Agriculture in the Semi-Arid Tropics (SAT) is almost universally characterized by low
farmer investment in agricultural inputs such as fertilizers, pesticides and seeds. Even
labor inputs and investments in land improvements and irrigation are usually low
compared with other regions of the developing world. Many researchers have carried
out research aimed at testing whether these low investment levels are partly or fully
caused by the risky nature of agriculture in these areas or by the risky nature of farmers
(Binswanger etal, 1979). Risk and risk aversion of farmers is not the only potential
source of low investment or “underinvestment”; it could also result from generally low
profitability (measured as expected returns) or from credit constraints. To establish that
it is risk or risk aversion that lead to underinvestment, empirical knowledge on these
questions is required.
Risks are inescapable in any agriculture.