Climate change volatility and crop choices (policy brief)

Policy brief Firms and Energy

  • Whilst climate change undoubtedly affects average temperatures, less attention has been paid to weather volatility and the effect of this on the behaviour of farmers.
  • Changes in the volatility of weather is a fundamental input of the agricultural production function. In standard models, agents self-insure by building up assets or engaging in behaviour designed to reduce the impact of risk on outcomes.
  • This study attempts to investigate the impact of climate change volatility on choices made by farmers in developing countries.
  • Results from the study show that the yearly coefficient of variation of temperature is increasing over time and that significant spatial heterogeneity exists in the estimated changes in the volatility of temperatures. Whilst similar spatial heterogeneity exists with rainfall, the residual volatility in rainfall seems to fall over time.
  • Preliminary evidence suggests a relation between temperature volatility and crops production, with an overall negative relationship between yields of certain crops and temperature volatility. Further research is needed.
  • The policy implications of this research could be great as policymakers would need to consider providing smoothing technologies to farmers, such as formal insurance.
  • Policy interventions that could be considered are: weather insurance, provision of resilient crops, farming advice on how to cope with volatile weather. However, further research is needed before precise policy recommendations can be made.