The following points highlight the four main types of uncertainties experienced in agriculture. The types are: 1. Yield uncertainty 2. Price Uncertainty 3. Tenurial Uncertainty 4. Uncertainty with regard to Input Prices/Quality.
Type # 1. Yield Uncertainty:
In-spite of technical progress, crop yields is still very much dependent on natural factors and hence are highly uncertain. Modern livestock husbandry is less dependent on weather in comparison to crop farming but a hard winter or a dry summer can still have a marked influence on livestock production.
Move over, the possibility of livestock epidemics is always there. Fluctuations in crop yield take place over which the farmer has no control and which he is unable to foresee. The extent of yield fluctuation is, however, likely to be greater in some regions as compared to others. For example, tropical regions are more prone to yield uncertainty than the temperate areas.
Moreover, the yield of some crops such as cotton is variable than that of others like wheat. These differences in the relative degree of uncertainty apart, the important fact is that the individual farmer is unable to predict accurately the output that he will obtain from a particular input combination.
This happens because of the biological nature of agricultural industry which makes the yield much more dependent on natural factors in comparison with the products of non-farming industries. Yield uncertainty is also termed as technical uncertainty, as it refers to the variability in the production coefficient of a given technique.
Type # 2. Price Uncertainty:
In additional to yield or technical uncertainty, uncertainty also exists with regard to the prices of agricultural products. Price is more or less an uncontrolled or exogenous variable so far as the individual farmer is concerned.
The farmer operates in a market structure which approximates to perfect competition and, therefore, the price he receives for a product of a given quality is altogether unaffected by any plan or courses of action that he or any other farmer might adopt. He is a price taker and not a price maker.
The outside factors which affect prices are:
(a) The behaviour of other farmers taken together;
(b) weather-induced random fluctuations in output;
(c) fluctuations in national income and prosperity; and
(d) discontinuous production cycles of the cobweb type.
Product prices faced by the non-farm industries are also subject to fluctuations, but the degree of price uncertainty in these industries is much less than in agriculture.
The main reason for this is that not only are the non-farm industries much less affected by weather generated price fluctuations but also that the monopolistic market structure in which they operate enables them to exercise greater control over prices of their products. Price fluctuations are likely to be reduced further in case of industry because it is easier to adjust the supply of its products to changes in demand when compared with agriculture.
Type # 3. Tenurial Uncertainty:
Another type of uncertainty that is quite conspicuous in agriculture is the tenurial uncertainty. We know that land is generally leased out to tenants. The tenant, as farmer, does not know for how long he will be able to retain the land in his possession. He may thus hesitate to make long-term improvements in land as he may not be sure about earning the additional return from such improvements.
Type # 4. Uncertainty with regard to Input Prices/Quality:
Yet an other type of uncertainty is that which exists in regard to the price and quality of inputs. This type of uncertainty is particularly important in the case of capital inputs which are generally costly and subject to frequent qualitative improvements. The farmers generally react to this type of input price uncertainty by postponing the purchase of such inputs.
Some economists, in order to be more comprehensive, have suggested six ‘Ps’ indicating uncertainties. These are Trice uncertainty, production uncertainty, Production technology uncertainty, Political uncertainty, Personal uncertainty and people’s uncertainty. Some of these need further explanation. Political uncertainty refers to the uncertain political conditions in the country.
Under normal circumstances, this type of uncertainty may not be there. However, Government’s policy about land reforms and other institution may create some uncertainty which may be included under ‘Political uncertainty.’
Personal uncertainty refers to the uncertainty about the welfare of farmer’s family. People’s uncertainty refers to the relationships of the farmer with persons he helps with. These persons include labourers (both family & hired), bankers, landowners., neighbouring farmers from whom the farmer leases in land or to whom the farmer leases out his land or other resources.
Most of the remedial measures that have been discussed below are concerned with the price uncertainty or the yield uncertainty as these two directly and immediately affect the earnings of the farmers and the farmers can also take some commonly accepted steps to meet these types of uncertainty.
For some types of uncertainty, no suggestion can be made to the farmer because nothing can be done at his own level e.g., Political uncertainty. For others, like Personal uncertainty or people’s uncertainty, no suggestion of a general nature can be offered simply because the problem is too personal to be generalized.