Crop diversification and risk management in Indian agriculture

Abstract

The narrow dependence on paddy and wheat cultivation along with incentives such as free electricity and water has resulted in overuse of pumps and significant depletion of ground water resources in Punjab. Stagnating yields and soil degradation due to intensive cropping pose a significant threat to long-term agricultural productivity in the state. In this paper, we focus on the farmers’ decision-making process and identify policy changes that are required to incentivize farmers to cultivate a diverse portfolio of crops and reduce dependence on paddy and wheat. Using data from four representative districts of Punjab, we quantify the impact of introducing alternate crops on the farmers’ profitability. Our analysis shows that incorporating horticultural crops in the mix increases net expected returns from cultivation for all land size classes. We also find that including alternate crops reduces water usage by up to 30 % for most farmers, while increasing the labor and working capital requirements. We also examine risk factors—price, labor, credit and yield risk—that might be contributing to the status quo and suggest risk mitigation strategies to promote crop diversification.

Appendices

Appendix 1: Mathematical program to model the farmer’s crop-allocation decisions

$$\begin{array}{*{20}l} {\max_{{A_{1} , \ldots ,A_{n} }} } \hfill & {\sum\limits_{i = 1}^{n} {\mu_{i} A_{i} - \omega L} } \hfill \\ {{\text{subject}}\,{\text{to}}} \hfill & {} \hfill \\ {} \hfill & {\sum\limits_{i = 1}^{n} {A_{i} \le A_{0} \,{\text{Land}}\;{\text{availability}}\;{\text{constraint}}} } \hfill \\ {} \hfill & {\sum\limits_{i = 1}^{n} {l_{i} A_{i} \le L_{0} + L\;{\text{labor}}\;{\text{availability}}\;{\text{constraint}}} } \hfill \\ {} \hfill & {\sum\limits_{i = 1}^{n} {c_{i} A_{i} + \omega L \le C_{0} \;{\text{capital}}\;{\text{availability}}\;{\text{constraint}}} } \hfill \\ {} \hfill & {A_{i} \ge 0\quad{\text{for}}\;i = 1, \ldots ,n,\;L \ge 0} \hfill \\ \end{array}$$

where A _i is the land allocated (in hectares) to crop i by the farmer; μ _i is the expected net income per hectare from crop i; l _i is the labor required (in man hours) per hectare of crop i; c _i is the input cost (excluding human labor cost) per hectare of crop i; A ₀ is the total land available for cultivation; L ₀ is the total household labor available (in man hours); L is the total external labor (in man hours) hired by the farmer; ω is the wage rate (per man hour); C ₀ is the total working capital available with the farmer.

Appendix 2: Impact of alternate cropping decisions on expected income and labor use in Kharif season (See below)

District	Land size class	Change (compared to growing only paddy)
		In net income (%)		In labor use (%)		Crops grown
		Using only household labor	Using household plus hired labor	Using only household labor	Using household plus hired labor	Using only household labor	Using household plus hired labor
Amritsar	Marginal	314	314	289	289	Cauliflower	Cauliflower
	Small	314	314	289	289	Cauliflower	Cauliflower
	Medium	251	294	230	289	Cauliflower	Cauliflower
	Large	51	183	41	225	Cauliflower	Cauliflower
Ferozpur	Marginal	319	319	476	476	Tomato	Tomato
	Small	319	319	476	476	Tomato	Tomato
	Medium	134	283	200	476	Paddy, tomato	Tomato
	Large	10	83	15	151	Paddy, tomato	Paddy, tomato
Ludhiana	Marginal	348	348	289	289	Cauliflower	Cauliflower
	Small	348	348	289	289	Cauliflower	Cauliflower
	Medium	260	318	212	289	Cauliflower	Cauliflower
	Large	44	166	25	187	Cauliflower	Cauliflower
Sangrur	Marginal	186	186	289	289	Cauliflower	Cauliflower
	Small	186	186	289	289	Cauliflower	Cauliflower
	Medium	142	171	220	289	Paddy, cauliflower	Cauliflower
	Large	23	90	35	196	Paddy, cauliflower	Paddy, cauliflower

Appendix 3: Impact of alternate cropping decisions on expected income and labor use in Rabi season (See below)

District	Land size class	Change (compared to growing only wheat)
		In net income (%)		In labor use (%)		Crops grown
		Using only household labor	Using household plus hired labor	Using only household labor	Using household plus hired labor	Using only household labor	Using household plus hired labor
Amritsar	Marginal	443	443	736	736	Onion	Onion
	Small	443	443	736	736	Onion	Onion
	Medium	423	439	702	736	Onion, wheat	Onion
	Large	147	310	244	595	Onion, wheat	Onion
Ferozpur	Marginal	367	367	205	205	Capsicum	Capsicum
	Small	367	367	205	205	Capsicum	Capsicum
	Medium	367	367	205	205	Capsicum	Capsicum
	Large	283	311	150	170	Capsicum	Capsicum
Ludhiana	Marginal	255	255	736	736	Onion	Onion
	Small	255	255	736	736	Onion	Onion
	Medium	229	247	659	736	Onion, wheat	Onion
	Large	71	109	204	362	Onion, wheat	Onion, wheat
Sangrur	Marginal	291	291	736	736	Onion	Onion
	Small	291	291	736	736	Onion	Onion
	Medium	268	285	679	736	Onion, wheat	Onion
	Large	90	144	229	410	Onion, wheat	Onion, wheat

Appendix 4: Impact of alternate cropping decisions on expected income and labor use on Annual Basis (See below)

District	Land size class	Change (compared to growing only paddy or wheat)
		In net income (%)		In labor use (%)		Crops grown
		Using only household labor	Using household plus hired labor	Using only household labor	Using household plus hired labor	Using only household labor	Using household plus hired labor
Amritsar	Marginal	384	384	419	419	Cauliflower, onion	Cauliflower, onion
	Small	384	384	419	419	Cauliflower, onion	Cauliflower, onion
	Medium	345	373	368	419	Cauliflower, onion, wheat	Cauliflower, onion
	Large	103	252	100	333	Cauliflower, onion, wheat	Cauliflower, onion
Ferozpur	Marginal	333	333	391	391	Tomato, capsicum	Tomato, capsicum
	Small	333	333	391	391	Tomato, capsicum	Tomato, capsicum
	Medium	202	308	202	391	Paddy, tomato, capsicum	Tomato, capsicum
	Large	90	150	57	157	Paddy, tomato, capsicum	Paddy, tomato, capsicum
Ludhiana	Marginal	292	292	419	419	Cauliflower, onion	Cauliflower, onion
	Small	292	292	419	419	Cauliflower, onion	Cauliflower, onion
	Medium	241	275	342	419	Cauliflower, onion, wheat	Cauliflower, onion
	Large	60	131	77	238	Cauliflower, onion, wheat	Cauliflower, onion, wheat
Sangrur	Marginal	237	237	419	419	Cauliflower, onion	Cauliflower, onion
	Small	237	237	419	419	Cauliflower, onion	Cauliflower, onion
	Medium	203	227	354	419	Paddy, cauliflower, onion, wheat	Cauliflower, onion
	Large	56	117	92	258	Paddy, cauliflower, onion, wheat	Paddy, cauliflower, onion, wheat