No.67 Ex-post Risk Management Among Rural Filipino Farm Households

This study investigated the factors affecting the choice of coping strategies by rural Filipino farm households in the face of both covariate (or systemic) and idiosyncratic shocks. The study, conducted by the Japan International Cooperation Agency Research Institute (JICA-RI) in 2010, surveyed farm households in villages from three provinces in the Philippines. Using a multivariate probit model, the effects of shock attributes (i.e. coverage, intensity, and frequency), as well as both household and village characteristics were analyzed. The study found that in general, rural farm households rely mainly on the strategy of dissaving/selling assets regardless of shock attributes. However, in the face of idiosyncratic shocks, there is a greater probability that these households would count on borrowing/transfer as a coping option, while in the case of more frequent covariate shocks, they are more likely to reallocate labor. The findings from this study suggest the importance of the following factors in mitigating vulnerability and enhancing resilience: helping the farmers diversify sources of income and redistributing land ownership, improving agricultural infrastructure, and developing social insurance and social networks. For that purpose, there is a need for continuous agrarian reform including support for improvements in the agricultural infrastructure as well as for the further development of social protection.

Keywords: Risk, vulnerability, coping strategies, covariate and idiosyncratic shocks, Philippines