An Inquiry into the Composition of Farm Revenue Risk

In a liberalised economy, a fundamental understanding of the components of farm revenue risk through the relationship between yield and price risk is imperative. This study decomposes the changes in revenue risk over two decades of cotton cultivation in six districts of the Vidarbha region in Maharashtra into changes in price risk, yield risk, and the natural hedge. Examining data in two periods, 1991-2002 and 2003-11, it shows that though there has been a reduction in price variances, the increase in covariance between yield and price and the change in yield variance have caused increased riskiness in cotton revenues. It also indicates directions for future policies.