ENSO effects on United States farmland values : a Ricardian approach

This research examines the effects that El Nino and La Nina events have on agriculture in the United States. The procession of an El Nino and a La Nina event is referred to in this research as an ENSO. ENSO cycles cause Weather anomalies that can significantly affect farmer income. In this research we are interested in determining what the effect of ENSO is on farmland values in the United States. Previous research that has estimated the impact of ENSO on agriculture has been crop and region specific. We deviate from the traditional crop yield model approach that may provide biased results. To estimate the impacts the “Ricardian Approach , developed by Mendelsohn, Nordhaus and Shaw is used, which allows us to model farmland values as functions of land characteristics, climate and an ENSO measure. The model consists of two stages. In the first stage we obtain an ENSO variability measure of precipitation and temperature, which is extracted through Fourier Series Decomposition on the time series of precipitation and temperature. The results are then used as independent variables in a second stage cross-sectional data set regression conducted for the years 1982 and 1992, which estimates predicted values of farmland. Results suggest that US agriculture may have adapted to weather variability caused by ENSO cycles by 1992. The phenomenon reduces farmland values mostly in the Midwest and in the Western regions of the US by an average of $148 per acre. Most of the effects are caused by temperature related variability. Effects from precipitation related variability on farmland values are minimal