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Methodologies Yielding CLimate IMpact Assessments Through Economics

Periodic Reporting for period 1 - MYCLIMATE (Methodologies Yielding CLimate IMpact Assessments Through Economics)

Reporting period: 2017-09-01 to 2019-08-31

Humans rely on agricultural products for their food. Agricultural production relies on soil, climate, agricultural inputs, and farmers. The importance of climate and soil inputs has been recently reconsidered in agricultural production. However, the quantification of the impact of climate change on agricultural production has been conducted mainly with regression methods that impose undesired assumptions on the obtained results. If it is true that climate is changing, an estimation of climate change impacts on agriculture free of undesired assumptions is the key to understanding a strategy towards a sustainable future. Going beyond the methodological approaches proposed in previous studies, in this action I bridge the gap between production economics and the agronomic and climate economics literature.
The first contribution of this action will merge farm accountancy datasets with climatic and soil characteristics at the most disaggregate geographical level possible (at least NUTS3 or smaller location) 3. The second contribution of this action will methodologically reconsider the impact of climate change on plant growth. I will integrate agronomic science in studying the economic impact of climate change on plant growth. Asymmetric night warming caused from climate change might represent an environment conducive to higher plant growth. In this contribution I will disaggregate the asymmetric increase in temperatures along the day and its potential impact on circadian plant rhythms. The third contribution of this action proposes a generalized decomposition method that, either with econometric or nonparametric methods, can attribute changes in productivity and profitability to different groups of inputs and outputs, among which are soil and climate inputs. The fourth contribution evaluates the production practices of the farmers and shows how much climatic and soil inputs are implicitly valued. This is the shadow value attributed from the producer to inputs that are not priced otherwise. This would result in a localized monetary evaluation in European agriculture of an additional degree of temperature or of an additional percentage unit of carbon.
The overall aim of this action is to create an innovative dataset and to methodologically re-characterise the impact of climate change on European Union farm-level production from 1990 to 2015.
This aim will be achieved through five intermediate objectives:
1. Conduct preliminary research on how to incorporate, in a farm economic model, agronomic models’ insights on the interactions of soil, plant, and climate.
2. Prepare an extensive database that matches information on the soil and climate to farm-level data in the whole European Union.
3. Develop theoretically new production economics models to evaluate the impact of climate change on agricultural production, productivity, and factors’ shadow prices at a disaggregated farmer level.
4. Analyse empirically the impact of climate change on agriculture at the farmer level in the EU considering different time periods and sets of data (levels of localisation and different sets of satellite data).
5. Provide the public with farmer-based evaluations of the potential economic impact of climate change on production, productivity, and profitability in any given moment.
This action is expected to make a major contribution in analysing the impacts of climate change on European Union agriculture by bridging specific methods developed in the production economics literature to the wealth of empirical data used in the literature on agricultural climate change impacts.
An important empirical innovation is the match between farm-level individual data and climatic inputs data for a large representative unbalanced panel dataset of European farmers from 1990 until 2015.
Another innovative aspect is the evaluation of a potential asymmetric impact of night warming on agriculture. I would consider the asymmetric impact of climate change on agriculture by appropriately splitting the inputs over the circadian plant cycle.
On the methodological side, the first contribution is the measurement of the impact of climatic variability in terms of economic output. I would use a directional distance function. This directional methodology allows aggregation across farms and regions.
The second methodological contribution generalizes parametric productivity decomposition methods to evaluate the impact of climate change on production. Finally, the third methodological contribution quantifies how much every European farmer evaluates (through shadow pricing) an additional millimeter of precipitation, or an additional degree of temperature. This procedure could lead to the evaluation of all climatic inputs. The three methodological contributions detailed would provide innovative empirical findings to shape future EU policies.