An investigation of crop diversity’s impact on income risk reduction of selected crops (Case study: Zanjan province)

Crop diversity has always been a way to reduce agricultural risk. This study seeks to explore the long-term impact of crop diversity on reducing agricultural income risk in the province of Zanjan. In this study, first the crop diversity was evaluated through the herfindhal index in the timeframe of 1997 to 2018. Next, the income risk was estimated via hodrick-prescott filter. Finally using the Vector Error Correction Model (VECM), the long-term impact of crop diversity on reduced income risk was measured. Given the results of the long-term model it is clear that in the long-run there is a reduction in income fluctuations as crop diversity increases. The result was statistically meaningful by 1%. Meanwhile, based on the results if in the short-run a shock impacts agricultural income fluctuations in the province of Zanjan, in the long-run about 4 cycles are needed to totally balance the impact of the shock out. In other words, the impact of the shock is modified by 25% in each cycle. Thus, it is on the policymakers to first establish supportive policies to diversify cultivation patterns and prevent income shocks. They also need to develop reparative policies such as insurance means in a four-year period to balance the shock once it strikes.