October 05, 2007

RISK PLATFORMS IN INDIAN AGRICULTURAL BANKING

Risk Management in Agriculture
Farmers are exposed to risks arising from rainfall variability, market price fluctuations, credit uncertainty, and adoption of new technology. In other words, the farmers basically face weather risk, product risk, price risk and market risk. The diversities in the sources of risks require a variety of instruments for protecting the farmers. In India, these include crop insurance, rainfall insurance, farm income insurance and a calamity relief fund. Most of these measures other than crop insurance are in the experimental stage. The farmer is pretty unsure of the product because of uncertainty in the quality of the seed he purchased at the time of sowing. There are States where the State Seed Act is in position with varying degrees of regulatory imperfections and implementation failures. Still the farmer gambles with his sweat. The quantity targeted for production is at best a guestimate. The marketable surplus for most small and marginal farmers is again uncertain. Neither the farmer nor the extension machinery has farm planning as an integral part of farm future. Even where it existed, the farmer does not swear by it. After the produce comes to hand and after arriving at the marketable surplus, the farmer is also unsure of the price – whether it fetches him cost of inputs plus a reasonable margin for maintenance excepting for a few cereal crops where State subvention exists. These uncertainties cast their shadow on the policy approaches and implementation agenda of the credit institutions.

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