Economics and a Changing Climate

Economic Impacts of Climate Change

The effects of climate change are felt throughout the entire agricultural value-chain, from individual farmers, ranchers and foresters to input suppliers, commodity transportation industry, as well as domestic and international markets for food and fiber. Economists have studied the effects of climate change on agriculture and forestry in the U.S. extensively (e.g., Antle, 2008; Martinich et al., 2017; Müller et al., 2015; Walthall et al., 2013). Economic effects vary widely by region and specific agricultural sectors, such as dairy, beef, row crops, small grains, and specialty crops. Despite the extensive research already done on the economic impacts of weather variability, extreme events, and climate change, it may still be challenging for farmers, ranchers, and foresters to find cost estimates for their specific sector and location. This highlights the importance of communicating and collaborating with your trusted local partners—such as University Extension, USDA Service Centers, and USDA Climate Hubs—who can help track down relevant economic studies. 

Benefits and Costs of Adaptation & Mitigation

Economists have also extensively studied the benefits and costs of specific adaptation and mitigation practices, such as: expanding the use of irrigation in agriculture, improving soil health through no-till or strip-till, developing more stress-resistant crop varieties, installing heat abatement technology for livestock, enrolling agricultural lands in conservation programs and  afforestation efforts, installing methane digesters on livestock operations, or capturing nitrogen runoff through restored wetlands. For more information about the costs and benefits of other climate adaptation or mitigation practices, contact your nearest University Extension educator, USDA Service Center, or USDA Climate Hub.

Economic Value of Weather & Climate Information

Farmers, ranchers, and foresters are continually adapting to changing conditions in their decision environment, but face increasingly rapid climatic change. Adaptation comes with a risk, however, of maladaptation if the uncertainty surrounding future climatic conditions is too large (Leclère et al., 2014).  

Uncertainty about future climate conditions makes it more difficult for farmers, ranchers, and foresters to optimally prepare for and adapt to associated changes (Adams & Peck, 2008). Imagine, for example, trying to prepare your irrigated crop farm for a water shortage when you are uncertain of when it will occur, how severe it will be, or how long it will persist. It may be tempting to make management plans based on the worst-case scenario. However, the opportunity cost of this “safety-first” approach could be high if the worst-case does not occur.

Improvements in seasonal weather forecasts and climate projections can reduce economic losses associated with weather variability, extreme events, and climate change. For example, improvements in the ability to detect water shortages farther in advance, and to forecast their location, intensity, and duration more accurately would help agricultural producers prepare more effectively and thus reduce negative impacts. For many years, economists have studied the value of improved short-term weather and long-term climate forecasts for a variety of farming, ranching, and forestry systems throughout the U.S. Summaries of this work are available from Dell et al. (2014), Mase and Prokopy (2014), and Meza et al. (2008). Crop-specific examples of the value of improved weather forecasts can be found here.

For easy access to the most reliable and cutting-edge weather and climate forecasts, check out the Water Resources Dashboard on the U.S. Climate Resilience Toolkit website. If you live in the Rocky Mountain region or High Plains, a similar one-stop-shop for all of your weather, climate, and water forecast needs is available here. Questions about how to interpret these forecasts? Contact your nearest USDA Climate Hub for assistance!       

For more in-depth economic analysis see the USDA Economic Research Service site.

Scientific References

Adams, R.M., D.E. Peck. 2008. Effects of climate change on water resourcesChoices 23(1): 12-14.

Antle, J.M. 2008. Climate Change and Agriculture: Economic Impacts. Choices 23(1): 9-11.

Dell, M., B.F. Jones, B.A. Olken. 2014. What Do We Learn from the Weather? The New Climate-Economy Literature. Journal of Economic Literature, 52(3): 740-98.

Leclère, D., P. Havlík, S. Fuss, E. Schmid, A. Mosnier, B. Walsh, H. Valin, M. Herrero, N. Khabarov, M. Obersteiner. 2014. Climate change induced transformations of agricultural systems: insights from a global model Environmental Research Letters, 9(12): 124018.

Martinich, J., A. Crimmins, R.H. Beach, A. Thomson, J. McFarland. 2017. Focus on agriculture and forestry benefits of reducing climate change impacts. Environmental Research Letters12(6): 060301.

Mase, A.S., L.S. Prokopy, 2014: Unrealized Potential: A Review of Perceptions and Use of Weather and Climate Information in Agricultural Decision Making. Weather, Climate, and Society, 6, 47–61.

Meza, F.J., J.W. Hansen, D. Osgood. 2008. Economic Value of Seasonal Climate Forecasts for Agriculture: Review of Ex-Ante Assessments and Recommendations for Future Research. Journal of Applied Meteorology and Climatology, 47: 1269-1286.

Müller, C., J. Elliott, J. Chryssanthacopoulos, D. Deryng, C. Folberth, T.A.M. Pugh, E. Schmid. 2015. Implications of climate mitigation for future agricultural production. Environmental Research Letters, 10(12): 125004.

Walthall, C.L., C.J. Anderson, L.H. Baumgard, E. Takle, L. Wright-Morton, et al. 2013. Climate Change and Agriculture in the United States: Effects and Adaptation. USDA Technical Bulletin 1935. Washington, DC. 186 pages.