Empirical analysis of agricultural crop diversification in Irrigation District 053, State of Colima

Resumen

Objective: To examine the potential of crop diversification as a risk management strategy in the 053 State of Colima Irrigation District during the 1997/98–2021/22 period.

Design/methodology/approach: The relationship between yield, price, and income risk levels and the degree of diversification in annual agricultural portfolios for the autumn-winter (A-W), spring-summer (S-S) cycles, and perennial crops was analyzed. Diversification was measured using the Herfindahl Index (HI). Risk was interpreted as the instability of the variables, represented by the standard deviation and calculated using Markowitz’s mean-variance methodology.

Results: It was found that agricultural portfolio diversification is a useful strategy to reduce price risk in both agricultural cycles, as well as yield and income risk in perennial crops (significantly positive correlations). However, it proved unfavorable for managing these latter two risks in the S-S cycle (considerably negative correlations). It was also observed that in all three crop groups, income risk is primarily determined by price variation (market risk).

Study limitations/implications: The results lose validity when the elements of the variance-covariance matrix in the irrigation district change. The analysis can be complemented by calculating the optimal (analytical) portfolio for each crop group.

Findings/conclusions: It is concluded that, in order to contribute positively to income stability in the irrigation district, special attention should be given to managing price fluctuations (market risk) across the three crop groups and to increasing diversification, particularly in perennial crops.