
management tools along with the impacts of independent
variables. The multinomial probit approach, on the other
hand, provides useful insights into the effects of independent
variables on the combinations of risk management tools.
The findings revealed that the behavioral factors, i.e., risk
perceptions and attitude play key role in farmers’ decisions of
adopting risk management tools at farm level and therefore
should be given due to consideration in all future studies
and in the risk management policies for farmers.
4. Conclusion
The current study uses primary data of 400 hybrid maize
growers from rural Punjab in Pakistan to discover the
concurrent adoption of off-farm income diversification and
agricultural credit. The results indicate that the adoption
of one risk management strategy may make it more likely
that a farmer will choice the other tool at the same time. In
468 Shoaib Akhtar et al. Journal of Integrative Agriculture 2019, 18(2): 460–470
addition, study also investigates the attitude and perception
of farmers toward risk. The application of both the bivariate
and the multinomial probit model delivers more evidence
and a better understanding of farmers’ behavior toward
the concurrent choice of risk management tools. The risk
management strategies chosen by farmers will not only
have a prime importance for farm performance, but will also
influence the structure of the agriculture sector in the future.
Although the study was restricted to just four districts, the
findings can be generalized to more areas, mainly where
formal/state-owned risk management strategies such
as crop insurance are either absent or inefficient. The
findings from the bivariate and multinomial probit models
are especially important for policy makers, who should be
able to anticipate farmers’ adoption behavior more precisely,
and for agricultural extension agents, who can improve
their programs by focusing those growers who have higher
demand for risk management information.
Acknowledgements
This research work is financially supported by the National
Natural Sciences Foundation of China (71473100 and
71461010701).
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