Uncertainty in Agriculture

The following points highlight the four main types of uncertainties experienced in agriculture. The types are: 1. Yield
uncertainty 2. Price Uncertainty 3. Tenurial Uncertainty 4. Uncertainty with regard to Input Prices/Quality.

Type # 1. Yield Uncertainty:

In-spite of technical progress, crop yields is still very much dependent on natural factors and hence is highly
uncertain. Modern livestock husbandry is less dependent on weather in comparison to crop farming but a hard
winter or a dry summer can still have a marked influence on livestock production.

Move over, the possibility of livestock epidemics is always there. Fluctuations in crop yield take place over
which the farmer has no control and which he is unable to predict. The extent of yield fluctuation is, however,
likely to be greater in some regions as compared to others. For example, humid regions are more prone to
yield uncertainty than the temperate areas.

Moreover, the yield of some crops such as cotton is variable than that of others like wheat. These differences in
the relative degree of uncertainty apart, the important fact is that the individual farmer is unable to predict
accurately the output that he will obtain from a particular input combination.

This happens because of the biological nature of agricultural industry which makes the yield much more
dependent on natural factors in comparison with the products of non-farming industries. Yield uncertainty is
also termed as technical uncertainty, as it refers to the variability in the production coefficient of a given
technique.

Type # 2. Price Uncertainty:

In additional to yield or technical uncertainty, uncertainty also exists with regard to the prices of agricultural
products. Price is more or less an uncontrolled or exogenous variable so far as the individual farmer is
concerned.

The farmer operates in a market structure which approximates to perfect competition and, therefore, the price
he receives for a product of a given quality is altogether unaffected by any plan or courses of action that he or
any other farmer might adopt. He is a price taker and not a price maker.

The outside factors which affect prices are:

(a) The behaviour of other farmers taken together;

(b) weather-induced random fluctuations in output;

(c) Fluctuations in national income and prosperity; and

(d) Discontinuous production cycles of the cobweb type.

Product prices faced by the non-farm industries are also subject to fluctuations, but the degree of price
uncertainty in these industries is much less than in agriculture.
The main reason for this is that not only are the non-farm industries much less affected by weather generated
price fluctuations but also that the monopolistic market structure in which they operate enables them to
exercise greater control over prices of their products. Price fluctuations are likely to be reduced further in case
of industry because it is easier to adjust the supply of its products to changes in demand when compared with
agriculture.

Type # 3. Tenurial Uncertainty:

Another type of uncertainty that is quite obvious in agriculture is the tenurial uncertainty. We know that land
is generally leased out to tenants. The tenant, as farmer, does not know for how long he will be able to retain
the land in his possession. He may thus hesitate to make long-term improvements in land as he may not be
sure about earning the additional return from such improvements.

Type # 4. Uncertainty with regard to Input Prices/Quality:

Yet another type of uncertainty is that which exists in regard to the price and quality of inputs. This type of
uncertainty is particularly important in the case of capital inputs which are generally costly and subject to
frequent qualitative improvements. The farmers generally react to this type of input price uncertainty by
postponing the purchase of such inputs.

Some economists, in order to be more comprehensive, have suggested six Ps indicating uncertainties. These
are moment uncertainty, production uncertainty, Production technology uncertainty, Political uncertainty,
Personal uncertainty and peoples uncertainty. Some of these need further explanation. Political uncertainty
refers to the uncertain political conditions in the country.

Under normal circumstances, this type of uncertainty may not be there. However, Governments policy about
land reforms and other institution may create some uncertainty which may be included under Political
uncertainty.

Personal uncertainty refers to the uncertainty about the welfare of farmers family. Peoples uncertainty refers
to the relationships of the farmer with persons he helps with. These persons include labourers (both family &
hired), bankers, landowners., neighboring farmers from whom the farmer leases in land or to whom the
farmer leases out his land or other resources.

Most of the remedial measures that have been discussed below are concerned with the price uncertainty or
the yield uncertainty as these two directly and immediately affect the earnings of the farmers and the farmers
can also take some commonly accepted steps to meet these types of uncertainty.

For some types of uncertainty, no suggestion can be made to the farmer because nothing can be done at his
own level e.g., Political uncertainty. For others, like Personal uncertainty or peoples uncertainty, no suggestion
of a general nature can be offered simply because the problem is too personal to be generalized.

The economic uncertainties are markedly reduced in many economies where input and product prices are
announced before sowing a crop. Economic uncertainties of this nature are usually caused by national and
international policies which are beyond the approach of an individual farmer.
Biological uncertainty is quite common and important in agriculture. Rains or drought, floods, hailstorms,
frost, etc., may all affect the yields in agriculture directly or indirectly by increasing the incidence of crop or
animal diseases.

Technological uncertainties: Continuous advancement of knowledge through research activities has made
more efficient methods increasingly available for agriculture. Simultaneously, new inventions and innovations
may result in an increased efficiency of the existing methods. Thus, improvement of knowledge which is
continuous phenomenon may render some techniques less efficient and finally obsolete. Such a change is
known as technological progress in agriculture can be found in different methods of cultivation and in fertilizer,
irrigation and chemical applications giving different yield responses. Technological improvement necessarily
implies that the same level of input can now produce larger quantities of the produce.

In the above figure for the same input level X 0 , the yield is increased from Y0 to Y1 due to technological improvement
from T 0 to T 1 .

Institutional uncertainties: Institutions like government, banks, etc., may also cause uncertainties for an
individual farmer. Crop cess (local tax on crop), credit squeeze, price supports, subsidies, etc. may be enforced
or withdrawn without taking an individual farmer into confidence. This type of uncertainty may also result in
non-availability of resources in appropriate quantities and at the appropriate time and place.

Personal uncertainties

The farm plan may not be executed because of some mishap in the farmers household or in his permanent
labour force.