News Release

El Nino Forecasting Benefits Agriculture

Peer-Reviewed Publication

Georgia Institute of Technology

A cost benefit analysis of government-funded research on the El Nino weather phenomenon indicates the annual rate of return on that taxpayer investment is at least double the government's minimum acceptable standard.

The study found that the Tropical Ocean Global Atmosphere (TOGA) climate research program provides an economic return on investment to the United States of at least 13 to 26 percent annually. And that range is conservative because it only includes benefits to the U.S. agricultural industry, researchers say. The government's minimally acceptable rate of return on an investment is 7 percent; it is based on the marginal pre-tax rate of return of an average recent investment in the priate sector.

The National Oceanic and Atmospheric Administration (NOAA) funded the study to determine whether its climate research is a significantly beneficial investment and worthy of continued support, says NOAA chief economist Dr. Rodney Weiher. He and Dr. Peter Sassone, an associate professor of economics at the Georgia Institute of Technology, conducted the research using TOGA as the case study.

TOGA was a successful 10-year scientific effort to understand and model the El Nino/Southern Oscillation (ENSO) weather phenomenon. It involved deployment of an array of ocean-observing buoys. Now, climate models can predict El Nino events, such as the current one, a year or so in advance. El Nino is the abnormal warming of sea surface temperatures in the tropical Pacific Ocean; it has important consequences for weather around the globe. Among these are increased rainfall across California and the southern United States.

"We concluded that the TOGA program was a sound use of public resources, and that additional funding of climate forecasting R & D efforts — at both the national and international levels — merits serious consideration," the researchers say in their just-published paper in the book "Operational Oceanography: The Challenge for European Cooperation."

In the cost benefit analysis, researchers focused on the benefits of TOGA to the U.S. agricultural sector because it is probably more affected by weather than other sectors, Sassone says. The estimated annual dollar benefits to agriculture are $240 million to $266 million (in 1995 dollars). The estimated benefits are a measure of the gain in consumers' and producers' surplus associated with improved weather information. The actual benefits are dependent on the accuracy of the forecasts, which range from 60 to 80 percent correctness, and the farmers' acceptance of the forecasts.

"I think the $266 million figure is closer to being right, though it's probably a little optimistic," Sassone says. But this figure doesn't include the benefits to other economic sectors, such as water resource management, he adds.

In essence, this analysis says, "If farmers learned what the El Nino forecast was and abided

by it over the course of a decade or so, and made whatever adjustments they could, on average they would be better off than if they didn't," Sassone explains. Such adjustments include planting earlier or later, using a different variety of seed or altering the mix of crops planted.

The researchers arrived at that simple conclusion in a not altogether simple way. "While cost benefit analysis is a highly refined and widely accepted tool used frequently by economists to evaluate alternative public sector investments, there are certain characteristics of climate prediction investments which render them inherently more difficult (than conventional public investments such as roads, bridges, buildings) to assess," the researchers explain.

Those difficulties include: uncertainty about the actual costs of the forecasting program; uncertainty about the ultimate success of the proposed research; the dependence of benefits on the actual climate that occurs; the creation of a baseline scenario that predicts what forecast would be issued without the proposed research; and the behavioral responses to forecasts.

The researchers overcame some of these difficulties by focusing their analysis on a case study of TOGA and its future, they say. They had facts on the TOGA study's scientific success and could estimate its future costs with confidence because the resulting forecasting program is being implemented soon. Also, they could make inferences from this information about the value of other climate research.

Sassone and Weiher feel confident about their rate of return estimates because their analysis considered several key variables. They are: the accuracy of forecasts (ranging from 60 to 80 percent); the time horizon over which benefits are counted (10 and 20 years from now); farmers' acceptance of El Nino forecasts; and the future costs of the El Nino observing system.

Researchers set slow, moderate and immediate rates at which farmers would accept El Nino forecasts over a decade. Those rates ranged from 10 percent in the first year of the slow category to 95 percent in the "immediate" category.

"Farming has become a high-tech industry," Sassone says in explaining the study's assumptions. "Farmers are continually incorporating new technology, such as better fertilizer, seeds and pesticides.... While El Nino forecasts are a somewhat different kind of 'technology' than farmers are accustomed to, we assumed here that the adoption and use of such forecasts by mainstream agriculture will not be remarkably different from farmers' adoption of other new technologies."

The result of this analysis yielded the researchers' benefit estimate of 13 to 26 percent. And it led them to recommend future research on the benefits of climate research to economic sectors other than agriculture. That research has, in fact, already begun, and preliminary results may be available next year.

Georgia Institute Of Technology
Research News & Publications Office
430 Tenth Street, N.W., Suite N-112
Atlanta, Georgia 30318 USA

Media Relations Contacts:
Georgia Tech: Jane Sanders (404-894-2214 or 770-975-1014); Email: jane.sanders@edi.gatech.edu; FAX: 404-894-6983.
Georgia Tech:John Toon (404-894-6986); E-mail: john.toon@edi.gatech.edu; FAX: 404-894-1826.
National Weather Service: Stephanie Kenitzer, (301-763-8000, ext. 7007); Email: stephanie.kenitzer@noaa.gov.

Technical Contacts:
Georgia Tech:Dr. Peter Sassone (404-894-4912); Email: peter.sassone@econ.gatech.edu.
NOAA: Dr. Rodney Weiher (202-482-0636); Email: rodney.f.weiher@noaa.gov.

VISUALS: Please see http://www.elnino.noaa.gov.

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