The economic consequences of ENSO events for agriculture

Climate is the primary determinant of agricultural productivity. It is believed that in many parts of the world, including the United States, much of the year-to-year variation in climate can be traced to the El Nio-Southern Oscillation phenomenon. In 1997-98 the world experienced a severe El Nio event and this was followed by a strong La Nia in 1998-99. This paper develops estimates of the economic consequences of such events on US agriculture using a stochastic economic model of the US agricultural sector. Both phases result in economic damages to US agriculture -a $1.5 to $1.7 billion loss for El Nio and a $2.2 to $6.5 billion loss for La Nia. The range in these damage estimates reflects assumptions concerning the relationship between yields and ENSO weather patterns and how farmers respond to these potential yield differentials.