Potential effects of perfect seasonal climate forecasting on agricultural markets, welfare and land use: A case study of Spain

Abstract

Climate forecasting has emerged as an adaptation option for agriculture to better cope with climate variability. We use a coupled climate-crop-economy modeling system to analyze the value of climate information (VOI) in Spain for the domestic agricultural sector and for international agricultural markets. Climate variability in Spain is represented by the observed variability over a 30 year history. We assume perfect accuracy of seasonal climate forecasting but distinguish conservative and proactive crop mix adjustments. We also contrast nationally restricted dissemination of Spanish climate forecasts versus global dissemination. Averaged over the simulated climate states, the global benefits of Spanish climate forecasts range between 61 and 189 million US$ per year. Agricultural consumers in Spain gain between 0.8 and 2.9 percent and Spanish farm revenues increase between 1.9 and 7.0 percent. If Spanish farmers consider crop mix choices outside historical bounds (proactive reaction) their revenues are notably higher than otherwise (conservative reaction). The VOI under favorable climate conditions is greater than under adverse climate conditions. When adverse climate conditions are forecast, negative VOI could materialize for the Spanish farmers because of production and welfare transfers from Spain to other countries. Information sharing of Spanish climate predictions with the rest of the world (ROW) increases not only global welfare but also Spanish producers' benefits. Finally, climate forecasting promotes a more efficient use of agricultural resources. The agricultural efficiency increase due to climate forecasts translates into welfare-neutral land savings of 2 percent in Spain.