Abstract

The paper explores the potential financial implications of climate change for US agricultural policy in mitigating climate-induced farm income variability. Our study covers agricultural counties over the conterminous US (CONUS) from USDA census years 2002 to 2017. We combine climate reanalysis data and climate models to quantify the future costs of financing government payments to stabilize farm income in the context of climate change. Projected changes for the near (2020−2049) and more distant (2030−2059) future are computed using, as drought indicator, the 3-months Standardized Precipitation Evapotranspiration Index (SPEI) and 20 global downscaled climate models (GCMs) from the Coupled Model Inter-Comparison Project 5 (CMIP5) according to the most plausible emission scenario (i.e., RCP8.5).

Our results indicate a generalized increase in drought conditions across the CONUS as a result of climate change. The future geographical distribution of SPEIs (evaluated from individual climate models and the multi-model average) indicates an increase in the severity of droughts over the entire CONUS compared to the historical period (1979-2020). The strengthening of dry conditions will lead to a significant rise in direct government programs spendings. Econometric estimates over the historical period show that federal income support programs absorb 32% of revenue losses (market sales net of operating costs and taxes) related to droughts, implying an average cost of 54 $US per operation at the county level. Projected changes confirm the high cost of climate change for federal agricultural policy. Estimates show that this cost should increase to 96 $US per operation with regard to the period 2020-2049 and 111 $US per operation for the period 2030-2059.

Our results are in line with those of the 4th National Climate Assessment (USGCRP) showing that climate change is projected to be the largest contributing factor to declines in the productivity of U.S through changes in precipitation and increased temperatures in the Midwest region. Our findings indicate that direct government programs spendings to the Midwest region absorb the highest share of the cost linked to the occurrence of drought involving a high cost for future agricultural policy. This result is explained by an absorption rate which amounts to 41% coupled with a worsening in dry conditions before mid-century for the corn and soybean producing counties located in the Corn Belt, a major agricultural area in the Midwest of the United States. Our results also suggest that strengthening environmental conservation and protection programs could limit the future costs of agricultural income support programs induced by climate change.

Co-author : Cécile Couharde (EconomiX-CNRS, University Paris Nanterre)

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