*2.6.2.3 Potential diversification of crop and livestock portfolios*

An efficient portfolio is either a portfolio that offers the highest expected return at a given level of risk, or one with the lowest level of risk for a given expected return. The majority of agro-pastoralists manage combinations of two crops and two livestock species. The paired combinations of crops and livestock were the basis for developing integrated portfolios through a permutation process. **Table 5** shows one crop-livestock portfolio (Sorghum, sunflower, cattle and goat) with highest returns at a less level of risk. As presented earlier, maize is the predominant enterprise. Maize-beans-cattle-sheep had the highest returns followed by millet-beans-cattle-chickens.


#### **Table 5.**

*Expected returns and risks of potential crop-livestock portfolios.*

Apparently, the high-return high-risk portfolio categories tended to include cattle and beans, which are high value commodities. However, these two commodities are sensitive to climatic shocks, especially droughts. Beans are the major source of food protein that are widely consumed and traded in both rural and urban areas of Tanzania. Beans from northern Tanzania are also exported to Kenya. Maize-green gram-goat-sheep and maize-millet-cattle-goat were the least-risk, lowest-return portfolios. Early maturing maize varieties, millet, and green gram are drought

tolerant and, hence, risk efficient. Likewise, goats are relatively less vulnerable than cattle. However, the downside risk associated with cattle is downplayed when this activity is part of the risk-efficient crop-livestock portfolios.
