The effect of climate change and biofuel mandates on agricultural output and food prices.

• Author: Schlenker, Wolfram
• Position: Research Summaries

The four staple commodities--maize, soybeans, rice, and wheat--account for roughly 75 percent of the world's caloric consumption, either directly as food or indirectly in the form of feedstock for animals. The U.S. share of global caloric production in those four commodities is 23 percent, about three times Saudi Arabia's market share in oil production. Of particular importance is U.S. maize (sometimes also called corn), the country's largest crop, accounting for 10 percent of global caloric production. Given its market share, any policy or shock that affects U.S. maize production has worldwide ramifications for commodity prices, which move together because they are close substitutes.

While agriculture constitutes a small fraction of U.S. GDP, it is responsible for a large part of consumer surplus because agricultural demand is highly inelastic. The tripling of commodity prices between 2005 and 2008 reduced global consumer surplus from the four basic commodities by approximately 1.25 trillion dollars annually. While various causes have been mentioned as possible driving forces behind the recent price increase, my past research has focused on two of them: the effects of weather on agricultural yields and the effect of biofuel mandates on food prices.

The Effects of Weather/Climate on Yields

Agricultural production, except for some specialty crops that are grown in greenhouses, depends directly on weather. Because weather is predicted to change over the next century, one natural question is how that will affect agricultural production and prices.

1. Extreme heat and crop yields

   Michael Roberts and I linked a county-level panel of corn and soybean yield, the two largest crops in the United States, as well as cotton, a warm weather-crop, to a fine-scale dataset of weather outcomes that explain the distribution of temperatures within each day. 1 Yields increase linearly in temperatures up to 29[degrees]C (84[degrees]C) for corn, 30[degrees]C (86[degrees]F) for soybeans, and 33[degrees]C for cotton--above that, further temperature increases become harmful. The relationship above the threshold is again linear, but the slope of the decline above the optimum is an order of magnitude steeper than the incline below it: that is, being 1 degree above the optimum for ten days has the same effect as being 10 degrees above the optimum for one day. Both decrease annual maize yields by 6 percent. Note, however, that we are incorporating the entire temperature distribution within a day, and the largest fraction of a day is usually below the threshold. It takes several days with a maximum above the threshold to obtain a 24-hour exposure period above the threshold.

   Most U.S. counties are expected to suffer yield declines under climate change. The predicted increase in the frequency of temperatures above the threshold accounts for the largest share of...