1 Introduction
Agricultural sector in India is at a crossroads with different forces operating on it
simultaneously. Primarily, it is the predominance of the rain fed agriculture in many
States that inhibits the growth, followed by other vagaries of the weather.
Consequent high instability in productivity is but a natural outcome of this situation
which sets back the development clock in the agricultural sector. Also in many rain
fed states like Karnataka, protective irrigation does not play any significant role.
Due to the domination of the low-value low-density crops, the farmers’ income is
continuously depressed, and given the periodic increase in prices of inputs
(specifically of the cash inputs), farmers’ net income tends to shrink continuously,
putting them under financial stress.
A farmer needs to make investment every season in working capital, which
makes timely credit a necessary condition for the success of production activities.
There are several problems associated with the rural credit system in developing
nations in general and India in particular, which are discussed by the scholars( see
Bardhan (1989), Barro (1976),Basu (1983, 1984, 1989), Bhaduri (1977), Ghatak
(1975)). Even after making right investments, a farmer may not get due returns
because of unforeseen reasons, most often beyond her/his control. In other words,
farm income being uncertain, appropriate risk mitigation strategies are necessary for
stabilizing the income of the farmers.
There are mainly three types of risks emanating from as many sources of
uncertainties. These are:
1. Production risks,
2. Price risks and
3. Input risks.
While Production risk may arise owing to two major factors viz., weather risk and
risk from pests and diseases, price-related risk occur due to sudden change of demand
and instability in expectation formulation. As is well-known farm households mainly
face the price risk because production decisions are made far in advance of the date
when output is realized. Input risk occurs when there is either a shortage of inputs or
when their prices vary (see also Ramaswami et al. 2003; Deshpande 2008).
In this context the state of Karnataka is an important state to study as it is one of
the driest state with under developed irrigation system. Farmers in the state face
drought quite frequently and commit suicide due to crop loss. While all three types
of risks appear to be present in Karnataka agriculture, production risk arising from
uncertain weather is more significant. One of the significant ways a farmer can
hedge climatic risk is through crop insurance. However, crop insurance is seen to be
not prevalent amongst them even though the Government has undertaken several
initiatives to introduce crop insurance schemes. It is therefore important to understand what are the factors that determine adoption of insurance by the farmers.
242
M. Rajeev et al.
Agricultural sector in India is at a crossroads with different forces operating on it
simultaneously. Primarily, it is the predominance of the rain fed agriculture in many
States that inhibits the growth, followed by other vagaries of the weather.
Consequent high instability in productivity is but a natural outcome of this situation
which sets back the development clock in the agricultural sector. Also in many rain
fed states like Karnataka, protective irrigation does not play any significant role.
Due to the domination of the low-value low-density crops, the farmers’ income is
continuously depressed, and given the periodic increase in prices of inputs
(specifically of the cash inputs), farmers’ net income tends to shrink continuously,
putting them under financial stress.
A farmer needs to make investment every season in working capital, which
makes timely credit a necessary condition for the success of production activities.
There are several problems associated with the rural credit system in developing
nations in general and India in particular, which are discussed by the scholars( see
Bardhan (1989), Barro (1976),Basu (1983, 1984, 1989), Bhaduri (1977), Ghatak
(1975)). Even after making right investments, a farmer may not get due returns
because of unforeseen reasons, most often beyond her/his control. In other words,
farm income being uncertain, appropriate risk mitigation strategies are necessary for
stabilizing the income of the farmers.
There are mainly three types of risks emanating from as many sources of
uncertainties. These are:
1. Production risks,
2. Price risks and
3. Input risks.
While Production risk may arise owing to two major factors viz., weather risk and
risk from pests and diseases, price-related risk occur due to sudden change of demand
and instability in expectation formulation. As is well-known farm households mainly
face the price risk because production decisions are made far in advance of the date
when output is realized. Input risk occurs when there is either a shortage of inputs or
when their prices vary (see also Ramaswami et al. 2003; Deshpande 2008).
In this context the state of Karnataka is an important state to study as it is one of
the driest state with under developed irrigation system. Farmers in the state face
drought quite frequently and commit suicide due to crop loss. While all three types
of risks appear to be present in Karnataka agriculture, production risk arising from
uncertain weather is more significant. One of the significant ways a farmer can
hedge climatic risk is through crop insurance. However, crop insurance is seen to be
not prevalent amongst them even though the Government has undertaken several
initiatives to introduce crop insurance schemes. It is therefore important to understand what are the factors that determine adoption of insurance by the farmers.
242
M. Rajeev et al.