Makoka, D: Risk, Risk Management and Vulnerability to Povert

The results further show that vulnerability among the studied
households is exacerbated by low average consumption levels more than consumption
volatility.
The determinants of risk management strategies were analyzed using a multinomial
logistic regression model. The results have shown that drought, rising food prices and
illness are among the major shocks that the sampled households face, with crop
diversification being used as an ex-ante risk management strategy. Ex-post coping
strategies take the form of safety net programs, use of household assets and getting
support from social networks, among others. The major determinants of the choice of the
ex-post coping strategy among the studied households include the size of the household,
the number of economically active individuals in the household, per capita landholdings,
ownership of livestock, access to markets and the type of shocks that households face.
Consumption smoothing was analyzed using a household asset index due to
unavailability of household income data. A test for consumption smoothing was then run
by considering the impact of changes in the household asset index between 2004 and
2006 on changes in consumption. The results, which are robust to measurement error in
consumption expenditure, show that the studied households try to protect their
consumption from shocks, with food consumption being protected more than non-food
consumption. Further, poor households tend to protect their food consumption more than
the non-poor households. However, the study found no evidence of perfect consumption
smoothing.
The major policy implications are that poverty reduction programmes would be more
effective in rural Malawi if they do not only incorporate the currently poor but also the
vulnerable. Since the study has shown that the main source of vulnerability appears to be
low mean consumption levels among the studied households, social protection
programmes that take the form of productivity-enhancing safety nets, targeting not only
the poor but also the vulnerable would be effective to help them cope with shocks and
increase household mean consumption levels. Programmes that help rural households to
accumulate assets are also needed to help them cope with shocks. Further, promotion of
small and medium scale irrigation schemes as well as the use of weather insurance, as a
means of reducing the costs associated with crop failure, could be effective in dealing
with the major covariate shock, drought.