An Empirical Study on Financial Risks in Agriculture Sector of Bangladesh

Many countries’ agricultures sector has proven phenomenal production capacity to dominant the world agriculture supply yet one of the most challenging business sectors. It is struggling to attain an inclusive growth and all round development for decades. It involves multiple risk factors for the farmers, processors, intermediaries, suppliers, retailers and the firms originate that are to be managed. The descriptive study attempts to identify, evaluate, and explore the significant relationship between financial risk and sustainable agriculture industry.

This research chronologically demonstrates structured questionnaire across a few categories; also encompasses the influencing factors shaping the perception of farmers and agro business specialist through quantitative analysis. This research furnishes some independent variables which are identified through correlation and multiple regression method to show the significance level with appropriate strategies also to review and appraise their performance towards perception of agricultural sector; this can add value to the society as well as an exemplary research for prospective researchers. The study suggests the policy interventions needed to mitigate risk and sustain Bangladesh agriculture industry.

Agriculture plays a key role in Bangladesh’s economic growth. Overall economic development of the country is dependent on the development of agriculture sector. Due to a number of factors, Bangladesh’s labor-intensive agriculture has achieved steady increase in food grain production despite of unfavorable weather conditions. One of the major constraints that has been hindering sustainable growth and development of this sector is scarcity of fund amongst the poor farmers and others financial risks. This constraint can be overcome through proper form of policies to reduce risks and promote effective strategies.

This is a descriptive research. Descriptive research is used to illustrate characteristics of a population or phenomenon being studied There are different methods of researching on a topic (Experiment, Survey. Cross-sectional or Longitudinal study, History, Case study, Ethnography Action research, Narrative inquiry) and we heeded Survey Research technique here. This is a popular business/management research strategy. It allows the collection of quantitative data that can be examined through ‘Descriptive Statistics’. It is crucial to endorse that our sample is completely representative. This paper narrates an investigation of the financial risk factors that regulate agriculture and agribusiness in Bangladesh.

Non-probability purposive sampling method has been adopted to collect data for this study. In this regard, a questionnaire was devised with identified 15 variables that are associated in the agriculture sector industry by using five-point Likert scales rating from “strongly agree to strongly disagree”. Responses received from a focused group who are directly engaged with agriculture sector or agribusiness in Bangladesh. The sample size was 30 where respondents were from stakeholders of agribusiness, employees, farmers/producers, supplier/ retailer, financial managers of financial institutions; all responses obtained through personal interview, phone conversation and email. As per the objectives of the study, the following hypothesis is developed for testing: Figure-1: Summary of data collectionH0 (Null): There is no significant relationship between financial risks with a sustainable agriculture industry. H1 (Alternative): There is a significant relationship between financial risk for a sustainable agriculture industry.

There are fifteen variables derived from 15 questions which were designed for collecting data from the sample population. From the above chart it is cleared that most of the respondents strongly agreed and agreed with the identified variables. So there is a positive relationship with their opinion and variables. Correlation Analysis is used to show the strength of a relationship among identified variables. It defined the strength of relationship of variables into four categories in terms of directions :

1. Non-linear relationship,
2. Strong positive relationship,
3. Weak positive relationship.
4. Strong negative relationship.

The correlation coefficient can range in value from -1 to +1. The larger the absolute value indicates the stronger relationship between variables. From the data analysis it is found that variables are positively, negatively correlated with each other.

Interpretation of result: One of the variable direct selling has positive relationship with demand/ supply where showing negative relationship with credit facility. Thus by correlation analysis represented strength of relationship with other variables. Regression analysis is used to assess the association between or more independent variables and a single continuous dependent variable. To test the hypothesis, one way ANOVA has been used. For conducting this study there are two hypotheses with significance level, α=0.05; the hypothesis are - H0 (Null): There is no significant relationship between financial risks with a sustainable agriculture industry. H1 (Alternative): There is a significant relationship between financial risk for a sustainable agriculture industry.

The fundamental strategy of ANOVA is to systematically examine variability within groups being compared and also examine variability among the groups being compared. The null hypothesis in ANOVA is always that there is no significance relationship with means and alternative hypothesis contradict the null hypothesis.

Two ways can be followed to determine whether null hypothesis would be accepted or rejected. One is comparing by F-test value with critical value, if F- test value is greater than critical value that is F>sig.F , the null hypothesis would be rejected and another way is comparing P-values with Significance level , α=0.05; if P values are less than α=0.05 that is P < α=0.05 then null hypothesis would be rejected. Therefore, from the result determined by the regression analysis, it is found that the value of F =1.27 is greater than value Sig.F= 0.32 and all P values are greater than α=0.05, so the null hypothesis (H0) rejected and established alternative hypothesis (H1).

Prospective risk mitigation strategies: Mitigating financial risks from the agriculture sector are very challenging but the appearance rate can be lessened by forming proper and relevant crafts. The following artifices can play an indispensable role to alleviate or reduce risks from the agriculture sector. Such as:

• Avoiding susceptibility to risk
• Crop diversification and Intercropping
• Diversification of livelihood sources
• Appropriation of forwarding cropping techniques (fertilization, irrigation, resistant varieties)
• Buffer stock addition of crops or liquid assets
• Crop sharing casual risk pool (contract marketing, future marketing, insurance)
• Coping with concussions (Ex-post strategies; social assistance, social funds, government incentives, cash transfer
• Reducing risk by evolving in capacity building
• Fabricator and Agribusiness Client Aptitude
• Solution to overcome weakness and challenges

Farmer’s presence in the developing world is full of contingencies. The study has there is a meaningful relationship between financial risk and sustainable agriculture sector of Bangladesh. The research has fully defined the major financial risks and pinpointed the weights of them on farmers’ survival in Bangladesh. All those agricultural risks ought chronic and far-reaching adverse impacts on farmers’ life. State policy missteps in executing the agricultural risks and lack of known superintendence artifices have sparked the researchers to develop a process of bargaining the agricultural risk. The state should spend more consideration to these risks and continuation and field services should consider their obligations to manage the risks in the agriculture area.

Agricultural policy reform may be necessary to remove historical biases against agriculture, to help the sector become profitable, and sustainable. This effort must be supported by a strong legal and regulatory framework. Future superintendence diminishing financial risk from agriculture sector for:

• Developing information system – a critical component of most agricultural risk management strategies is access to information. Market information systems have positive influences on selling crops and livestock, helping producers to optimize prices received and better coordinate the timing of sales throughout the year. Weather information systems help farmers make decisive production and marketing decisions.
• Empowering rural financial services- having a financial practice in a resilient manner serving rural areas, is the best and sole most relevant program for letting effective risk management. Entrance to strong local savings institutions may allow growers to sell when the price is highest and purchase when it is lowest.
• Promoting market-based price risk management –Have to promote various mechanisms, such as buffer stocks and price bands, used to pursue price stabilization objectives. Governments may need to adopt an active role in facilitating the initial development of derivative markets, overcoming technical complexities, and ensuring that the concerns of the poor are adequately discussed.
• Targeting worth of cash transfers and safety net programs –Such programs fall into two levels – poverty protection nets to assure survival or reduce poverty, and transitional assistance programs that help producers conform to new market realities or production captivity. Cash transfer programs can yield significant extension benefits through income multipliers, stemming from an increased household investment.
• Experimenting new passageways to agricultural insurance –The potential to render effective insurance for rural producers is assuring, and it appears likely that new insurance products may ultimately become widely accessible and examined routinely by the private insurance industry. Field testing should be continued to assist the industry to develop and market insurance products valuable to poor farmers time to time.
• Highlighting disaster planning rather than release –Innovative invasions to address distinct disaster needs without compromising disaster risk-management manners either have not been contacted or have been designed poorly. These interferences need to be informed by sound technical analysis of how they can be better targeted, executed, and appraised as to their impact and sustainability.