Question

A non-governmental organization (ngo) introduced to subsistence farmers a modern seed variety with potential to produce ten times more yield than traditional seed varieties. The likelihood of crop failure using modern seeds was higher compared to traditional seeds. The NGO was surprised that the farmers were reluctant to adopt these modern seeds. Explain using risk and uncertainty why this economic behaviour by farmers is rational? What could be done to increase adoption of modern seed varieties by farmers? Short answer question

Answer 1

Modern High Yielding Variety of seeds have potential to exponentially increase productivity. But, they need better complementary amenities - proper fertilizers, irrigation, pest protection. And, otherwise they are more prone to damage.

This implies that the new tech seeds have result anticipation as either too high profits or too much losses, ie huge risk. This makes small, poor & risk averse farmers avoid them; due to high expected (mean) value of results but higher variability (scatter fluctuation scope) in the results.

The issue could have two solutions :-

• Giving financial help to farmers, so that input costs are reduced for small, apprehensive farmers. This would incentivise them to opt for the new seeds & other inputs. Eg : Seeds or fertilisers subsidies
• Protecting farmers risks through insurance. A well developed insurance mechanism would be a great incentive, adoption booster for the afraid farmers, by being a support system in case of potential huge loss.