Subsistence Crop Profitability Penalty
Observational StudyReview
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.
Picture this
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.
What the evidence says
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.
- Who was studied
- N = 1,479 farming households in rural Andhra Pradesh, India.
- How
- Comparative enterprise budgeting and crop profit estimation using regional production costs, water requirements, and 2009 market prices.
What to do
Establish targeted rainfall index insurance to buffer weather shocks, enabling farmers to transition away from loss-making subsistence crops to high-return cash crops.
From the source
"Thus, expected profits for castor and groundnut are indeed higher at Rs 2,771 and Rs 2,951 compared to a negative profit of Rs 212 for sorghum and a small profit of Rs 141 for red gram."
751_How_Does_Risk_Management_Influence_Production_Decisions.pdf