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Effectiveness of Farmers’ Risk Management Strategies in Smallholder Agriculture: Evidence from India

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Abstract

Smallholder farmers in developing countries are more vulnerable to climate risks, and most of them, because of a lack of access to institutional risk management measures such as crop insurance, rely on traditional measures to offset the adverse effects of such risks on agricultural production. Employing a multinomial endogenous switching regression technique to the farm-level data, this study first identifies the determinants of farmers’ own risk management measures and then evaluates their impacts on farm income and downside risk exposure. There are three key highlights of this analysis. One, farmers, based on their past exposures to climate risks, endowments of resources, and access to credit and information, often use more than one measure or strategy to mitigate, transfer, and cope with the climate risks. Two, all the risk management strategies are found to be effective in improving farm income and reducing risk exposure, but it is their joint implementation that yields larger payoffs. Three, the joint adoption of different adaptation strategies is positively associated with farm size, but with liquidity and information constraints relaxed, the probability of their joint adoption is expected to increase further. These findings impinge on the concept of climate-smart agriculture and suggest the need to identify and integrate traditional farm management practices with science-based innovations to provide an effective solution to climate risks.

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Data availability

Data are in the public domain and can be obtained from concerned agencies.

Code availability

The authors shall be happy to share the software codes.

Notes

  1. Approximately 70% of the landholdings in India are of size less than or equal to one hectare.

  2. Information denotes farmers’ access to information on any aspect of agriculture from any of the following sources: extension agent, Krishi Vigyan Kendra (farmers’ science center), agricultural university, private agents (including contractor), progressive farmer, mass media (radio, television, newspaper, mobile, internet), and non-governmental organization.

  3. Although irrigation, besides its primary role of improving crop yields, reduces the sensitivity of crops to deficit rainfall and excess temperature, more than 60% of the sample farm households had access to irrigation facilities. On treating irrigation as an adaptaion in the process of generating mutually exclusive risk management strategies we would have been left with a small number of households in the category of “no risk management,” which is our base category in the model.

  4. A household can buy its entitlement of food grains from the public distribution system at heavily subsidized prices—rice at Rupees 3/kg and wheat at Rupees 2/kg.

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Funding

This study has been funded by the Indian Council of Agricultural Research under the National Professorial Chair scheme to the corresponding author.

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Authors and Affiliations

  1. ICAR-National Institute of Agricultural Economics and Policy Research, New Delhi, 110 012, India

    Pratap S. Birthal

  2. CHRIST (Deemed to be University), NCR Delhi, Ghaziabad, Uttar Pradesh, 201003, India

    Jaweriah Hazrana

  3. Indira Gandhi Institute of Development Research, Mumbai, 400 065, India

    Digvijay S. Negi

Authors
  1. Pratap S. Birthal
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  2. Jaweriah Hazrana
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  3. Digvijay S. Negi
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All authors contributed to the conception, design of study and drafting, compilation and collation of data, and econometric analysis. All authors approved of the manuscript to be published.

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Correspondence to Pratap S. Birthal.

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Appendix

Appendix

Table 7 Variable definitions and summary statistics
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Table 8 Estimates of outcome equations (dependent variable: farm income)
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Table 9 Estimates of outcome equations (dependent variable: variance in farm income)
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Table 10 Estimates of outcome equations (dependent variable: skewness in farm income)
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Table 11 Average treatment effects for the untreated (ATU)
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Birthal, P.S., Hazrana, J. & Negi, D.S. Effectiveness of Farmers’ Risk Management Strategies in Smallholder Agriculture: Evidence from India. Climatic Change 169, 30 (2021). https://doi.org/10.1007/s10584-021-03271-1

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