UWA
Papers on Agricultural Extension and
Adoption and Diffusion of Innovations in Agriculture
Abstract - The importance of risk in adoption of
a crop innovation:
Empirical evidence from Western Australia
Amir K. Abadi Ghadim and David J. Pannell
Agricultural and Resource Economics, The University of W.A., Nedlands, 6907
Abstract
A considerable research effort is being directed towards development of new legume crop species for dryland farming systems of southern Western Australia. A crucial element in the success of this effort is the adoption of these new crops by farmers. Our research investigated the impact of risk and uncertainty on the adoption of these new crops. We developed a Bayesian decision theoretic framework which was used to formulate a statistical regression model to test for links between lags in adoption and risk factors. A regression model was developed to assess the statistical and economic significance of risk factors that included the dynamic learning process underpinning the adoption process. In this model trial evaluation of the innovation forms an essential part of the learning process which brings about reductions in uncertainty and increases in skill development. We present, in this paper, results from analysis of a longitudinal survey (1994-97) of 114 farmers who were growing, or considering growing, these crops. Analyses were conducted using the tobit, probit and the ordinary least squares procedures. and models included explanatory variables such as (a) personal risk preference of the farmer as measured by the Pratt-Arrow coefficient; (b) perception of relative riskiness of the profitability of the new crop based on the mean and the variance of the elicited subjective distributions of yield and price; (c) covariance of the profitability of wheat and the new legume crop also calculated from elicited distributions; (d) value of information from trialling and (e) socio-demographics such as labour and time preference. The results provide support for confirmed the validity of the proposed theoretical model and indicated statistical and economic significance of the following factors in determining the farmer’s decision to plant chick peas: . These factors were (a) relative whole-farm profitability of chick peas; (b) value of information generated through trialling and experience from growing chick peas and other crops whose yields are correlated; (c) innovativeness of the farmer; (d) availability of physical resources such as machinery and labour; (e) the relative riskiness of chick peas on a whole-farm basis and (f) finally the farmer’s personal risk preferences of the farmer and their is interaction with perception of risk. It was interesting to find that the set of variables which explained the decision to plant or not to plant chick peas were different to those which explained how much to plant.
Citation: Abadi Ghadim, A.K. and Pannell, D.J. (1998). The importance of risk in adoption of a crop innovation: Empirical evidence from Western Australia. Paper presented at the 42nd Annual Conference of the Australian Agricultural and Resource Economics Society, University of New England, Armidale, NSW Jan 19-21 1998.
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