Assessment of risk premium in farm technology adoption as a climate change adaptation strategy in the dryland systems of India

Changing climate has increasingly become a challenge for smallholder farmers. Identification of technical, institutional and policy interventions as coping and adaptation strategies and exploring risks of their adoption for smallholder farms are the important areas to consider. The aim of the present study was to carry out an in-depth analysis of adaptation strategies followed and the associated risk premium in technology adoption.

The study was carried out in the dryland systems of three Indian states – Andhra Pradesh, Karnataka and Rajasthan – and was based on a survey of 1,019 households in 2013. The flexible moment-based approach was used for estimating the stochastic production function, which allowed estimation of the relative risk premium that farmers are willing to pay while adopting the technologies to avoid crop production risks.

In all the three states, the risk premium (INR ha⁻¹) was higher for farm mechanization compared to supplemental irrigation, except in the case of Andhra Pradesh. The higher the level of technology adoption, the higher the risk premium that households have to pay. This can be estimated by the higher investment needed to build infrastructure for farm mechanization and supplemental irrigation in the regions. The key determinants of technology adoption in the context of smallholder farmers were climatic shocks, investment in farm infrastructure, location of the farm, farm size, household health status, level of education, married years, expected profit and livestock ownership.

Quantification of the risk premium in technology adoption and conducting associated awareness programs for farmers and decision-makers are important to strengthen evidence-based adoption decisions in the dryland systems of India.