Strong El Niño-Southern oscillation events and the economics of the international rice market

Abstract

EL Niño-Southern Oscillation (ENSO) events are costly to agriculture in that they contribute to its variability. It is possible that climate change will increase ENSO event frequency and severity. This study investigates the economic consequences of ENSO events for the international rice market, along with the consequences of a possible increase in event severity. Historical data are used to estimate the ENSO impact on rice production, and the resulting parameters are incorporated into a stochastic spatial equilibrium model. Our results indicate that an average El Niño or La Niña event reduces annual welfare in the world rice market by US$741 million or US$2058 million, respectively. The additional welfare loss amounts to US$595 million or US$637 million, respectively, if extreme El Niño or La Niña events take place, and to US$1337 million or US$1392 million, respectively, if the frequencies of extreme events increase. The empirical results also show that an expansion in both trade and storage capacity can mitigate ENSO damage. © Inter-Research 2008.