Value of seasonal climate forecasts in reducing economic losses for grazing enterprises: Charters Towers case study

An-Vo, Duc-Anh and Reardon-Smith, Kate and Mushtaq, Shahbaz and Cobon, David and Kodur, Shreevatsa and Stone, Roger (2019) Value of seasonal climate forecasts in reducing economic losses for grazing enterprises: Charters Towers case study. The Rangeland Journal, 41. ISSN 1036-9872

Abstract

Seasonal climate forecasts (SCFs) have the potential to improve productivity and profitability in agricultural industries, but are often underutilised due to insufficient evidence of the economic value of forecasts and uncertainty about their reliability. In this study we developed a bio-economic model of forecast use, explicitly incorporating forecast uncertainty. Using agricultural systems (ag-systems) production simulation software calibrated with case study information, we simulated pasture growth, herd dynamics and annual economic returns under different climatic conditions. We then employed a regret and value function approach to quantify the potential economic value of using SCFs (at both current and improved accuracy levels) in decision making for a grazing enterprise in north-eastern Queensland, Australia – a region subject to significant seasonal and intra-decadal climate variability. Applying an expected utility economic modelling approach, we show that skilled SCF systems can contribute considerable value to farm level decision making. At the current SCF skill of 62% (derived by correlating the El Niño Southern Oscillation (ENSO) signal and historical climate data) at Charters Towers, an average annual forecast value of AU$4420 (4.25%) was realised for the case study average annual net profit of AU$104 000, while a perfect (no regret) forecast system could result in an increased return of AU$13 475 per annum (13% of the case study average annual net profit). Continued improvements in the skill and reliability of SCFs is likely to both increase the value of SCFs to agriculture and drive wider uptake of climate forecasts in on-farm decision making. We also anticipate that an integrated framework, such as that developed in this study, may provide a pathway for better communication with end users to support improved understanding and use of forecasts in agricultural decision making and enhanced sustainability of agricultural enterprises.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Published online: 11 July 2019. Permanent restricted access to ArticleFirst version, in accordance with the copyright policy of the publisher.
Faculty/School / Institute/Centre: Current - Institute for Life Sciences and the Environment - Centre for Applied Climate Sciences
Date Deposited: 18 Jul 2019 02:58
Last Modified: 07 Aug 2019 04:33
Uncontrolled Keywords: economic value, grazing management, productivity, profitability, seasonal climate forecast, uncertainty
Fields of Research : 14 Economics > 1402 Applied Economics > 140201 Agricultural Economics
05 Environmental Sciences > 0502 Environmental Science and Management > 050209 Natural Resource Management
01 Mathematical Sciences > 0103 Numerical and Computational Mathematics > 010303 Optimisation
Socio-Economic Objective: B Economic Development > 83 Animal Production and Animal Primary Products > 8305 Primary Animal Products > 830503 Live Animals
Identification Number or DOI: 10.1071/RJ18004
URI: http://eprints.usq.edu.au/id/eprint/36755

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