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Risk of Rice Cultivation Under Current and Future Environment and Market

MJ Kabir
Agricultural Economics Division, Bangladesh Rice Research Institute (BRRI), Gazipur-1701, Bangladesh.

M A R Sarkar
Agricultural Economics Division, Bangladesh Rice Research Institute (BRRI), Gazipur-1701, Bangladesh.

M C Rahman
Agricultural Economics Division, Bangladesh Rice Research Institute (BRRI), Gazipur-1701, Bangladesh.

N M F Rahman
Agricultural Statistics Division, BRRI, Gazipur-1701, Bangladesh.

M A A Mamun
Agricultural Statistics Division, BRRI, Gazipur-1701, Bangladesh.

A Chowdhury
Agricultural Economics Division, Bangladesh Rice Research Institute (BRRI), Gazipur-1701, Bangladesh.

M U Salam
Freelance International Consultant (Agricultural Systems), Bangladesh.

M S Kabir
Director General
Bangladesh Rice Research Institute (BRRI), Gazipur-1701, Bangladesh.

Abstract/ Executive Summary:

Risk is an inevitable feature of agriculture globally, and it might increase over time in the future. The study assesses the risk of rice cultivation in the three seasons under current and future conditions. The software programme @Risk version 7.6 was used to simulate the risk-return trade of rice cultivation in the three seasons in Bangladesh. The likelihood of having negative net income for the Aus (90%) and Boro (80%) rice was very high under the current market and environmental conditions. Besides, the chance of obtaining negative net income was notable for T. Aman (33%). Both the yield and price variation significantly contributed to the fluctuation of returns of rice production. However, with the current seasonal variation in yield, the probability of having negative net income for paddy rice was very low under the farmers’ expected price (Aman: 22.5 BDT kg^-1, Boro: 25 BDT kg^-1 and Aus: 24 BDT kg^-1). The result indicates that only access to the fair price of the rough rice can ensure the economic sustainability of rice production. Likewise, chances of having a negative net income of paddy rice in 2030 will be zero under the extrapolated yield (Aman: 5.3 kg ha^-1, Boro: 6.3 kg ha^-1 and Aus: 4.8 kg ha^-1) and price (Aman: 31.75 BDT kg^-1, Boro: 30.75 BDT kg^-1 and Aus: 30 BDT kg^-1). The findings indicate that rice cultivation in the three seasons will be economically sustainable, subject to achieving the expected genetic gain and ensuring access to the projected price. Thus, policy supports are needed to ensure farmers' access to a fair price, improve management practice, and strengthen research to enhance genetic gain for sustainable rice farming under future conditions.

Keywords: Production risk, Market risk, Yield and price fluctuations, Economic sustainability

Location: Agricultural Economics Division, Bangladesh Rice Research Institute (BRRI), Gazipur-1701, Bangladesh.

Start Date: 00-00-2017

End Date: 00-00-2019

Program Area: Risk Management in Agriculture

Commodity: Rice, Environmental change

Objectives:

This study focuses on assessing the risk of rice cultivation in the three rice growing seasons under current and future conditions.

Methodology:

In particular, input use pattern, yield, and prices of inputs and outputs of Aus, T. Aman, and Boro rice, farm-level data were collected from 900 key informant rice farmers over the last three years (2017-2019). The data were collected from favorable and unfavorable ecosystems, including salinity, drought, submergence, and haor areas. Stochastic budgets were constructed for representative enterprise budgets to evaluate the riskiness of rice in the Aus, T. Aman, and Boro seasons. The software programme @RISK Version 7.6 was used along with Excel to derive cumulative density functions (CDFs) of gross margin (GM) and net income (NI) (PC, 2018). Monte Carlo simulation was run following triangular probability distributions of yield and price (Hardaker et al., 2004). It was due to that distribution is best fitted with available data. The model was run under the following three conditions: Farmers perceived seasonal variation in yield and price of Aus, T. Aman, and Boro rice for the last five years; Farmers observed seasonal variation in rice yield over the last five years and their expected price of Aus, T. Aman and Boro rice; and, Extrapolated yield (1% genetic gain per year over existing yield with same seasonal variation and yield gap), price (6.5% annual increase as compound growth rate), and cost (15% increase from baseline cost) in 2030. Although Monti-Carlo simulation software is highly potential to give precise predictions about risk-return trade-offs. However, the projection of paddy prices under future conditions based on the exponential growth coefficient is not highly reliable. The best-case yield was obtained under favorable weather conditions and the worst-case yield under unfavorable weather conditions. However, the complete crop loss by extreme events such as floods, cyclones, and storm surges was excluded from the worst seasonal yields. With regards to price, the best price is the price that is obtained in some seasons, and the worst-case price is the price that is obtained in some seasons. The typical seasonal grain yield and paddy prices were the yield and paddy prices obtained in most cases. The highest number of iterations (10,000) was used for simulating each CDF as it increased the stability of the distribution (Lien, 2003). The analysis of risk involved comparing the CDFs of the alternative cropping options. Simple stochastic dominance rules were applied (Anderson et al., 1988; Dillon and Hardaker, 1993). The current yield was the farmers' observed best, normal, and worst seasonal yield. The current and expected prices were the farmers' observed and expected high, most likely, and low price of rice. Yield in different seasonal conditions was extrapolated by considering 1% genetic gain per year over existing yield with the same seasonal variation and yield gap. The best seasonal price was extrapolated by accounting for the annual exponential growth of the rough price for the last 22 years.

Source of Information: Bangladesh Rice J. 25 (1) : 101-110, 2021

Article Link (Online Journal): DOI: https://doi.org/10.3329/brj.v25i1.55182

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

The likelihood of having negative net income for the Aus (90%) and Boro (80%) rice was very high under the current market and environmental conditions. Besides, the chances of obtaining negative net income were notable for T. Aman (33%). Both the yield and price variation significantly contributed to the fluctuation of returns of rice production. However, with the current seasonal variation in yield, the probability of having negative net income for rough rice was very low under the farmers’ expected price (Aman: 22.5 BDT kg^-1, Boro: 25 BDT kg^-1, and Aus: 24 BDT kg^-1). The finding indicates that only accessing the fair price of the rough rice can ensure the economic sustainability of rice production. Likewise, chances of having a negative net income of paddy rice in 2030 will be zero under the extrapolated yield (Aman: 5.3 kg ha^-1, Boro: 6.3 kg ha^-1 and Aus: 4.8 kg ha^-1) and price (Aman: 31.75 BDT kg^-1, Boro: 30.75 BDT kg^-1 and Aus: 30 BDT kg^-1). The finding indicates that only ensuring access to the fair price of the rough rice is vital for the economic sustainability of rice production. Thus, policy supports are required for (i) controlling unscrupulous market deals, (ii) enhancing genetic gain, and (iii) improving management practice for sustainable rice farming under future conditions.

Knowledge Management: Journal