Optimal Crop Choice, Irrigation Allocation, and the Impact of Contract Farming

The changing climate and concerns over food security are prompting a new look at the supply chain reliability of products derived from agriculture, and the potential role of contract farming as a mechanism to address climate and price risk while contributing toward crop diversification and water use efficiency is also emerging. In this study, the decision problem of a farmer associated with allocating his land among different crops with varying water requirements is considered, given that a subset of the crops may be associated with a forward contract that is being offered by a buyer. The problem includes a decision to acquire a certain amount of irrigation water capacity prior to the season and to allocate this capacity as irrigation water to be applied during the season to each of the crops selected. Rainfall in the growing season and the market price of each crop at the end of the season are considered to be random variables. Two stochastic programming models are developed to consider facets of this problem and to understand how contracts that reduce market price uncertainty from the problem may change the farmer's decision. The structural properties of these models are discussed, and selected implications are illustrated through an application to data from the Ganganagar district in Rajasthan, India.