The Economic Value of Seasonal Forecasts in Informing Agricultural Water Use Decisions

Chen Xu

doi:10.7273/000007177

Uncertainty over the seasonal hydroclimatic conditions creates significant risks about important aspects of agricultural production (e.g., crop phenology and productivity, irrigation demand, etc.). A portion of the uncertainty in agricultural production is associated with fluctuations in the hydrologic cycle produced by the El Niño-Southern Oscillation (ENSO). Knowledge of where and when the strongest ENSO signals and anomalies are observed is critical for the development of improved, timely, and accurate year-to-year decision-making tools for irrigated agricultural systems, as exemplified by seasonal forecasting. The development of seasonal forecasting in recent decades has proved its robustness in reducing seasonal climatic uncertainty by providing significant insights for growers to make agricultural decisions. The objective of this research is to a) find how differences in energy and moisture forcings explain hotspots of ENSO impacts on hydroclimatic and agricultural variables in a region with highly variable ENSO responses, b) quantify the economic value of seasonal forecast information, and test if state-of-the art seasonal forecasts with significant error still have value in water leasing decisions, and c) evaluate how does a strong ENSO signal translate to the higher value of seasonal forecasts with decision timing and assumptions over mitigation costs and drought losses. Our results demonstrate that A) hydroclimatic and agricultural responses to ENSO signals are season-specific and, with spatial heterogeneity primarily a function of orographic effects; B) the economic value of the “state-of-the-art” seasonal forecast under water leasing context are lower in watersheds with (i) low drought probability, (ii) high total error, and (iii) medium/high drought probability, but high missed droughts, but seasonal forecast still proves valuable in informing water-use-versus-lease decisions and creates additional profit for the farmers even if the error reaches up to 80%; and C) strong ENSO signals translate to a higher seasonal forecast accuracy in correctly identifying drought years. Knowledge of where and when the strongest ENSO signals and anomalies are observed can inform the water use versus lease decision makers of when and how much to rely on the forecasted information. This will improve regional water allocative efficiencies, and mitigate risk in agricultural production due to hydroclimatic variability. It is also critical for the development of improved, timely, and accurate year-to-year decision-making tools for irrigated agricultural systems, as exemplified by seasonal forecasting. Because there are areas with strong and/or significant ENSO anomalies, there is potential to use this information to inform the development of a seasonal forecast system. Identifying the variables, timeframes, and locations at which agricultural-decision-relevant variables show significant differences in the ENSO anomalies can point to where we are likely to see high forecast value, therefore creating the potential for seasonal forecasts to be useful for informing agricultural production decision-making processes.

The Economic Value of Seasonal Forecasts in Informing Agricultural Water Use Decisions

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