Interaction of co-operative credit and uncertainty in small farmer adoption of the new cereal varieties

With rates of return on the new varieties often so high, are farmers unable to find any alternative credit source for a short period? This paper argues that small farmers may be unable to borrow from traditional sources for adoption owing to an inelastic supply of credit, and unwilling to borrow from these sources owing to the uncertainty of returns from the new varieties. Macro-economic data from Gujarat State show that widespread adoption of new varieties require huge expansion in the supply of cooperative credit. Micro-economic data indicate that cooperative credit becomes important after the initial phase of the diffusion process, and under conditions where a high degree of uncertainty is involved in adoption. In Section II we present a conceptual model showing the place of cooperative credit in the small farmer"s overall supply and demand for capital, and we examine empirically the assumptions on which this model rests. In Section III we test the implications of the model in macro terms for the role of credit in adoption, using districtwise data for Gujarat State. In Section IV we test the implications of the model in micro terms, using the results of a large number of regional micro studies, and survey data for 225 farmers in Mehsana District of North Gujarat, and 120 farmers in Surat District of South Gujarat. In conclusion we draw on this analysis to show under what conditions cooperative credit may be used to accelerate diffusion of the new varieties to small farms.