The widening gap between demand and production of vegetables has been evident in rising prices of vegetables in recent past. The average increase in the prices of vegetables at wholesale markets was 9.5 per cent during 2006-10. The contributory factors for this increase have been an increase in demand and sticky supplies. On the demand side, the per capita income of the country is rising, and the consumption pattern is getting diversified towards vegetables. On the supply side the production of vegetables is not keeping the pace with demand. The low growth of vegetable production during 2008-9 and 2009-10 has been both because of low yield as well as low area put under vegetables. This indicates that the incentives for crop diversification perhaps were not sufficient enough to induce allocation of area to vegetables. Why is the farmer not diversifying area towards vegetables when prices of vegetables have been very high? The main reason for slow crop diversification towards vegetables is the high risk-high return pattern of the vegetables (Pingali and Rosegrant 1995; Rao, Birthal and Joshi 2006). The high risk is due to fluctuating prices in the local market and low share of the producer in the price paid by the consumer. The farmer may not necessarily be risk averse but may have a low risk appetite. Lack of credible institutional mechanism which could result in an increase in his share in each rupee a consumer spends on vegetables is further reinforcing this risk aversion.