Risk management strategies to cope with climate change in grassland production: an illustrative case study for the Swiss plateau

Abstract

In this paper, we assess climate change impacts on an intensively managed grassland system at the Swiss Plateau using the process-based grassland model PROGRASS. Taking the CO2 fertilization into account, we find increasing yield levels (in the range of 10–24%) and sharp increases in production risks for an illustrative climate change scenario that suggests a marked increase in temperature and decrease in summer rainfall. Climate change–induced increases in the coefficients of variation of grassland yields are in the range of 21 and 50%. This finding underpins that additional risk management strategies are needed to cope with climate-change impacts on grassland production. The outputs from the grassland model are evaluated economically using certainty equivalents, i.e., accounting for mean quasi rents and production risks. To identify potential risk management strategies under current and future climatic conditions, we consider adjustments of production intensity and farm-level yield insurance. The impact of climate change on production intensities is found to be ambiguous: farmers’ will increase intensity under unconstrained production conditions, but will decrease production intensity in the presence of a cross-compliance scheme. Our results also show that the considered insurance scheme is a powerful tool to manage climate risks in grassland production under current and future conditions because it can reduce the coefficients of variation of quasi rents by up to 50%. However, we find that direct payments tend to reduce farmers’ incentives to use such insurance scheme.