Some management objectives of the peasant farmer: An analysis of risk aversion in the choice of cropping pattern,Surat district,India

The basis of peasant farmers’ decision‐making is a critical factor in the formation of agricultural policy in developing countries. If farmers operate efficiently, implying that profits are maximised, then incomes can only be increased by introducing improved methods of production; if farmers do not act efficiently, it may be desirable to reallocate resources within traditional agriculture. Similarly, predictions of farmers’ responses to price changes and thus the impact on aggregate production and employment¹ are based on assumptions regarding farmers’ management objectives.

The primary aim of this paper is to examine empirically the cropping patterns chosen by a group of peasant farmers in Surat District, India, using a simple model of risk aversion. The data show that the observed behaviour corresponds very closely to the hypothesis that farmers allocate land to different crops by striking some balance between the competing criteria of (a) increasing income and (b) decreasing risk measured by income variability. The actual definition of risk is, in this case, the mean absolute deviation of income around its mean level. Secondly, the contrasting importance of risk and credit between irrigated and unirrigated farms is illustrated, and finally, some policy implications are discussed briefly.