A number of empirical studies find that farmers' risk-averse, though only moderately in many cases. There is also evidence to show that farmer’s risk aversion results in cropping patterns and input use designed to reduce risk rather than to maximize income. Farmers adopt a number of strategies to manage and cope with agricultural risks. These include practices like crop and field diversification, non-farm employment of family members. There are also institutions ranging from share tenancy to kinship, extended family and informal credit agencies. One major obstacle to risk sharing by farmers is that the same type of risks can affect a large number of farmers in the region. Empirical studies show that the traditional methods are not adequate. Hence there is a need for policy interventions, especially measures that cut across geographical regions.
Policies may aim to tackling agricultural risks directly or indirectly. Examples of risk-specific policies are crop insurance, price stabilization and the development of varieties resistant to pests and diseases. Policies which affect risk indirectly are irrigation, subsidized credit and access to information. No single risk-specific policy is sufficient to reduce risk and is without side-effects, whereas policies not specific to risk influence the general situation and affect risks only indirectly. Crop insurance, as a policy measure to tackle agricultural risk directly, deserves careful consideration in the Indian context and in many other developing countries because the majority of farmers depend on rain-fed agriculture and in many areas yield variability is the predominant cause of their income instability.
1. The need for policy intervention to mitigate risks in agriculture is because
a) Farmers are extremely risk-averse.
b) Farmers do not know how to mitigate risks.
c) The methods adopted by farmers and existing risk sharing institutions are not adequate.
d) Majority of farms depend on rain-fed agriculture.
2. Which of the following observations emerges from the above passage?
a) One can identify a single policy that can reduce risk without any side effect.
b) No single risk-specific policy is sufficient to reduce agricultural risk.
c) Policies which affect risk indirectly can eliminate it.
d) Government's policy intervention can mitigate agricultural risk completely.