Regional Crop Diversity and Weather Shocks in India

Abstract

Agriculture in both the developing and developed country context is highly sensitive to weather shocks. The intensity of these shocks is likely to increase under climate change, leading to an ongoing debate regarding the ability of farmers to insulate yields and income against accelerating environmental extremes. We study crop diversity as an avenue for increased resilience. Diversity in agricultural systems has been suggested in the agroecology and environmental economics literatures as a powerful means of on-farm insurance, both through physical and market-based channels. However, large-scale empirical evidence of its effectiveness is lacking, and crop diversity is largely absent from the empirical climate impacts literature. We examine the insurance benefits of crop diversity in the context of India at the height of the Green Revolution, a period of rapid change in agricultural diversification due to the increased penetration of a small set of high-yielding variety crops. Building on a basic empirical model from the climate impacts literature, we show that areas with higher crop diversity of planted area display measurably more drought resilience, both in terms of gross and net revenues. We decompose this aggregate result to show that diversification has implications for farmer welfare both through physical (yield) and market (price) channels.