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Risk in Output Growth of Oilseeds in the Rajasthan State: a Policy Perspective

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Risk in Output Growth of Oilseeds in the Rajasthan State: a Policy Perspective Agricultural Economics Research Review Vol. 18 (Conference No.) 2005 pp 115-133 Risk in Output Growth of Oilseeds in the Rajasthan State: A Policy Perspective P.K. Jain1, I.P. Singh2 and Anil Kumar2 Abstract Today, India is one of the largest producers of oilseeds in the world and this sector occupies an important position in the agricultural economy. Rajasthan state occupies a prominent place in the oilseeds production of India. The important oilseed crops of the Rajasthan state are groundnut, soyabean, rapeseed & mustard, sesamum and taramira. The growth pattern of these crops in the state has been prone to risk over time and across the agro-climatic regions because of the rainfall behaviour, prolonged drought- periods, limited water-resources and facilities available in the state Under such a situation, growth performances of these crops are subjected to high degree of risks in the sector. Therefore, it is important to describe the growth pattern of area, production and productivity, factors affecting acreage allocation under crops and magnitude of instability as well as its sources in major oilseeds crops of Rajasthan state. The fluctuating yield has been seen for almost all the oilseeds crops. However, the area and yield instability of the mustard crop has been found declining overtime plausibly because of increase in irrigation facilities, location-specific technologies and better input management. However, this needs to be further strengthened for improvement in the overall agricultural scenario. The acreage of the crops has been found to be governed by both price and non-price factors. Hence, price incentive alone has not been found to be the sufficient in bringing the desirable change in the cropping pattern as well production of crops. Hence, a policy for better implementation of support price system, development of consistently performing varieties and further enhancement of irrigation facilities will go a long way to ensure stability in the Rajasthan agriculture. To compel the large yield variability, it is advisable to the farmers to avail benefits of crop insurance scheme. 1 Division of Agricultural Economics, IARI, New Delhi 2 Rajasthan Agricultural University, Bikaner The paper draws heavily from the Ph.D. thesis of first author submitted under guidance of the second author to Rajasthan Agricultural University, Bikaner. 116 Agricultural Economics Research Review Vol. 18 (Conference No.) 2005 Introduction Agriculture is the most important sector of the Indian economy from the perspective of poverty alleviation, income and employment generation. Indian agriculture is characterized by varied agro-climatic situations, availability of resources and market structure. In India, agriculture is the main source of livelihood for the majority of people. The performance of the agricultural sector has enormous impact on the livelihood of the people, but it is subjected to various kinds of risks. These risks are related mainly to climate, inputs, outputs and prices. The degree of risk depends on the personal characteristics of farmers and probabilities of an event. Therefore, the degree of risk involved in any enterprise is affected by the farmers’ decisions of acreage allocation and the growth performance of farm economy. Oilseed crops have traditionally been the backbone of agricultural economy of India. Today, India is one of the largest producers of oilseeds in the world. It accounted for an estimated production of 25.14 million tonnes of nine cultivated oilseeds during the year 2003-04. India contributes about 8-9 per cent of the world oilseeds production. The stae of Rajasthan occupies a prominent place in the production of oilseeds in India as the area under these crops is 12.8 per cent of the total area of nearly 24.01 million hectares in the country. The state contributed around 13 per cent to country’s oilseeds production in 2002-03. The important oilseed crops of the Rajasthan state are groundnut, soyabean, rapeseed & mustard, sesamum and taramira. The growth pattern of these crops in the Rajasthan state has been prone to risk over time and across the agro-climatic regions because of the rainfall pattern, prolonged drought-periods and limited water-resources. The facilities available in the state are neither equally distributed nor fully dependable. Under such a situation, the growth performances of these crops are subjected to high degree of risks in the sector. Due to various kinds of risks, the sector may impede the economic growth of the country / region in two ways. Firstly, the production instability tends to destabilize the markets and may cause wide fluctuations in prices. It adversely affects that section of farmers who spend a higher proportion of their income on these items. It also forces the producer to sell their produce at cheaper rates to meet out the adverse impact of negative fluctuations. Secondly, fluctuation in prices leads to instability in production itself that in turn, may result in misallocation of inputs. Therefore, success of any policy action for agricultural growth depends on measurement of instability, identification of its broad sources and means to stabilize the growth process. The present paper describes the growth pattern of area, production and productivity, factors affecting acreage allocation under oilseed crops and magnitude of instability as well as its sources in major oilseed crops of the Rajasthan state. Jain et al.: Risks in Output Growth of Oilseeds in the Rajasthan state 117 Methodology The oilseeds crops selected for the study were: goundnut, soyabean, rapeseed & mustard, sesamum and taramira, as these play a very important role in the farm economy of the state. The criteria applied for the identification of crops was that it should have an average area of at least two lakh hectares during the last five years (1996-97 to 2000-01). Rajasthan is a vast state where large variations in the pattern of agricultural development are displayed from district to district. The selected crops are not grown in all the districts of the state because of its varied agro-climatic conditions. Since aggregate analysis may not depict a true picture, a few important and potential districts were identified. The criterion applied for it was that the district should have accounted for 50 per cent share in the total area under a particular crop in the Rajasthan state. The selected districts are given in Table 1. Table 1. The districts selected for different crop Crops Districts Sesamum Pali, Jodhpur and Nagaur Groundnut Jaipur, Chittorgarh, Swaimadhopur and Bikaner Soyabean Kota and Jhalawar Rapeseed & mustard Sri Ganganagar, Bharatpur, Alwar, Swaimadhopur and Tonk Taramira Nagaur, Bikaner and Pali The secondary data regarding area, production and productivity of the selected crops and their competing crops, farm-harvest prices of selected and competing crops, seasonal rainfall, irrigated area under these crops in the selected districts and the state were collected for the period 1981-82 to 2000-01. The exponential forms of the compound growth rates of area, production and productivity of crops were calculated. Nerlovian lagged adjustment model was used for the analysis of acreage response function considering only price as an independent variable as given in Eqs (1)-(3): * At = C0 + C1 Pt-1 + Ut …(1) * At –At-1 = k (At -At-1) …(2) At = b0 + b1 At-1 + b2 Pt-1 + Vt …(3) Equation (1) shows the behavioural relationship stating that the desired * acreage (At ) depends on one year lagged relative price (Pt-1). Equation (2) is the area adjustment equation in which k is coefficient of adjustment and Eq. (3) is the reduced form of observed area (At) in place of unobserved * area (At ) and relative lagged price. The coefficient of Eq. (3) is given in terms of adjustment coefficient (k) as Eq. (4): 118 Agricultural Economics Research Review Vol. 18 (Conference No.) 2005 b0 = C0 k ; b1 = (1 – k) ; b2 = C1 k and Vt = Ut k …(4) Both price (own and competing crop) as well as non-price factors (yields, risks, available irrigation facilities, rainfall, etc.), which affect farmers’ decisions regarding area allocation to a particular crop were studied. This framework of the model does not change on including more independent variables in it. The final form of model is given in Eq. (5): At =b0 + b1LPSC + b2LASC + b3LYSC + b4YRSC + b5PRSC + b6LYCC + b7LPCC + b8RF_IRR + b9 DD+……….+Vt …(5) where, At = Current year area under study crop; LPSC = One year lagged price of the study crop deflated by CPI for agricultural labour ; LASC = One year lagged area of the study crop; LYSC = One year lagged yield of the study crop; YRSC = Yield risk of the studied crop measured by standard deviation of three preceding years; PRSC = Price risk of the studied crop measured by standard deviation of three preceding years; LYCC = Lagged yield competing crop; LPCC = One year lagged competing crop price deflated by CPI for agricultural labour; RF_IRR = Seasonal rainfall and/or irrigated area under study crop; DD = District dummy; Vt = Error-term; The log linear form of acreage response function was estimated through ordinary least square method. The instability in area, production and productivity of the selected crop was measured by estimating the coefficient of variation from the de-trended series of production, area and yield. To find the major contributor to production instability, the production variance was decomposed into its sources, viz. area variance, yield variance, area-yield covariance and higher- order interaction between area and yield by using the technique given by Hazell (1982) (Eq. (6)]: 2 2 V (Q) = A V (Y ) +Y V (A) + 2AYCOV (A,Y) − COV (A,Y )2 + R …(6) Jain et al.: Risks in Output Growth of Oilseeds in the Rajasthan state 119 where, V(Q) = Production variance —A = Mean area —Y = Mean yield V(Y) = Yield variance V(A) = Area variance COV (A,Y) = Area-yield covariance COV(A,Y)2 = Higher-order covariance between area and yield R = Residual-term Results and Discussion The growth pattern in area and yield of crops depicted its performance over a period.
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