Hedging Rainfall Risk by Farmers Growing Soyabean in Jhalawar District: A Theoretical Analysis of Willingness to Pay

Rainfall risk to the yield of a crop can be hedged, to an extent, by the use of weather derivatives. The paper considers a theoretical model which maximises the expected utility of a farmer growing a crop, with respect to planned production. An option to hedge the weather risk to yield, through purchase of weather derivatives, is introduced. The case of farmers growing soyabean in Jhalawar district of Rajasthan in central India is taken as an example in order to determine the theoretical willingness to pay to hedge volumetric risk to yield.