Category Archives: Agricultural Economics

A semiparametric spatio‐temporal model of crop yield trend and its implication to insurance rating

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Abstract

We demonstrate the benefit of spatial smoothing for crop trend estimation with a deterministic spatio-temporal trend model. The proposed model is semiparametric, where the parametric temporal trend is modeled with a two-knot spline function for forecasting robustness, and the nonparametric spatially-varying coefficients are modeled by the radial basis function method for flexibility. To select the smoothing parameter of our trend model, we propose a forward validation criterion tailored to meet the forecasting nature of rating crop insurance. This criterion is based on a rolling regression approach that adds one year of data at a time for validation. We also propose a new criterion for model comparison using relative mean squared error in forecasting insurance payouts. Our empirical results show that the proposed trend model is more efficient and capable of identifying profitable insurance policies than two competing models in most state-crop combinations.

Training and seed production spillovers and technology adoption: The case of seed producer groups in Nepal

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Abstract

Rice farmers in developing countries are often vulnerable to drought which can drastically reduce yields. Stress-tolerant rice varieties (STRVs) can mitigate this vulnerability, as can having a high seed replacement rate (SRR) and using best management practices (BMPs) in rice cultivation. However, access to high-quality STRV seed is often limited. This article uses propensity-score weighted regressions to estimate the spillover effects of seed producer groups (SPGs) in Nepal. It compares adoption rates of STRVs and BMPs, and the SRR of non-member households in villages with SPGs and in villages adjacent to these compared to other control villages in the region. According to a range of results from weighted models, non-members in SPG villages and adjacent villages are 24–32 percentage points more likely to have adopted an STRV compared to non-members in control villages. Non-members in SPG and adjacent villages have a higher SRR, and households in SPG villages are more likely to use some BMPs compared to non-members in control villages. Results suggest that SPGs have the potential to improve the resilience of communities in the face of climate change.

The new normal? Cluster farming and smallholder commercialization in Ethiopia

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Abstract

Cluster farming is increasingly recognized as a viable means of improving smallholder economic integration and commercialization in many developing countries. However, little is known about its impact on smallholder welfare and livelihoods. We examine the relationship between cluster farming and smallholder commercialization using a large-scale survey of 3969 farm households in Ethiopia cultivating high-acreage crops such as teff, wheat, maize, barley, and sesame. Using switching regressions and instrumental variable estimators, we show that cluster farming is associated with commercialization measured as commercialization index, market surplus value, and market price. To further deal with endogeneity concerns, we also employ some pseudo-panel models where we observe similar insights. Beyond this, we account for heterogeneities by disaggregating households based on farm scales and crops cultivated. Our findings show that cluster farming is positively associated with commercialization for all farms and crop types despite this disaggregation. However, the related gains are higher among medium and large farms and vary per crop type. These findings imply that cluster farming is crucial in improving smallholder commercialization and may be a critical entry and leveraging point for policy. We thus lend support to initiatives and plans that seek to upscale cluster farming as they can potentially improve smallholder commercialization with ensuing impacts on rural livelihoods and welfare.

What promotes production contract in Indian agriculture? Managing market risk versus profit orientation

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Abstract

We identify factors influencing farmers’ decision-making on various production contracts and are explicitly concerned with whether managing market risk or profit orientation promotes contract farming (CF). After controlling for potential endogeneity, the IV-Tobit regression results indicate that farmers’ risk behavior and profit orientation are vital factors driving CF participation decisions. However, we observed that the impact of profit orientation is relatively more substantial than the risk management motive, suggesting that earning a higher profit, rather than managing market risks, is the primary objective of CF adoption. In addition, other factors such as farm size, mean contract price, education, age, and extension services play a significant role in CF participation. The major policy implications, based on results, call for enhancing the CF network and encouraging farmers to commercialize agriculture as it facilitates access to the market and higher profits. Further, agribusiness firms should share more market risks with farmers to invite risk-averse smallholders into the fold of commercial farming.

Risk and ambiguity aversion: Incentives or disincentives for adoption of improved agricultural land management practices?

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Abstract

Farmers grapple with uncertainties related to the adoption of improved agricultural practices. Adoption decisions on these practices may vary in response to risk in which farmers may be able to predict the chances of occurrence on outcomes of their decisions, and/or ambiguity where adoption-decision outcome probabilities are unknown. Also, these uncertainties may emanate from imperfect information on production returns from adoption and adoption-related fixed costs. In this paper, we study whether risk and ambiguity aversion create incentives or disincentives for intensity and duration of adoption of improved agricultural practices. For this, we combine experimental with survey data. We find that ambiguity aversion reduces incentives for high-intensity adoption while risk aversion attenuates this disincentive. As expected, risk aversion increases incentives for longer adoption of improved agricultural practices. Experience was expected to allow farmers to learn enough about payoff probabilities from adoption and render ambiguity aversion less important. Yet, we find it reduces the duration of adoption of soil and water conservation structures, which could be explained by adoption-related high fixed costs. On the other hand, ambiguity aversion appears to matter little with adoption of agroforestry despite the associated high fixed and management costs attributed to integrated agri-silviculture and agro-silvopastoral systems. Given the complementary nature of the practices, agricultural policy should be directed at interventions that attenuate the deterrent effect of ambiguity aversion through providing information related to production returns from the adoption of improved practices that involve high fixed (management) costs.

Separability, spillovers, and segmented markets : Evidence from dairy in India

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Abstract

A long history of empirical research has focused on testing whether and when household consumption and production decisions are separable. If markets were perfect, household consumption would be independent of production. In this article, we propose that market channel choice complicates this relationship. Our analysis of household panel data from rural India, focusing on dairy, leads us to four key conclusions. First, milk consumption is correlated with production, and markets are not a complete substitute for household production. Second, a large presence of formal milk buyers in a village is associated with lower milk consumption in dairy households, overturning the positive association of participation in formal value chains with household milk consumption. Third, contrary to expectations, for households that do not own dairy animals and net buyers, the presence of formal value chains remains uncorrelated with milk consumption. Fourth, we infer, test for and find suggestive evidence of segmented milk markets, that is, different types of households participate in different markets for milk that do not seem to interact with each other. Policymakers focused on market development or production-based strategies need to factor in the possibility of market segmentation based on market channels while designing interventions.