Correct Option (C)
The passage explicitly states that "Empirical studies show that the traditional methods are not adequate. Hence there is a need for policy interventions." This directly supports the conclusion that the strategies adopted by farmers and the existing risk-sharing institutions are insufficient to manage agricultural risks effectively, thereby necessitating policy intervention.
Incorrect Options:
- Option (A) states that farmers are "extremely risk averse." The passage, however, qualifies this by mentioning that farmers are "risk averse, though only moderately in many cases," which contradicts the extreme assertion in this option.
- Option (B) suggests that "farmers do not know how to mitigate risks." This is incorrect as the passage details various strategies farmers adopt, such as crop and field diversification, non-farm employment, storage of stocks, and strategic migration, along with institutional arrangements like share tenancy and informal credit agencies. These examples demonstrate farmers' awareness and application of risk management techniques, even if these methods are ultimately inadequate.
- Option (D) highlights that "majority of farmers depend on rain-fed agriculture." While the passage identifies this as a relevant factor for the consideration of crop insurance as a policy measure, particularly in the Indian context, it is presented as a specific reason for a particular policy intervention (crop insurance) rather than the general justification for the overall need for policy intervention to mitigate agricultural risks. The broader reason for intervention, as stated, is the inadequacy of existing methods.