1. Name of the scholar : Alka Swami
2. Title of the Research work : Agricultural Risk Management in
3. Introduction:
Agriculture is backbone of Indian Economy but it is subject to a great many uncertainties.
Yet, about 75 per cent people (either self employed or as agricultural labour) in
The criticality of agriculture in the rural transformation and the national economy seen along with its structural characteristics require substantial governmental and financial sector interventions not only to ensure household food and nutritional security of the farming community but also to generate savings and investments in this under investment sector.
Agricultural is associated with great many risks and these risks are associated with negative outcomes which results from imperfectly predictable biological, climatic, and price variables. Biological variables include pests and diseases and climatic variables are drought, flood etc. which are not under the control of the farmers. Moreover, the adverse changes in both input and output prices make condition more vulnerable for the farmers. The details of these different risks are given below:
Types of Risk
(i) Production risk:
Agriculture is often characterized by high variability of production outcomes or, production risk. Unlike most other entrepreneurs, farmers are not able to predict with certainty the amount of output that the production process will yield due to external factors such as weather, pests, and diseases. Farmers can also be hindered by adverse events during harvesting or threshing that may result in production losses.
(ii) Price or Market risk:
The next important factor of market risk in agriculture is input and output price volatility. Prices of agricultural commodities are extremely volatile resultant of both endogenous and exogenous market shocks. Local markets, which are mostly governed by local supply and demand conditions, the price risk is sometimes mitigated by the “natural hedge” effect in which an increase (decrease) in annual production tends to decrease (increase) output price (though not necessarily farmers’ revenues). In integrated markets, which are significantly affected by international production dynamics, a reduction in prices is generally not correlated with local supply conditions and therefore price shocks may affect producers in a more significant way.
Another kind of market risk arises in the process of delivering production to the right marketplace where the producer can have reasonable price for his produce. The inability to deliver perishable products to the right market at the right time can impair the efforts of producers (due to quality deterioration). The lack of basic infrastructure facilities, well-developed markets and proper market information system make this a significant source of risk.
(iii) Financial & Credit risk:
Finance is one of the most important factors of production for any business enterprise. The ways businesses finance their activities is a major concern for many economic enterprises and in this respect, agriculture also has its own peculiarities. Many agricultural production cycles stretch over long periods of time, and farmers must anticipate expenses to meet out the requirements. But they will only be able to get well if the product is marketed well. This leads to potential cash flow problems exacerbated by lack of access to insurance services, credit and the high cost of borrowing and these problems can be classified as financial risk.
(iv) Institutional risk:
Another important source of uncertainty for farmers is institutional risk, generated by unexpected changes in policy regulations that influence farmers’ activities. Changes in policies, regulations, financial services, level of price or income support payments and subsidies can significantly alter the profitability of farming activities. This is particularly true for import/export regimes and for dedicated support schemes, but it is also important in the case of sanitary and phyto-sanitary regulations that can restrict the activity of producers and impose high costs on producers.
(v) Technology risk:
Like most other entrepreneurs, farmers are also responsible for all the consequences of their activities. Adoption of new technologies in modernizing agriculture such as in introduction of genetically modified crops, more use of chemical fertilizers and pesticides, causes an increase in producer liability risk.
(vi) Personal risk:
Lastly, farmers, as any other economic entrepreneur, are exposed to personal risks affecting the life and the wellbeing of people who work on the farm, also asset risks from floods, cyclones and droughts and possible damage or theft of production equipment and any other farming assets.
Risk Management Strategies:
Farmers, from the ages, are trying to cape with above mentioned risks by adopting various risk management strategies. Earlier there were only informal methods of risk mitigation but in independent
i) Formal risk management - Arrangements that involve individuals or households or such groups as communities or villages.
ii) Informal risk management - Market-based activities and publicly provided mechanisms.
These formal and informal risks can further divided into two parts:
i) Ex ante - prior to the occurrence of the potential harming event. Among the ex ante reactions, it can also be useful to highlight the differences between on-farm strategies and risk-sharing strategies.
ii) Ex post - after the harming event has occurred
Table 1 Risk Management Strategies in Agriculture
| | Informal Mechanisms | Formal Mechanisms | ||
| | Market based | Publicly provided | ||
| Ex-Ante Strategies | On farm | · Avoiding exposure to risk · Crop diversification and inter-cropping · Plot diversification · Mixed farming · Diversification of income source · Buffer stock accumulation of crops or liquid assets · Adoption of advanced cropping techniques (fertilization, irrigation, resistant varieties) | | · Agricultural extension · Supply of quality seeds, inputs, etc · Pest management systems · Infrastructures (roads, dams, irrigation systems) |
| Sharing risk with others | · Crop sharing · Sharing of agricultural equipment, irrigation sources, etc · Informal risk pool | · Contract marketing · Futures contracts · Insurance | | |
| Ex-Post Strategies | Coping with shocks | · Reduced consumption patterns · Deferred / low key social & family functions · Sale of assets · Migration · Reallocation of labour · Mutual aid | · Credit | · Social assistance (calamity relief, food for-work, etc) · Rescheduling loans · Agricultural insurance · Relaxations in grain Procurement procedures · Supply of fodder · Cash transfer |
As mentioned in the table 1, the farmer and farming community take various steps at their level to handle the risks but these methods are insufficient and ineffective for complete coverage from the risks. This situation becomes more vulnerable in the states which are underdeveloped as well as facing regular climate adversities. Rajasthan is one of those states. The farmers of Rajasthan are facing a number of problems like, frequent drought, low water table, low natural resource base, low level of literacy, etc.
Even the formal methods which has more potential like agricultural insurance, commodity markets and contract farming to pull the producer from out of the poverty trap and income shocks, by ensuring a fair share of the price goes to the producer. Other than these, technological advances in climate science, remote sensing technologies and ICT in developing early warning systems, increasing the effectiveness of instruments for pooling, sharing and transfer of risks, enhancing the coping capabilities of the farmers and other mitigation measures.
The state - Rajasthan
Rajasthan, the largest state of
Rajasthan has exhibited spectacular progress in several areas like agricultural production, harnessing of mineral resources, development of transport and communication, and the production of energy resources but the rate of progress and plans of economic development have been slowed to a large extent by a parallel growth of human population and livestock. The rich wealth of non-renewable resources is yet to be explored and exploited. Their judicious exploitation can make the state economically self-sufficient.
Rajasthan is basically an agrarian economy. Most of its population lives in small villages and dhanies. It has a wide range of agro-climatic regions from very low rainfall in western part to high rainfall in south and southeastern parts of the state. Major part of the state is, however, covered by arid and semi-arid climatic conditions which have a characteristic low, erratic and uneven distribution of rainfall associated with lack of other water-resources for irrigated farming. Growing of only one rainfed crop in Kharif season, that too associated with high risk, has led to dependence of village community on livestock. Harsher the climatic conditions, higher were the shift towards Animal Husbandary. Due to low capital investment capacity, lesser availability of agriculture credit and lack of adequate infrastructure facilities like roads, power, etc., farming system was more subsistence oriented than the commercial farming.
The District -
Table 2: Land utilization in
| Land utilization | Area (ha) |
| Total land | 30247.90 |
| Cultivable land | 291155.00 |
| Cropped area | 86344.00 |
| Net cropped area | 1378961.00 |
| | 82463.00 |
| Gross irrigated area | 228355.00 |
| Net irrigated area | 144324.00 |
Source:
The total population of the district is about 19 lakh according to the 2001 census. The density of the district is 62.85 persons per km. District has about 56per cent literacy rate, the male literacy rate is about 70per cent and female literacy is 42.5per cent. the total working population is about 16 lakh persons.
Table 3: Indicators of Human Resources (2001)
| Indicators | Unit | Numbers |
| Population | Persons in Lakh | 19.01 |
| Density of population | Persons per sq. km. | 62.85 |
| Literacy | Per cent | 56 |
| Total working population | Persons in Lakh | 6.05 |
| Gender ratio | Per thousand | 896 |
Source:
In
Table 4: Farmers availed the subsidy for sprinklers in
| Year | No. of farmers |
| Dec. 03 to Dec. 04 | 299 |
| Dec. 04 to Dec. 05 | 355 |
| Dec. 05 to Dec. 06 | 1,951 |
| Dec. 06 to Oct. 07 | 145 |
Source:
About 37592 farmers were benefited from crop insurance by Agriculture insurance company of
Table 5: Farmers benefited by agriculture insurance in
| Year | No. of farmers |
| Dec. 03 to Dec. 04 | 9,508 |
| Dec. 04 to Dec. 05 | 16,971 |
| Dec. 05 to Dec. 06 | 11,112 |
Source:
4. Importance of Proposed Research Work or Relevance of the study:
5. Review of Work already done on the subject:
A comprehensive and critical review of literature provides a sound base for scientific investigation. With this understanding in mind the literature having direct or indirect bearing on the problem has been reviewed in light of the objectives of the study. It has been presented under:
Chhatwal (1973) in his study in Ludhiana district revealed that the causes of overdues from the farmer’s point of view were; low repayment capacity, low net returns due to inadequate loan, availability of loan at improper time and lack of technical guidance, social obligations, lack of consumption loan facilities, produce not sold of view, the causes of overdue were improper analysis of the project, lack of technical guidance, mis-utilization of loans, more expenditure on social obligations, lack of responsibility, lack of linking credit with marketing, lack of stick measures of recovery and lack of co-ordination between different lending agencies.
Agricultural Finance Corporation Limited (1974) reported on the basis of a study on repayment of agricultural loan and medium and large that small farmers engaged in dry farming and medium and large farmers of irrigated area were more defaulters in terms of repayment of loans.
Krishnaswami and Kundaswami (1982) have mentioned the reasons for non-repayment of loans as high cost of cultivation, low price, low yield, high rent, crop failure, non-disposal of produce, small marketable surplus and non-receipt of demand notice. However, they pointed that inadequacy of income arising due to crop failure, higher cost of cultivation and small marketable surplus were the main reasons for non-repayment of loans.
Rajawat (1991) studied attitudes of farmers towards PACS in Jaipur of Rajasthan by taking a sample of 100 rural people and remarked that favoritism and nepotism, inadequate supply of loan and ineffective managing committee of Primary Agriculture Cooperative credit Societies (PACS) as the important problems.
Yadav (1993) conducted the study to know the impact of Antyodaya programme on 100 beneficiaries in Jaipur district of Rajasthan and reported that nepotism and favoritism under antyodaya programme as the most important constraint in getting benefits, followed by delay in credit disbursal.
Sharma (1993) in his research study conducted in
Vyas (1993) in his study on impact of credit policy on agricultural financing through commercial banks in
Ramaswami et al. (2003) reported different type of risks in agriculture and try to understand agricultural risks and the ways of managing it. Production and price (or market) risks are two major risks that confront farmers. These risks could either be systemic or covariate (i.e., they are common to large groups of producers) or they could be individual-specific or idiosyncratic. The distinction is important because risk pooling and insurance arrangements (whether formal or informal) are more likely to offer protection against idiosyncratic risks rather than systemic risks. The diversity of climate, growing conditions and market structures means that there is no typical risk environment for a farmer. In the drylands without access to assured irrigation, rainfall is a dominant production risk. Similar is the case with pests and disease. Local pest and disease infestations depend on many factors including the crop variety, weather, the use of pesticides and other crop practices. Beyond a threshold level, the infestation can quickly reach epidemic proportions affecting large areas. Unlike rainfall risks, the humid and irrigated regions have no special advantage with respect to pest and disease attacks.
As the demand for agricultural products is inelastic, supply shocks are magnified in price variations. Besides production risks, supply shifts are also because of variability in planned supply, i.e., area planted to a particular crop. Variability in planned supply comes about because of errors in forecasting prices. Often, the biases in these errors are systematic as forecasts are determined by past prices. As a result, prices and planned supply can oscillate creating endogenous variability. Such uncertainty is often seen in seasonal price movements as well. The importance of price risk would depend on the extent of exposure to market forces as well as existing market institutions. International trade can increase or decrease price variability.
There are essentially six ex post ways to compensate for shortfalls in farm income: They can sell stored produce, liquidate assets, borrow for consumption, receive transfers from relatives, change jobs and/or increase their labour market participation and migrate in search of work. Households might farm a diversified portfolio of agricultural activities, adopt technologies, such as inter-cropping or drought- resistant crops, and contractual arrangements such as sharecropping that reduce the variance of income, or diversify their activities through migration or local non-agricultural employment. Any of these ex ante actions might be costly, so that the households would be sacrificing income, on average, in order to assure a less risky stream of income. In addition to the mechanisms at the level of the farm household, the need to cope with risk can also affect community interactions and social customs. Gift-based exchange that is based on reciprocity and informal borrowing and lending on implicit and flexible terms are instances of community level mechanisms that can help farm households to cope with adversity.
O’Donnell and Griffiths (2004) advocate the use of state-contingent production technologies to represent risky production and establish important theoretical results concerning producer behaviour under uncertainty. Unfortunately, perceived problems in the estimation of state-contingent models have limited the usefulness of the approach in policy formulation. We show that fixed and random effects state-contingent production frontiers can be conveniently estimated in a finite mixtures framework. An empirical example is provided. Compared to standard estimation approaches, we find that estimating production frontiers in a state-contingent framework produces significantly different estimates of elasticities, firm technical efficiencies and other quantities of economic interest.
Reddy (2004) reported that ongoing National Agricultural Insurance Scheme (NAIS) along with experimental income insurance and weather insurance, is a good step forward to insure risk of millions of farmers whose livelihood depends on the pattern and distribution of monsoon rain in India. NAIS is based on area-yield approach and is suffering from low penetration and adverse selection with consequent high claim to premium ratio. With this backdrop, the paper reviews the innovative techniques in agricultural/rural insurance, which overcome some of the disadvantages of the above insurance and which advocate simple rainfall index insurance as a better alternative to the existing agricultural insurance scheme. The rainfall insurance is in practice in many countries for years and has been very simple to understand by a common farmer. It is put into practice with minimum existing resources with very little administrative and overhead costs. It also covers agricultural laborers and non-farm workers whose income is affected adversely by failure of rainfall and it is a very effective mechanism to increase insurance penetration ratio. The rainfall insurance is also more compatible with reinsurance practices, which make primary insurers cover their local/regional risks in catastrophic events by pooling their resources with reinsurance. The reinsurance agents can also effectively transfer their risks by issuing catastrophic bond/options like instruments in stock exchanges (NSE and BSE), as our stock markets are relatively well-developed and it may effectively fit into the portfolios of some of the fund managers and hedge funds.
Mandal (2005) reported that it is now commonly conceded that most of the poverty eradication programmes could not reduce the incidence of poverty substantially for a variety of reasons. Wrong selection of beneficiary, leakage, corruption and malpractices, absence of backward and forward linkage in project and inadequacy in delivery and monitoring of credit were the few factors identified by the agricultural credit review committee. The failure to develop sustainable bank client relationship was still another deficiency.
Abedullah and Ali (2006) in their study developed a formulation to decompose variability in profit into price and production effects. The production effect is further segregated into management and weather effects. The formulation is used to compare and decompose risk in the profit of three existing cropping patterns (corn-corn, corn-fallow, and rice-fallow) in the rainfed areas of Claveria, northern
Working group on Eleventh five year plan (2007-2012) reported that in
6. Objectives of the study:
- To study instability in agricultural production and factors responsible for instability in
- To identify various types of agricultural risks faced by the farmers in the area of study.
- To study the awareness level of farmers about risk mitigation techniques.
- To study the level of adoption of formal and informal methods of agriculture risk management by the farmers.
- To study the constraints in adoption of the formal methods of risk mitigation by the farmers.
- To suggest possible measures to increase the adoptability of formal mechanisms of risk mitigation by the farmers.
7. Methodology:
The methodology of proposed study will be as follows:
Sampling Framework-
For the proposed study, out of total eight tehsils, four tehsils of
| Tehsils | Villages | Farmers | Total |
| Pugal | 4 | 10 | 40 |
| Lunkaransar | 4 | 10 | 40 |
| Kolayat | 4 | 10 | 40 |
| Dungargarh | 4 | 10 | 40 |
| Grand Total | 160 | ||
Collection of data –
Data will be collected from both primary and secondary sources. Primary data will be collected from farmers, government officials, experts etc. The interview schedule will be used for primary data collection. The required data will be collected from selected respondents by personal interview method. Secondary data will be collected from government published matter, newspaper, magazine, internet etc
Analysis of data-
After collection of data, data will be processed and analyze using various appropriate statistical tools. For the first objective, secondary data about the various factor of production will be collected and their effect on production will be quantified. For the second objective, data about different types of risks faced by the farmers will be collected to know the major risk associated with the farming in the study area. Under third objective, awareness about the risk mitigation tools will be checked to know the knowledge level of the farmers about various techniques of risk mitigation. In fourth objective the formal and informal methods adopted by farmers will be studied to know the level of adoption of available methods. In the study, the constraint will also be studied to know the main reasons of not taking advantage of available methods under fifth objective. And lastly, an effort will be made to develop a suitable mechanism for risk management for the farmers of study area.
8. Chapter-wise details of Proposed Research:
The study will be presented in form of chapters for the purpose of clarity. The study will be divided into four chapter sand the chapter-wise details are as follows.
Executive Summary – A summary of the research work will be given in the start.
Chapter first – Introduction – in this chapter, the introduction about the agriculture risk, its types, its extend etc. will be given.
Chapter two – Methodology – in this chapter the research methodology will be explained. The introduction of the selected area will also be covered under this chapter.
Chapter three – Review of Literature – this chapter will consist of summaries of different past work done on agriculture risk management within the country as well as outside the country.
Chapter four - Results and Discussion – in this chapter, the results of the study will be presented objective wise along with the analysis and discussion. A suggestive mechanism will also be given in the last of this chapter.
Bibliography – A detailed list of references will be given in the end from which the literature will be reviewed about the subject.
9. Bibliography:
Abedullah and Mubarik Ali (2006). “Quantifying the Extent and Nature of Risk in Alternative Cropping Patterns in
Agricultural finance Corporation Limited (1974). “A study on repayment of agricultural loans”, Bombay AFC Limited.
Chhatwal, M.S. (1973). “A study into the problems of repayment of loans adanced by Banking Institution to farmers in
Krishnaswami, O.R. and Kundaswami (1982). “Credit support of small farmers – A study”, Krrukshetra, Vol.31 pp. 16-30
Mandal, A. (2005). “SGSY and SHG: An assessment”, kurukshetra, Vol. 53, No. 3 pp.4-9.
O’Donnell C. J. and W. E. Griffiths (2004) “Estimating state-contingent production frontiers”, Department of Economics, The University of Melbourne, Research paper number 911
Rajawat, J.S. (1991). “Attitudeof Farmers towards Promary Agriculture Credit Societies in Panchayat Samiti Sambhar lake of district Jaipur (Rajasthan)”, M.Sc. Thesis, SKN College of Jobner.
Ramaswami Bharat, Shamika Ravi and S.D.Chopra (2003). “Risk Management in Agriculture”, Discussion Paper 03-08, Planning Unit, Indian Statistical Institute,
Reddy A. Amarender (2004). “Agricultural Insurance in
Sharma, R. (1993). “Impact of IRDP on income and Employment – A case study of
Vyas, S.K. (1993). “Impact of credit policy on agriculture financing through commercial bankc in
Working group on Eleventh five year plan (2007-2012). “Risk Management in Agriculture” Government of
Yadav, S. (1993). “Impact of Antyadaya programme in Jaipur district of Rajasthan”, M.Sc. Thesis, SKN College of Agriculture, Jobner.
Signature of the candidate (with date)
Outline of the synopsis approved
Signature of Supervisor with date
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