Diesel price hikes and farmer distress: the myth and the reality

The issues being addressed in this paper are as follows. Has there been significant change in cost of groundwater pumping due to diesel price shock in regions where it matters? If so, how that has impacted millions of irrigation water buyers? How farmers respond to increase in irrigation costs? Such responses include: how the well owning farmers change their farming enterprise, including the farming system itself; how their willingness to take risk changes, and finally, how the economic prospects of irrigated farming itself changes as a result? It is found that the impact of diesel price on irrigation cost incurred by diesel well owners is not significant. One reason for this is that the regions which are heavily dependent on diesel pumps for irrigation have shallow groundwater table. Also, this burden is not passed on to the water buyers owing to increasing competition and reducing monopoly power of pump owners. The analysis of the farming enterprise of irrigators under differential cost (irrigation) regimes presented here shows that farmers would be able to cope with very high rise in irrigation costs through irrigation efficiency improvements and allocating more area under crops that give higher returns per unit of land and water, that enhance the farming returns from every unit of water and energy used. By doing this, they are able to maintain almost the same net returns from farming as in the past. This means, that the rise in cost of diesel in real terms had not made any negative impact on economic prospects of diesel well irrigators, including water buyers.