A Farm-Level Analysis of Economic

and Agronomic Impacts of Gradual

Climate Warming
Harry M. Kaiser, Susan J. Riha, Daniel S. Wilks,
David G. Rossiter, and Radha Sampath

The potential economic and agronomic impacts of gradual climate warming are
examined at the farm level. Three models of the relevant climatic, agronomic, and
economic processes are developed and linked to address climate change impacts and

Downloaded from http://ajae.oxfordjournals.org/ at Cambridge University on January 12, 2015

agricultural adaptability. Several climate warming scenarios are analyzed, which vary in
severity. The results indicate that grain farmers in southern Minnesota can effectively
adapt to a gradually changing climate (warmer and either wetter or drier) by adopting
later maturing cultivars, changing crop mix, and altering the timing of field operations
to take advantage of a longer growing season resulting from climate warming.

Key words: discrete stochastic sequential prograrnming, gradual climate warming,

Minnesota.

This paper examines potential economic and ag-
ronomic impacts of gradual climate warming at
the farm level. Three models of the relevant cli-
matic, agronomic, and economic processes are
developed and linked to address climate change
impacts and agricultural adaptability. While the
model could be adapted and applied to any re-
gion of the United States, a grain farm in south-
ern Minnesota is used here a s a case study. This
region is part of the northern fringe of the U.S.
corn belt which could be affected by climate
warming. Several climate warming scenarios are
analyzed, which vary in severity to simulate how
sensitive crop yields, crop mix, and farm rev-
enue are to climate change.
This research differs from most previous
analyses of climate change in three respects. First,
Kaiser and Sampath ate associate professor and research support
specialist, respectively, in the Department of Agricultural Econom-
ics, Cornell University; Riha, Wilks, and Rossiter are associate
professor in agronomy, associate professor in atmospheric science,
and former research associate in agronomy, respectively, in the De-
partment of Soil, Crop, and Atmospheric Sciences at Cornell Uni-
versity.
Funding for this research was provided by a cooperative agree-
ment with the Resources and Technology Division of the Economic
Research Service, U.S. Department of Agriculture. The support
and useful suggestions by John Reilly are appreciated. The authors
also thank Richayd Boisvert, Deborah Streeter, and three anony-
mous reviewers for their constructive comments, and Jonell Blake-
ley for preparation of the manuscript.
Review coordinated by Richard Adams.
Amer. J. Agr. Econ. 75 (May 1993): 387-398
Copyright 1993 American Agricultural Economics Association
climate change is simulated a s a gradual and dy-
namic process rather than the comparative static
approach of comparing a "doubled COz" in-
duced change in climate with our present cli-
mate. Given the focus on farm-level adaptation
issues, it is important that the climate, crop, and
economic models be dynamic. Second, com-
pared with most previous research, there is a
greater emphasis on simulating the effects on
"tactical" farm-level decisions. For example, the
model allows for adaptive management strate-
gies such as changing plant cultivar (variety) se-
lection and changing planting and harvesting dates
in response to a gradually changing climate. Fi-
nally, changes in the variability, as well as in
the averages of climatic variables, are modeled.
Climate change may result in more than changes
in mean values for climatic variables, with
potentially important consequences (Katz and
Brown).
Previous Economic Findings
Although most research on climate change has
been done in the physical sciences, there is
growing interest in exploring the economic as-
pects of climate change. Economists have fo-
cused mainly on the benefits and costs of reducing
or slowing the rate of growth of atmospheric
388 May 1993
concentrations of CO2 (e.g., Edmonds and Reilly;
Nordhaus and Yohe). In a related vein, there
has been analysis of economic issues corre-
sponding to potential treaties among countries to
reduce CO2 and other greenhouse gas emissions
(e.g., Chapman and Drennen). Less economic
research has been devoted to exploring impacts
of a changing climate on vulnerable economic
sectors such as agriculture.1
There are, however, some notable excep-
tions. Several studies empirically measure po-
tential impacts of climate change on agricultural
supply, demand, prices, social welfare, and other
market variables at various levels of geographic
aggregation. At the world level, Kane, Reilly,
and Bucklin examine potential climate change
impact on world agriculture due to a doubling
of COz atmospheric concentrations, concluding
that world prices for com, soybeans, and other
grains would increase significantly due to de-
creases in world production. At the national level,
Adams et al. (1990) estimate that prices, re-
gional production, and welfare impacts vary
widely depending upon which climate scenario
is used and whether or not a CO2 "fertilizer ef-
fect" is assumed. In a study of the prairie region
of Canada, Arthur and Abizadeh conclude that
revenue gains and losses to farmers are sensitive
to the assumed climate change scenario and re-
gion being examined. In the midwest, Easterly
et al. look at potential climate change impacts
on Missouri, Iowa, Nebraska, and Kansas ag-
riculture, generally finding reductions in grain
yields (excluding wheat) and faster depletion of
ground water sources in the scena¡ examined.
Onal and Fang conclude that climate change will
cause corn production to decrease in Illinois ac-
companied by a northern shift in wheat and soy-
bean production. In a study of the western U.S.,
Adams et a1.(1988) argue that climate change
will not result in a major loss in agricultural pro-
duction, but there will be adjustments in re-
gional production and resource use.
There have also been several conceptual stud-
ies of climate change and agriculture. Sonka and
Lamb present a conceptual model for analyzing
the impacts of climate change at the farm and
sector levels, recommending the need to study
this process within a dynamic, or evolving, con-
text instead of a comparative static framework.
Crosson argues that climate change would alter
world and regional agricultural comparative ad-
vantage, but would not likely seriously limit
For a more detailed discussion of some of these studies, see
Kaiser (1991).
Amer. J. Agr. Econ.
growth in total capacity. Kokoski and Smith, in
primarily a methodological study, show that
partial equilibrium welfare measures of climate
change may provide reasonable approximations
of true welfare changes particularly when the
magnitude of change is large. Lewandrowski and
Brazee discuss how fama programs could be-
come costlier under climate change and may play
an important role in the farm adaptation pro-
cess.
While previous studies have shown that cli-
mate change has the potential to substantially
alter prices, production, agricultural compara-
tive advantage, trade, and welfare distributional
effects, questions still remain. Additional re-
Downloaded from http://ajae.oxfordjournals.org/ at Cambridge University on January 12, 2015
search is needed on many issues including the
linkage of climatic, agronomic, and economic
models, and on farm adaptability issues, which
are the focus of this article.
A Model of Impacts of Climate Change on
the Agricultural Sector
The model used here consists of three compo-
nents: atmospheric, agronomic, and economic.
The atmospheric component simulates daily val-
ues for minimum and maximum temperature,
precipitation, and solar radiation. Based on the
values of the climatic variables, the agronomic
component estimates crop yields, grain moisture
content, and field time availability (i.e., the span
of time during which weather-related soil mois-
ture conditions allow farmers to perform field
operations). In turn, crop yields, grain moisture
content, and field time availability become in-
puts in the farrn level economic component. Crop
prices, which also are a function of climate sce-
nario, are generated by price-reduced-form
equations based on supply and demand vari-
ables. Finally, the output of the economic model
includes optimal crop mix, scheduling of field
operations, and expected net farm income.
Atmospheric Component
The atmospheric component is a stochastic
weather generator based on Richardson's model.
It requires that daily historical weather data be
characterized in terms of the parameters of a
particular stochastic process which describes daily
weather variations. Stochastic weather out-
comes consistent with present-day climates are
produced using stochastic process parameters fit
to observed weather data. Forecasts of changed
climates are achieved through adjustments to the
Kaiser, Riha, Wilks, Rossiter, and Sampath
parameters of the daily weather process consis-
tent with specified changes in mean values and
aspects of the variability (Wilks). Climate
changes are specified in terms of monthly (rather
than daily) means and variances, since this is
the level of information available from general
circulation models (GCM) integrations. The link
between monthly statistics and parameters of the
daily stochastic process is made using the sam-
pling distributions of sums of the daily values
(Katz; Wilks).
Four climate change scenarios are generated
in order to simulate potential crop and economic
responses. Scenario 1 (baseline) reflects no cli-
mate change and employs the unmodified pa-
rameters of the stochastic weather model. The
changing climate scenarios are developed from
plausible, but arbitrary, estimates of the evolu-
tion of the climate system in the medium term
(50 to 100 years). Scenarios 2 and 3 are based
on the globally averaged temperature changes
portrayed in the transient "scenario B" of Han-
sen et al. Here the temperature changes are rel-
atively mild, amounting to 2.5~ at the time of
equivalent CO2 doubling (year 2060), with half
the warming occurring during 2030-2060. In
scenario 2, the average monthly precipitation is
increased linearly at a rate sufficient to increase
this quantity by 10% in 2060. In scenario 3, av-
erage precipitation is linearly decreased through
10% in 2060. Scenario 4 is based on the Hansen
et al. "Scenario A," exhibiting a 4.2~ increase
by 2060, again with half of this increase occur-
ring from 2030 to 2060. Average precipitation
in scenario 4 decreases linearly by 20% of pres-
ent levels by 2060.
Imposed variability changes are based on the
time-dependent mean changes. Standard devia-
tions of monthly average temperature are lin-
early decreased with increases in average monthly
temperature, and these changes are reflected in
the variances of the daily temperatures. This is
consistent with the limited investigations of
changes in temperature variability in GCM sim-
ulations (e.g., Rind et al.; Wilson and Mitch-
ell). The variance of monthly precipitation is as-
sumed to follow a power-law relationship with
average monthly precipitation (Waggoner); it
increases in scenario 2 and decreases in scenar-
ios 3 and 4.
Agronomic Component
Process-oriented models of crop-environmental
interactions are used to predict crop response to
Farm-Level Effects of Climate Warming 389
a changing climate and to predict other aspects
of the cropping system including grain moisture
content and field time availability. While rela-
tively complex, such models are generally pre-
ferred over simpler alternatives for climate impact
assessments (Sonka and Lamb) since problems
of extrapolation beyond developmental data are
less severe, and mechanisms of interaction with
the environment can be examined explicitly.
The crop simulation software used (General
purpose Atmosphere Plant Soil or GAPS) was
developed by Buttler and Riha. This model pro-
vides for flexible simulation along the lines of
similar efforts by crop physiologists in order to
model crop growth in the field environment (e.g.,
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van Keulen and Wolf). GAPS allows different
representations of the physical environment to
be interfaced with different crop models. Con-
sequently, the degree to which particular results
depend upon particular crop or environmental
component models can be analyzed. 2
Increasing atmospheric concentrations of COz
should have an enhancing effect on crop yields.
However, there is currently debate among plant
scientists over the magnitude of this enhance-
ment, or how this effect might interact with other
environmental or plant physiological condi-
tions. In addition, not all of the enhanced ra-
diative forcing will be due to CO2. Other green-
house gases r e p r e s e n t a significant part of
anticipated enhanced radiative forcing, and these
gases will have no direct effect on crop physi-
ology. Given these factors, we assume in this
study that there is no enhancing effect on crop
yields due to increasing greenhouse gas emis-
sions in the atmosphere. Tbis is a simplifying
assumption that will need to be improved upon
once more knowledge is gained about the po-
tential positive effect of increased CO2 emis-
sions.
Economic Component
As the climate changes, farmers will be forced
to re-evaluate their production decisions, and in
2 Presently included in the GAPS modeling framework are maize
(com) and sorghum. The com model in GAPS was initially de-
veloped by Stockle and Campbell, and modified to include grain
yield. The sorghum crop model in GAPS is SORKAM, developed
by Rosenthal et al. Sorghum is included because it exhibits superior
tolerance to heat and drought, and thus has the potential to displace
other crops in a warming environment. SORKAM was modified
and incorporated into GAPS so the model maize and sorghum crops
would share the same simulated soil, water, and evapotranspiration
modules. While soybeans are not currently part of the GAPS en-
vironment, a soybean crop model (SOYGROW) developed by
Wilkerson et al. is used here.
390 May 1993
Table 1. C a l e n d a r of Production Operations
Plant
Stage/Period Plow Com Soybeans
1 Apr 7 - A p r 22 X
2 Apr 2 3 - M a y 11 X X
3 May 1 2 - M a y 31 X X
4 Jun l - J u n 8 X X
5 Sep 15-Sep 30 X X
6 Oct 1-Oct 16 X X
7 Oct 17-Oct 31 X X
8 Nov 1 - N o v 30 X
particular, the mix of crops. This study simu-
lates future decisions for each climate scenario
using discrete stochastic sequential program-
ming (Cocks; Rae). Discrete stochastic sequen-
tial programming (DSSP) is a mathematical
programming technique that treats the decision
process as a multi-stage, sequential process.
Consequently, decisions made at any particular
point in time depend upon decisions made in
previous stages and outcomes of previous ran-
dom events, or states of nature (Kaiser and
Apland).
The economic model divides the decision-
making process into two stages: stage 1 (pre-
harvest) and stage 2 (harvest). Stage 1 decisions
include spring plowing and planting operations,
which can take place in four periods (see table
1).3 Stage 2 decisions include fall plowing and
harvesting, which can take place in four periods
(table 1). The constraining resources for both
stages include full and part-time labor by pro-
duction period and crop acreage. Risk is cap-
tured by a Freund-type objective function which
maximizes expected net revenue minus a risk
term adjusted by a risk aversion coefficient.
Four important sources of risk are included in
the model: field time availability, crop yields,
grain drying costs, and crop prices. At the be-
ginning of stage 1, the farmer makes spfing
plowing and planting decisions while facing three
states of nature on field time availability. Each
of these states differs by field time availability
in each of the four stage 1 periods. It is assumed
that the farmer expects each of the three stage
1 states to be equally likely. At the beginning
of stage 2, the farmer makes harvest and fall
plowing decisions. Here the farmer has perfect
3 Post-plant cultivation, fertilization, and pesticide operations ate
not included as activities in the model because they are not time-
limiting. Rather, the variable costs and technical coefficients as-
sociated with these operations are incorporated into the planning
activities.
Amer. J. Agr. Econ.
Harvest
Sorghum Corn Soybeans Sorghum
X X
X X
X X
X
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knowledge of which stage 1 state has occurred,
but only probabilistic knowledge of which stage
2 state will occur. The stage 2 states (ten states,
conditional on each of the three stage 1 states)
consist of discrete random parameters for field
time availability, crop yields, grain drying costs,
and crop prices. Each of these states consists of
field hours available in each of the four stage 2
periods, crop yields and drying costs associated
with each of six planting and harvest dates, and
output prices for the three crops. Again, it is
assumed that the farmer expects each of the stage
2 states to be equally likely. There are 30 joint
net revenue events possible, each corresponding
to a unique sequence of a stage 1 state followed
by a stage 2 state.
Values for the field time availability, yield,
and crop moisture states of nature are generated
by GAPS. Grain drying cost states of nature are
determined by grain moisture content at harvest,
yield level, and costs per bushel per percentage
point of moisture removed using the following
formula:
DCi =- 0.024 Yi (Mi - 17) I17i
where DCi is drying cost per acre, harvest state
i; Yi is yield per acre, harvest state i; M; is grain
moisture content, harvest state i, and I17i is equal
to one if the moisture content in harvest state i
is greater than 17%, or equal to zero otherwise.
It is assumed that it costs $0.024 per bushel to
remove one percentage point of moisture, and
that grain must be dried only if it has a moisture
content of 17% or higher. Values for each crop's
price states of nature are generated by a price
reduced-form equation of supply and demand
which includes crop yield as an explanatory
variable (procedures are discussed in the next
section).
The mathematical formulation of the eco-
nomic model is the following:
Kaiser, Riha, Wilks, Rossiter, and Sampath Farm-Level Effects of Climate Warming 391

3 lO C l l , C12 , C22 = v a r i a b l e cost vectors for

(1) maximize: E - r@ E E d~j spring plowing, planting, and fall plowing
i= 1 j=l Xll, XI2 = spring plowing and planting
vectors, preharvest stage
subject to the following constraints: C21ij = variable cost vector for harvest,
preharvest state i, harvest state j
X2~i, X22i = harvest and fall plowing vec-
Accounting Constraints tors, preharvest state i
P = output price vector
(2) Rgj -~- C l l X l l -~- Cl2X12 -F- C21ª MI = marketing decision vector, prehar-
+ C22X22i - PMi = 0
vest state i
( i = 1 . . 3 ; j - - 1 . . . 10)
o~i = probability of preharvest state i oc-
3 lO
curring
(3) E E afljR,j - E = 0 /3j -- probability of harvest state j occur-
i=l j=l

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ring, given preharvest state i
(4) R~j - E - d~j -< 0
all, al2 a 2 1 , a 2 2 = matrices of resource
requirements for all field operations in stages 1
(i= 1...3;j= 1 . . . 10)
and 2
bl; = vector of stage 1 resource endow-
ments, preharvest state i
Resource Constraints
LI = vector of ones
b 2 = total crop land endowment
(5) a~~X]r -+- a12X12 "< bli
b3ij = vector of stage 2 resource endow-
(6) LlX12 -< b 2 ments, preharvest state i, harvest state j
I'Iij = vector of crop yields, preharvest
(7) a21X21 i qt_ a22X22 i ~ b3ij state i, harvest state j
(i= 1...3;j= 1 . . . 10)
B~, . . . B7 = sequence preserving matri-
(8) -HijX21i + Mi <- 0 ces for field operations
(i= 1...3;j= 1... 10) I = identity matrix

The objective function in (1) is to maximize

Sequencing Constraints expected net revenue (gross revenue minus vari-
able costs) minus a risk adjustment term, where
(9) --B1Xll + B2X12 -< 0 risk is measured as the standard deviation of net
revenue calculated by the product of total ab-
(10) --/Xi2 + B 3 X21 i ~ 0 solute negative deviations from the mean times
(i = 1 . . . 3) the parameter q) (Hazell). The risk measurement
(11) is discounted by the risk aversion coefficient, r.
- B 4 X 2 1 i q- BsX22 i ~ 0
(i = 1 . . . 3) Constraints (2) through (4) are accounting con-
3
straints which define the 30 joint net revenue
events (2), define expected net revenue (3), and
(12) BTXll -- E aiB6X22i "< 0 define negative deviation from expected net
i=1
revenue (4).
(i = 1 . . . 3) Constraint (5) restricts the use of farm labor
(13) Rij, dij, Xi1, Xi2, X21i, X22i, M i :> 0 (full- and part-time) by field operations in the
pre-harvest stage to endowed levels. Note that
where E = expected net revenue the right-hand-side parameter in this constraint
r = risk aversion coefficient is stochastic, corresponding to available field
= constant that converts total negative hours by production period for the three stage 1
deviations into proxy for standard deviation states of nature. Constraint (6) is the land con-
(2/s)H,/2(s - 1)05, where H = 2 2 / 7 and s is straint that limits acres planted to endowed ley-
sample size els. Constraint (7) restricts the use of farm labor
dij = negative deviation from expected by field operations in the harvest stage to en-
net revenue, preharvest state i, harvest state j dowed levels. The right-hand-side parameters
Rij = total net revenue preharvest state i, for this constraint are also stochastic, corre-
harvest state j sponding to the available field hours by pro-
392 May 1993
duction period for the 30 stage 2 states of na-
ture. Crop output constraints are represented by
(8), which limits the amount of crop that can be
sold to the amount that is harvested for each pre-
harvest state of nature. Finally, constraints (9)
through (12) are sequencing restrictions which
preserve the proper sequence of field operations
in the model. These constraints guarantee that
sp¡ plowing occurs prior to planting (9), that
planting activities are matched with harvest ac-
tivities (10), that harvesting occurs before fall
plowing for each stage 1 state (11), and that any
acreage not plowed in the fall is plowed in the
spring (12).
Simulation Procedures
The simulation procedures begin with a Monte
Carlo simulation of the stochastic weather model
to generate daily weather values for climates
(scenarios) changing over the 100 year period
1980-2079. These results are used by the ag-
ronomic model to generate annual values for crop
yields, grain moisture, and field time availabil-
ity. 4 These values are tabulated decade-by-
decade, yielding ten sets of agronomic results
for each scenario. Finally, the resulting crop
yields, grain moisture, and field time availabil-
ity parameters are used by the farm level eco-
nomic model, which generates optimal manage-
ment strategies and expected net revenue. Costs,
technical parameters, and resource endowments
are held constant at their 1980 values. However,
cultivar selection, crop yields, grain moisture
content, and grain drying costs are different for
each decade of each climate change scenario,
according to results of the agronomic simula-
tions.
For each crop and each possible planting-har-
4 The crop model generates these values disaggregated by time
period. For example, for each crop six yields are generated--one
for each combination of planting and harvest periods. Likewise, six
grain-moisture-content values are generated for each crop--one for
each combination of planting and harvesting periods. Field time
availability output from the crop model is generated in the form of
available field hours for each of the eight production periods.
lnPC,=- 46.33 - 0.44 l n Y C , + 9.11 lnPOP,+ 0.34 lnPC,_~ + 0.59 lnSPC,+ 0.52
(26.5) (0.21) (5.05) (0.15)
DUM73-75 - 0.08 Tt
(0.05)
R 2 = 0.87 D.W. -- 1.81
lnPSB,= 0.90 - 0.33 ln YSB,+ 0.16 lnPOP,+ 0.53 lnPSBt_~ + 0.10 lnSPSBt
(7.10) (0.33) (1.34) (0.17)
+ 0.29 DUM73_75
(0.17)
Amer. J. Agr. Econ.
vesting combination, three cultivars are simu-
lated: early, mid, and late maturing varieties.
However, only one cultivar is used in the eco-
nomic model for each planting-harvesting com-
bination for each decade based on the following
decision rule. It is assumed that farmers make
cultivar decisions on the basis of yield perfor-
mance in the previous decade. Specifically, the
cultivar having the highest average yield for a
particular plant-harvest period in the previous
decade is selected by the farmer for the current
decade.
To generate the 30 joint events (crop yields,
grain moisture content, and field hours) for the
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economic component, the weather component
produces 30 realizations (years) of daily data
representative of each decade for the agronomic
component. Based on these 30 weather realiza-
tions, the agronomic component then produces
30 yield, field time availability, and grain mois-
ture states of nature per decade for the economic
model. Since these 30 joint states of nature are
assumed to be equally representative of a de-
cade, the solution to the economic model can be
thought of a s a representative year within the
decade. This process is repeated ten times for
each climate change scenario to generate solu-
tions for each decade for 1980-2070.
Because this is a microlevel model, crop prices
cannot be endogenously determined. Yet it is
unlikely that climate change would not affect crop
prices over time. To construct price trajectories
by decade for each crop based on each climate
scenario, price reduced-form equations are es-
timated using time series data from 1960 through
1988. In addition to several exogenous demand
and supply shifters, county average crop yield
is included as an explanatory variable in the price
reduced-form equation. In theory, crop yield at
the micro-level should not explain output price,
but Minnesota yields are highly correlated with
national yields which do influence price (cor-
relation coefficients for corn and soybeans be-
tween county and national yields are 0.84 and
0.75, respectively). The three estimated crop
price reduced-form equations are
(0.29) (0.09)
(0.39)
Kaiser, Riha, Wilks, Rossiter, and Sampath
R 2 = 0.68 D.W. = 2.33
ln PSG, = 3.32 -0.99 In YSG, + 0.07 In lNC + 0.20 ln PSG,_I + 0.56 ln SPSG,
(3.19) (0.34) (0.34)
+ 0.47 DUM73-75
(0.10)
R 2 = 0.88 D.W. = 1.61
where PC, = real com price per bushel (nomi-
nal price divided by Consumer Price Index 1988
= 1.0), year t,
YC, = county average corn yield, year t,
POP, = U.S. civilian population, year t,
SPC, = real com support p¡ per bushel,
year t,
DUM73_75 = dummy variable equal to 1
for 1973-75, equal to zero otherwise,
7", = time trend, 1960 = 1, 1961 = 2,
PSB, = real soybean price per bushel,
year t,
YSB, = county average soybean yield,
year t,
SPSB, = real soybean support price per
bushel, year t,
PSG, = real sorghum support price per
bushel, year t,
YSG, = national average sorghum yield,
year t,
INC = U.S. per capita real income,
year t,
SPSG, = real sorghum support price per
bushel, year t,
R 2 = coefficient of variation,
D.W. = Durbin-Watson statistic, and
( ) = standard error.
To simulate crop prices from 1990-2079, fu-
ture values for the exogenous variables are nec-
essary. It is assumed that U.S. civilian popu-
lation increases by 1% per year throughout the
simulation period. Real support prices for the
three crops are assumed to decrease by 1% per
year, reflecting a trend towards a market-ori-
ented farm policy. Real income is forecast based
on a regression equation with income in the two
previous years a n d a time trend as explanatory
variables. For each decade, the price states of
nature are generated by substituting the annual
average yield states of nature, generated by
GAPS, and the values for the other exogenous
variables into the price reduced-form equations.
Results for a Southern Minnesota Farm
A hypothetical farm based on characteristics of
southern Minnesota (Redwood County) is used
Farm-Level Effects of Climate Warming 393
(0.16) (0.23)
to illustrate the type of analyses that can be con-
ducted using this model. This region is the
northem limit of com production in southern
Minnesota (Murray). The predominant soil se-
ries in this region is Ves, which is deep and has
excellent water holding capacity.
Most of the data for the economic component
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for the hypothetical Minnesota farm not gener-
ated by GAPS are presented in Kaiser (1985),
including resource requirements and variable
costs. It is assumed that the farm is endowed
with 600 acres of tillable land on which com,
soybeans, and/or sorghum can be grown. There
are two full-time workers and one additional part-
time worker that can be hired at a cost of $6.00
per hour. The farm uses a conventional tillage
system. Data for sorghum, which currently is
not commonly grown in this region, are based
on national average statistics.
The yield data for the three crops are gener-
ated by GAPS and SOYGROW. Because GAPS
and SOYGROW simulate potential rather than
actual farm yields, all yields are normalized to
1980-88 county averages by multiplying each
GAPS (or SOYGROW) predicted yield by the
ratio of the average county yield for the 1980s
to the average GAPS (or SOYGROW) potential
yield simulated for the 1980s. While GAPS pre-
dicted com yields are higher than actual yields,
the predicted soybean and sorghum yields are
quite close to actual yields.
Field hours by production period and state of
nature are also generated by GAPS. Thirty sets
of values for field hours are generated to rep-
resent the 30 joint states of nature for each de-
cade. All 30 values are used for the four stage
2 periods. However, because stage 1 requires
only three states of nature for field hours, the
following values are used to represent the three
stage 1 states: average field hours minus one
standard deviation, average field hours, and av-
erage field hours plus one standard deviation.
Several adjustments were made after compar-
ing actual observations for the 1980s with pre-
dicted values. First, GAPS over-predicted field
hours in the first period, consequently, subse-
quent period 1 field hours were adjusted by mul-
tiplying them by the ratio of actual to predicted
based on average observations for the 1980s.
Second, GAPS generated field hours for stage
394 May 1993
1 and stage 2 periods were reduced by 30% and
10%, respectively, to prevent all stage 1 oper-
ations from being completed before June, which
is unrealistic for this region. GAPS also over-
predicted grain moisture contents for com and
sorghum. Using actual 1980s observations to
calibrate, drying costs based on GAPS moisture
contents were reduced by 35%. Similar adjust-
ments in both field hours and moisture contents
were required in Kaiser's (1985) study of this
region.
Climate Change Impacts on Crop Yields
The climatic, agronomic, and economic com-
ponents are solved for the four climate scenar-
ios. Recall that scenario 1 is the no-climate-
change-situation, scenario 2 is the mildly warmer
(2.5~ and wetter case (10%), scenario 3 is the
mildly warmer (2.5~ and drier (10%) situa-
tion, and scenario 4 is about twice as warm and
dry as scenario 3. The yield states of nature,
averaged by decade for presentation purposes
(1980-2079) for climate scenarios 2, 3, and 4,
are presented in figure 1.5 This figure displays
average crop yields over the simulation period
a s a percent of the 1980s average for each cli-
mate scenario.
The mildly warmer and wetter scenario 2 has
no adverse impact on crop yields at this rela-
tively cool location (top graph, figure 1). While
the climate is gradually warming, the accom-
panying increase in precipitation prevents the
crops from experiencing water stress for the
simulation period. In fact, sorghum and soybean
yields increase over time, while com yields re-
main relatively stable, increasing slightly from
2000-2060. For all three crops, the model pre-
dicts adoption of later-maturing, higher-yielding
cultivars over time as field time availability in-
creases because of climate warming. The ro-
bustness of yields to climate change in this sce-
nario is a result of the relatively mild change in
climate assumed, the relatively cool location, the
introduction of later-maturing cultivars later on
in the simulation period, and the absence of plant
5 The crop yield averages in this figure are weighted averages of
yields over the six possible planting-harvesting dates. The weights
are using the results of the economic model, which give the optimal
proportion of planting and harvesting dates. For example, if the
economic results for 1980 indicated that 75% of the com acreage
should be planted in period 1 and harvested in period 7, then the
average crop yield over the 30 states for planting period l, har-
vesting period 7 should comprise 75% of the overall weighted av-
erage for the 1980 decade.
Amer. J. Agr. Econ.
water-stress because of the excellent water hold-
ing capacity of this soil and the wetter climate.
The percentage change in average crop yields
from 1980 under the mildly warmer and drier
climate scenario 3 is presented in figure 1 (mid-
dle graph). As was the case for the wetter cli-
mate scenario, this drier climate scenario ap-
pears to have no adverse effects on soybean or
sorghum yields. However, corn yields decrease
marginally over time. In this case the drier cli-
mate has two impacts on crop yields. First, the
growing season is lengthened due in part to the
drier climate, allowing greater flexibility in ac-
cess to the field. This has a positive effect since
later maturing cultivars can be adopted. Second,
Downloaded from http://ajae.oxfordjournals.org/ at Cambridge University on January 12, 2015
the decrease in precipitation causes some water
stress, which has a negative effect on yields.
The percentage change in average crop yields
from 1980 for the most severe climate change
scenario is presented at the bottom of figure 1.
In this scenario, the average decrease in precip-
itation is twice as large as the previous scenario
and the increase in temperature is 4.2~ rather
than 2.5~ in year 2060. Average soybean and
sorghum yields are not adversely impacted by
even this relatively severe change in climate.
Average com yields, on the other hand, trend
downward. Moreover, the magnitude of de-
crease is larger than the previous scenario.
Two observations emerge from these results.
First, the model predicts that soybean and
sorghum yields at this relatively cool location
are not adversely affected by these three climate
change scenarios. Second, com yields are some-
what adversely affected by the more severe
warmer and drier scenarios, but not by the mild
warmer and wetter scenario. At this location,
com appears to be the most climate-sensitive of
the three crops.
Climate Change Impacts on Crop Mix and
Profitability
The crop price states of nature, averaged by de-
cade, for each of the three changed climate sit-
uations are presented in figure 2. In all three
scenarios, the real com price is increasing, real
sorghum price is decreasing, and the real soy-
bean price is relatively constant. The average
prices are quite similar between scenarios 2 and
3 because yields are comparable between the two
cases. However, the real com price path is higher
in the most severe climate scenario compared to
scenarios 2 and 3 because com yields are lower
in climate scenario 4.
Kaiser, Riha, Wilks, Rossiter, and Sampath Farm-Level Effects of Climate Warming 395

Clirnate Scenario 2 ( M i l d l y Warmer and Mildly Wetter)

120

115

~ 110
~ ~
== 1o5.&~._~..=./ -'~. .J- \ ~ = ~ Com

100 / -~." ". '~ Soyoeans

,,i..
o 95
~" ~ Sorghum
"~ 90

no 65
80t I 1 1 1 ,= ;
1980 1990 2000 2010 2020 2030 2040 2050 2060 2070
Decade

Downloaded from http://ajae.oxfordjournals.org/ at Cambridge University on January 12, 2015

Climate Scenario 3 ( M i l d l y Warmer and Mildly Drier)

120

115

~ 110
~176
o 105 ~ ' ~ Com
o
,,- 100 Soybeans
"8 95
~ ~ Sorghum
~Q 9o
L.
o
D. 85
80 I t I [ ..= | ,I . ; ;
1980 1990 2000 2010 2020 2030 2040 2050 2060 2070
Dec=de

Climate Scenario 4 (Significantly Warmer and Drier)

120

115
P
:~ 110

o 105 ~= "' Com

,P 100 -----a Soyoeans

"6 95
~ ' ~ Sorghum
~ 9o
85

80 I I I I I I I I t
198( 1990 2000 2010 2020 2030 2040 2050 2060 2070
Decade

Figure 1. Percentage change in average crop yieids, climate scenarios 2, 3, and 4, 1980-
2070

For the risk-neutral case, expected net farm
revenue for the three climate change scenarios
is shown in figure 3. In the no-climate-change
scenario (scenario i), average net revenue de-
clines slightly from 1980 to 2000, but thereafter
consistently increases because of increases in real
corn prices (caused by increases in population).
For all three climate change scenarios, net rev-
enue is somewhat higher than the no-climate-
change case. Moreover, the difference in net
revenue between scenario 1 and the three cli-
mate change scenarios tends to widen in later
decades of the simulation. The optimal crop mix
changes little over time for all three scenarios
with corn acreage representing about 70% of to-
tal acreage planted and soybean acreage com-
prising the rest of the acreage. Under none of
these scenarios does sorghum become profitable
enough to replace com production.
The standard deviation of net farm revenue is
396 May 1993 Amer. J. Agr. Econ.

Climate Scenario 2 (Mildly Warmer and Mildly Wetter)

6.50
6.00
5.50
5.00
4.50 - - - ' - - Com
4.00
3.50 Soybeans
3.00
2.50
2.00 --'-- Sorghum
1.50
1.00
0.50
0.00 I I I I I I I I I
1980 1990 2000 2010 2020 2030 2040 2050 2060 2070
Decade

Downloaded from http://ajae.oxfordjournals.org/ at Cambridge University on January 12, 2015

Climate Scenario 3 (Mildly Warmer and Mildly Drier)

6.50
6.00
5.50
5.00
4.50 --=-- Com
4.00
3.50 Soybeans
3.00
2.50
~ . ~ u ~ " / '-- Sorghum
2.00
1.50 ~
~ =""--=- .=.=.=.. 9
1.00
0.50
0.00 I I I I I I I I I
1 980 1990 2000 2010 2020 2030 2040 2050 2060 2070
Decade

Climate Scenario 4 (Significantly Warmer and Drier)

6.50 ~
6.00 t
5.50 ,,,~=J

4.50 --" Com

4.00
3.50 ----o Soybeans
$ 3"00
I,...,-""'~./2.50 --'--Sorghum
2.00
1.50
1.00
i ~ ~'--" ~ ~. . . . .
0.50
0.00 / I I I I I I : : :
1980 1990 2000 2010 2020 2030 2040 2050 2060 2070
Decade

Figure 2. Average crop-price states of nature, climate scenarios 2, 3, and 4, 1980-2070

lower for the two mi]d climate change scenarios
(scenarios 2 and 3) relative to no-climate change
for all decades. The increased stability of net
farm revenue is due to a decline in yield vari-
ability for all crops compared to the baseline no-
climate change case. Crop yield variability, in
turn, is lower than in the no-climate change sce-
nario because of the assumed decrease in the
variance of temperature. However, the 4.2 ~
warmer, 20% drier climate (scenario 4) results
in higher fluctuations in revenue risk. Under this
scenario, revenue risk is higher in five decades
and lower in four decades, compared to the no-
climate change scenario.
To represent a risk-averse solution, a risk-
aversion coefficient of 1.25 is used, which is in
the range Brink and McCarl found representa-
tive for Cornbelt farmers. In this case, less com
Kaiser, Riha, Wilks, Rossiter, and Sampath
160000
140000
120000
100000
~~J
80000
60000
40000
20000
0 I I I I !
1980 1990 2000 2010 2020 2030
Figure 3. Average net revenue for the risk-neutral case, climate scenarios 1-4, 1980-2070
and more soybeans are grown as compared to
the risk neutral case. The difference is due to
soybeans being less risky than corn in terms of
net revenue va¡ However, under the risk-
averse case the share of corn as a percentage of
total acreage increases over time under all three
scenarios, perhaps due to the accompanying de-
crease in variability of com yields for the cli-
mate change scenario. Sorghum, which is the
most stable of all three crop yields, is still not
grown under any scenario. Expected revenue is
lower in the risk-averse case than in the risk-
neutral case because of the positive trade off be-
tween risk and income.
Summary
Climate change will affect the agricultural eco-
system in a variety of ways. The growth and
yield of crops will change, as well as the periods
of time available for field operations. These
changes will be reflected in decisions made by
farmers, and more broadly, in changes in crop
production, geography, and economics. This
paper has reported the results of a farm-level
analysis to address the effects of climate change
on farm operations and profitability.
The results presented in this paper are not in-
tended a s a basis for general conclusions about
climate change and agriculture across the na-
tion. For example, while the relatively cool lo-
cation chosen for illustration generally benefits
from warming climates, more southern loca-
tions could suffer considerable declines in yields
and revenue. Instead the results ate intended to
illustrate the importance of adaptive strategies in
predicting outcomes. The results indicate that
grain farmers in the southern region of Minne-
sota can effectively adapt to the gradually
Farm-Level Effects of Climate Warming 397
i
~ I ~=~Scenario 1
I
"----'0 Scenario 2
~ * Scenario 3
O Scenario 4
! ! I I
2040 2050 2060 2070
Downloaded from http://ajae.oxfordjournals.org/ at Cambridge University on January 12, 2015
changing climate scenarios considered in this
study (warmer and either wetter or drier cli-
mates). Adaptive strategies include adopting later
matu¡ cultivars, changing crop mix, and al-
tering the timing of field operations to take
advantage of a longer growing season due to
climate warming.
There are several shortcomings of this anal-
ysis. First, the assumption that increased at-
mospheric concentrations of CO2 will have no
effect on crop yields is questionable. Additional
research on the magnitude of this enhancement
will be beneficial. Second, the reliability of cli-
mate models needs to be improved. Currently,
there is no consensus as to the magnitude of
change in climatic variables due to increases in
greenhouse gases. Third, this analysis has ig-
nored the role of technological progress in mit-
igating some or all of the potential negative ef-
fects of climate change on agriculture. Clearly
technological innovation plays a major role in
shaping agricultural production. Finally, the
manner in which the price states of nature are
generated in the analysis needs improvement.
Linking micro models with sector-level models
could improve the process of generating price
paths for climate change scenarios.
[Received October 1991. Final revision
received May 1992.]
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