Types of Risk and Uncertainty

1. Economic uncertainty

• Price expected before sowing or at the time of planning may not be same at the time of implementation and at the time of harvesting.
• The price may fall far below the expectation or may rise far above the expectation. For instance, the price of raw rice is expected to be at least Rs. 1000/qtl fall less than Rs. 200/qtl.

2. Technological uncertainty

• The technology improvement necessarily implies that the same level input can now produce larger quantities of the produce.
• Graphically, it can be depicted by an upward shift of the production function or down ward shift in the isoquant curve.
• The upward shift in the production function signifies that more output can now be produced at each level of input after technological progress.
• The upward shift of isoquant in the other hand represents that, now it is possible to produce the level of output by using the less amounts X1 and X2.

3. Institutional uncertainty

• Institutional like government, banks etc. may also cause uncertainties for an individual farmer.
• For instance, crop tax, support price, subsidies etc. may be enforced or withdrawn without taking and individual farmer into confidence. This type of uncertainties may also result in unavailability resources in appropriate quantities and at the appropriate time and place.

4. Biological uncertainty

• Agriculture is being the biological in nature, this type of risk and uncertainties are quite common and important, heavy rainfall, drought, floods and hailstones are directly or indirectly affecting the production of agricultural commodities by increasing the incidence of diseases or insects.

5. Personal uncertainty

• Human being, being the biological in nature may suffer from several ecological, physical or health disorder causing the serious problem in planning.
• Similarly, the farm plan may not be executed because of the mishap in the farmers’ household or in the permanent labor force.