The economic impact of climate risk on extensive livestock: The case of lamb production in Extremadura, Spain

Abstract

This paper presents an evaluation of the economic cost of precipitation shortage in the production of lamb in Extremadura. Given that the production strategy is based on maintaining a productivity target by supplementing natural pastures in contexts of water scarcity, the approach will be based on the analysis of the cost structure of the sector. A monetized cash flow model will be presented, which allows us to evaluate economic impacts through a financial perspective. The study focuses on a set of 1583 farms associated into the cooperative EA Group. These members have a total of 804,000 animals, which represents more than 40% of total sheep in Extremadura. Results shows a relation between precipitation minimums and feed quantity maximums of the series analyzed. Mayor direct impact is represented by an increase in feed supplementation needs, with an economic estimation of 54 million euros over two years for the whole sector. At the farm level, there is an average reduction of profits of 50% in the case of owned land, and bankruptcy in the case of renting land. In the context of data-driven policy making, this estimate provides a tool for European Policy funding negotiation a in sector which is considered as highly strategic because of its positive impacts on the environment, the generation of employment and maintenance of rural populations in marginal areas and for the production of high-quality food with a minimal use of natural resources.