In Simple Words
Imagine a store owner who stocks only non-perishable canned soup that loses a few cents on every sale because it never spoils, rather than selling fresh produce that yields high profits but spoils during bad weather.
Estimated regional crop profits per hectare
- Castor
- Rs.2,771 profit
- Groundnut
- Rs.2,951 profit
- Sorghum
- Rs.212 loss
Regional calculations using recommended inputs and prices. Selected crops; these are estimated profits, not trial treatment effects.
See source →Research question
Risk-averse smallholder farmers in semi-arid regions frequently choose low-yield, drought-tolerant subsistence crops to guarantee survival, incurring severe profit penalties compared to commercial cash crop alternatives.
Participants
N = 1,479 farming households in rural Andhra Pradesh, India.
Study Design
Comparative enterprise budgeting and crop profit estimation using regional production costs, water requirements, and 2009 market prices.
Results
Sorghum requires 376 mm of rainfall but generates a negative expected profit of -Rs. 212 per hectare, whereas cash crops castor (625 mm water requirement) and groundnut (533 mm water requirement) generate expected profits of Rs. 2,771 and Rs. 2,951 per hectare respectively.
Takeaway
Establish targeted rainfall index insurance to buffer weather shocks, enabling farmers to transition away from loss-making subsistence crops to high-return cash crops.