Non-farm income and environmental efficiency of the farmers: Evidence from India.

In the face of various agro-climatic shocks when agricultural income becomes highly volatile, farmers often undertake multiple jobholding and engage in non-farm activities for income smoothing. The earnings from these activities are often used to purchase productivity enhancing agricultural inputs. In this context, the impact of non-farm income on intensification of agricultural inputs and the consequent impact on over-all farm efficiency is well documented in the literature. However, with a rapid rise in usage of agricultural inputs with environmentally detrimental impact, very little is known about whether non-farm income has any impact on farmers' environmental efficiency-ability to reduce the amount of polluting inputs to the largest extent possible without reducing the amount of agricultural production. Our study fills the gap in the literature by analysing the impact of non-farm income on environmental efficiency of the farmers. We first estimate the environmental efficiency scores adopting the non-parametric data envelopment analysis (DEA) method and using a household level panel data from Village Dynamics of South Asia project on Indian states for a span of five years (2010-2014). We then estimate the impact of non-farm income on environmental efficiency using Instrumental Variable Tobit Model. Our results show that average environmental efficiency of the Indian farmers was 46 % during the study period indicating the fact that a reduction in polluting agricultural inputs by 54 % was possible without compromising the level of farm production. We also find that for 1 % increase in non-farm income, environmental efficiency of farmers rises by around 4 %. This reflects the environment friendly behaviour of farmers as a channel through which non-farm activities affect usage of environmentally linked inputs. These results provide vital policy insights in terms of how non-farm activities could be integrated with policies related to farming, in order to ensure sustainable agricultural practices.