1Agricultural Economic Responses to Forecasted Climate Var iation: Crop Diversification, Storage, and Trade

We use a stylized optimization/simulation model to study the behavior of crop markets in response to climate variations and climate forecasts. In the model, farmers choose area planted to each crop, consumers and stockholders arbitrage across time, and traders arbitrage across regions. Climate forecasts cause some degree of planting specialization depending on the quantity of stocks on hand and access to imports and exports. Because the elasticity of demand facing the region is inelastic, improved climate forecasts cause a decline in farm profits, but consumers gain more so net global income increases. Trade barriers diminish the incentives to respond to climate forecasts, and so dramatically reduce their value. Thus, we show in this framework that the economic activities of storage and trade are complements not substitutes for climate information