Type of risk

Farmers make decisions in a risky environment resulting from various sources mentioned below as suggested by (Hardaker et al., 1997) 16 :

1) Production Risk (Yield Risk): It comes from the unpredictable nature of the weather and uncertainty about the performance of crops or livestock, e.g. through the incidence of pests and diseases.

2) Price or Market Risk: Prices of farm inputs and outputs face high fluctuations which poses risk to the farmer for decision making on how much of which inputs to use or what and how much of various product to produce.

3) Institutional Risk: Changes in the rules by the government that affect farm production are another source of risk to the farmers.

4) Human or Personal Risk: Major life crisis such as death or prolonged illness of the farmer may themselves be a source of risk for the profitability of the farm business.

5) Financial Risk: It results from the sources through which the firm is financed.

6) Technical Risk:

Step of risk management

a. Identification of risky events,

b. Anticipation of the probable outcomes and their consequences,

c. Taking action to obtain a preferred combination of risk and expected returns,

d. Restoring the capacity of the producer to implement future risk planning strategies.