The impact of risk and uncertainty on irrigation decision for paddy production in North Sumatera Indonesia

Abstract

The risk in agricultural profitability is mainly due to risk in crop yield and volatility in crop prices. The risk in agricultural profitability would change the optimal choices of input use, especially water as a main resource for crop growth. Weather variability and limited water resources are main issue in paddy farming. The optimal choices of irrigation intensity are determined by agricultural profitability and farmer's risk preference. Paddy is a water-sensitive crops that require intensive irrigation. The SERF analysis found risk neutral farmer are fond of irrigation intensity at 2.5 cm, but greater risk averse preference would change the optimal choice to irrigation intensity of 1 cm. The increase in risk would affect higher risk averse preference to change the optimal choice from risk neutral behavior.