Risk mitigation in agriculture are we asking the right questions
Sponsored Links
This presentation is the property of its rightful owner.
1 / 16

Risk Mitigation in Agriculture: Are we asking the right questions? PowerPoint PPT Presentation

  • Uploaded on
  • Presentation posted in: General

Risk Mitigation in Agriculture: Are we asking the right questions?. Sarthak Gaurav, Ph.D. Scholar, IGIDR ‘Risk Mitigation in Agriculture’ 11 th Aug, 2009, Ahmedabad. Returns from Farm and Off-farm Activity 2002-03.

Download Presentation

Risk Mitigation in Agriculture: Are we asking the right questions?

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript

Risk Mitigation in Agriculture: Are we asking the right questions?

Sarthak Gaurav, Ph.D. Scholar, IGIDR

‘Risk Mitigation in Agriculture’

11th Aug, 2009, Ahmedabad

Returns from Farm and Off-farm Activity 2002-03

Source: Calculated from unit level data NSS, 59th Round, Situation Assessment Survey of Farmers

Monthly Per Capita Income and Consumption by Size-Class of Holding: Cash-Flow Crisis

Agrarian Crisis

  • Deceleration in production and productivity

  • Waning profitability and poor returns

  • Limited off-farm opportunities

  • Marginalization of land holdings

  • Decline of public investment in irrigation and other infrastructure

  • Indebtedness to informal credit sources

  • Failure of research and extension


  • Do agricultural risks affect the risk averse farmers’ and farm households’ resource allocation & welfare?

  • Are the effects of risk and its management strategies heterogeneous?

  • Impact on decision making and behaviour?

  • Is variability of yield and prices a significant source of income risk ?

Green Revolution Blues

  • Crop production became more sensitive to weather (rainfall) and price changes since mid 60s

  • > 90% of increase in production variance at national level due to changes in inter-district production covariance (Walker 1989)

  • Area shifts to HYVs led allocation of ‘riskier and inferior’ land to other riskier crops where CV is high (also population pressure)

Growth and Instability

HYV/fertilizer/modern purchased input intensive farming

  • Higher income risk for the farmer:

  • Increase in Yield Variance (high CV)

  • Increase in Covariance of yields of different crops and regions

  • Decrease in area-yield correlation

People Respond to Incentives..Do Farmers?

  • Weaker supply response in last 50 years

  • Non-price factors dominate over price factors

  • Rabi crops respond better to P increases than Kharif

  • Adjustments by varying non-land inputs

  • Acreage shifts from food grains to non-food grains

  • High Regional Variations in Irrigation and Yield

Yield Risk- Price Risk Affair

Stage 1: farmers allocate land based on Pe

Stage 2: yield is determined on basis of other inputs, agro-climatic variables, bio-physical factors and farmer characteristics, given acreage

  • Yield depends on Price (inputs and output)

  • Negative Correlation b/w Yield and Price makes reduction in revenue variance difficult

Yield Risk, PriceRisk and Income in ICRISAT Villages (1975/76-1983/84)

Source: Anderson and Hazell 1989

Evidence on Yield Risk

  • Yield Variability > Price Variability by 4

  • Yield Variability Main Reason for Income Instability

  • In 49 out of 59 un-irrigated districts yield variation exceeds price variation (1956-1974 data) Walker and Ryan (1990)

  • Credit Market Imperfections interact with land and labour market imperfections

True Welfare Effects

  • Impact on Consumption (direct and indirect)

  • Non-separability of production and consumption decisions

  • Different impact on different categories of rural households- landless agricultural labourers and deficit farmers are worst off

The Risk Averse Homo economicus

  • Low income farmers are Risk Averse

  • This leads to inefficiency of resource use (MVP> Factor Price); sub-optimal decisions

  • Cropping Patterns to safeguard family security. Forget Profits; safety-expected profit tradeoff

  • Reduction of input levels (risky output, certain Input costs)

  • Laggards, Delays in Innovation and Adoption of New Tech

Measuring Risk Attitudes

  • Risk Aversion (Moscardi and de Janvry 1977, Dillon and Scandizzo 1978, Rosenzweig and Binswanger1993, Townsend 1994, Morduch 1995, …)

  • Direct Elicitation Methods/Experimental Gambling (Binswanger 1980,…);Disaster Avoidance (Roumasset 1976)

  • How close to real farming & real losses?

  • Do we factor in the constraints & interlinks?

Contingent Markets are Imperfect: Public Policy?

  • traditional Informal mechanisms fail in case of covariate shocks and disastrous losses

  • impose costs in terms of equity and sustainability

  • natural disasters/cats may trigger involuntary defaults

Innovations can add to the Risk!

  • increased input costs might depress net farm income

  • ‘worst-case’ gross output might go up, while ‘worst-case’ net farm income falls vis-à-vis traditional scenario e.g. Bt Cotton Seeds

  • profitability, land tenure and info asymmetry matters

  • changing technology and market conditions can add to uncertainties in product & factor markets

  • Login