Incorporating the Newsvendor Model in Agricultural Risk Management: A Quantitative Approach To Decision-Making

Agricultural commodity markets remain unstable due to climate change, evolving global demand, and disruptions faced due to supply chain. Improved risk management strategies are crucial to establish food security and ensuring proper income of the farmers. In this paper, we examine the application of the renowned newsvendor model to agricultural products. We demonstrate effectiveness of the model to determine optimal procurement quantity and alleviate risks associated with both shortages and overproduction. Newsvendor model has been widely applied in different discipline since its inception, determines optimal quantity by balancing shortage and overage cost. We establish significance of applying the model to India’s agricultural sector to improve procurement decisions, minimizing losses. Additionally, integration of the model into policy planning also improves the effectiveness of government interventions, such as minimum support price (MSP) schemes and buffer stock management. Furthermore, we explore the application of the model to the country’s agricultural export policy, particularly focusing on the African countries affected by droughts, and receive support from the United Nations. The newly developed framework effectively enhances food security in vulnerable regions along with improving India's agricultural trade and global outreach. Our findings indicate that incorporating newsvendor framework contribute towards a more stable and market-driven agricultural economy in India.