Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 162
Livestock holdings in rural areas of the West African Semi-arid Tropics (WASAT) are often substantial yet there is little evidence for precautionary saving in the form of livestock out of transitory income. The present paper re-visits farm households' ability to smooth consumption ex post via savings in the form of livestock. Exploiting two comprehensive panel datasets covering Burkina Faso's 2004 drought, we find that livestock sales increase significantly in response to drought. Consistent with consumption smoothing, the motive frequently cited by households for these extra sales is the need to finance food consumption. Using deviations in rainfall to extract the transitory component of crop profit, we find evidence that shocks are nevertheless to a large extent passed on to consumption expenditure. In line with the literature, our results suggest that some consumption smoothing is achieved via adjustments to grain stocks while households apparently fail to smooth consumption by adjusting livestock holdings. We argue that this seemingly contradictory finding is largely due to a decrease in relative livestock prices during droughts. This suggests that selling livestock is a costly coping strategy which may be the reason that households rely on it only to a limited extent.
precautionary saving livestock risk and coping strategies price risk Africa WASAT