An investigation of crop diversity’s impact on income risk reduction of selected crops (Case study: Zanjan province)

Document Type : Research Paper

Authors

1 Department of Agricultural Economics, science and Research branch, Islamic Azad University, Tehran, Iran

2 Department of Agricultural Economics, Faculty of Agricultural Economics and Development, University of Tehran, Karaj, Iran

Abstract

Crop diversity has always been a way to reduce agricultural risk. This study seeks to explore the long-term impact of crop diversity on reducing agricultural income risk in the province of Zanjan. In this study, first the crop diversity was evaluated through the herfindhal index in the timeframe of 1997 to 2018. Next, the income risk was estimated via hodrick-prescott filter. Finally using the Vector Error Correction Model (VECM), the long-term impact of crop diversity on reduced income risk was measured. Given the results of the long-term model it is clear that in the long-run there is a reduction in income fluctuations as crop diversity increases. The result was statistically meaningful by 1%. Meanwhile, based on the results if in the short-run a shock impacts agricultural income fluctuations in the province of Zanjan, in the long-run about 4 cycles are needed to totally balance the impact of the shock out. In other words, the impact of the shock is modified by 25% in each cycle. Thus, it is on the policymakers to first establish supportive policies to diversify cultivation patterns and prevent income shocks. They also need to develop reparative policies such as insurance means in a four-year period to balance the shock once it strikes.

Keywords

Main Subjects

Extended Abstract

Introduction and objectives

Negligence towards risk management is tantamount to inattention to opportunities which can cut off the agricultural sector from development goals and paves the way for interrupted or ceased agricultural activities. Therefore, it is essential to consider risk management in the agriculture sector when developing policies and plans. The current study explores the long-term impact of crop diversity on reducing the agricultural income risk in the province of Zanjan within the timeframe of 1376 to 1397.

 

 

Research Method

As the first step, crop diversity was analyzed through the herfindhal index. Then to estimate the income risk, Hodrick-prescott filter was applied. The static variables were studied and the accumulation order was measured via VAR matched with variable vector since both variables are an accumulated model of the first order. 

 

Results and Findings

Relying on the difference between the Hodrick-prescott indicator and the resulted income and the income risk of five crops it was noted that the more negative a figure is, the higher the risk. Then the crop diversity index was estimated for all agricultural years which stood at 59%. This indicates that by cultivating five crops, significant positive impacts can be noted on each one’s performance.

Given the results of the reliability test and convergence test, VECM model was applied in this study. The long-term relation of the model shows that the impact of crop diversity on income risk was statistically significant at 1% and with every percent of increase in the crop diversity, the fluctuation level goes down by 25%.

In the meantime, the error correction coefficient indicates that if in the short term a sudden shock is inflicted on agricultural income, the impact of the shock is balanced out by 25% in each cycle. This means that four cycles are needed to completely balance out the shock.

 

Discussion and Conclusion

In the long-run there is a link between crop diversity and income risk. The diversity in the cultivation pattern has led to decreased income risk for farmers in Zanjan.

As the results of the error correction coefficient indicated the emergence of short-term shocks to farmers’ income calls for about four cycles to balance the negative impacts out. Thus it is on the policymakers to lead supportive policies in line with diversifying cultivation patterns as well as developing policies to prevent income shocks. In case of a shock they are required to balance it out in a four-year period and develop reparative policies such as insurance services.

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Iranian Journal of Agricultural Economics and Development Research
Volume 54, Issue 3
September 2023
Pages 593-604

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