Risk in agriculture and agricultural development: the role of public policy

Abstract

Agricultural incomes are subject to weather-induced variations, particularly in rainfed agricultural zones. It has been argued that the risk to agricultural income caused by the weather and other factors leads to several undesirable consequences regarding growth and social as well as spatial equity. Public policy in regard to agricultural development has made a number of agricultural development has made a number of risks. Simultaneously farmers living in these regions have evolved, over a period of generations, certain ways of coping with the risks to their incomes. This dissertation addresses three questions. An attempt has been made to understand the specific ways in which farmers adjust to risk to their incomes. Secondly, the efficiency of farmers’ decisions is examined. Finally, the role of public policy in order to encourage production of risky crops has been examined. (with specific reference to oilseeds crops). This research is based on primary data gathered through a survey of 58 farmers in Mehsana district of North Gujarat and 41 farmers of Bharuch district. Out of these 99 farmers nine were interviewed in depth and short case studies have been written based on these interviews. This research has attempted to use a combination of qualitative and quantitative methods of analyses. By obtaining subjective assessment of probability of occurrence of different weather states, cross-sectional production functions for nine crops have been estimated. Using these production functions and developing constraints regarding resources available to a farmer, a mathematical programming model was constructed for computing maximum feasible income given the resource constraints of the farmers. Subjective assessments of farmers have been used to estimate risks to their incomes. Using these estimates, the risk-minimization problem has been constructed to develop efficiency frontiers for the portfolio of crop and non-crop enterprises. The risk-minimization problem was then used for testing the impact of different policy measures. The major findings of the study are: large farmers are not technically efficient while medium and poor farmers earned incomes which are very close to the technically feasible maximum level; all the categories of farmers take more risks than necessary as per the risk minimization model; among the important mechanisms for coping with risk are sharing of water on produce sharing basis and reliance on community network; and, the poor and medium category of farmers seem to rely on dairying as the chief source of stable income. The central implication that follows from the study is that simultaneous expansion of edible oilseeds (rapeseed/mustard) production and maintenance of an intensive dairy are not compatible in a region characterized by inadequate irrigation. Policy measures necessary to remove this inconsistency are discussed. The methodology of using subjective perceptions of farmers in assessment of risk is seen to be feasible and useful. Inclusion of inputs to various ability of the model to describe the farmers’ behavior.