The Economic Impact of Multi-Year Droughts on German Agriculture: First Insights from a Country-Scale Multi-Agent Model

Abstract:

Ex-ante impact evaluation has gained increased interest in the face of escalating challenges to agriculture. Record temperatures and unusually long droughts in large areas of Germany in the summers of 2003 and 2018 caused extensive damage to the agricultural sector. These impacts are likely to increase in magnitude in the future as droughts become more severe and frequent with the progression of climate change. While anticipating future impacts is essential to inform policy decisions, there is a need for predictions at a sufficiently high spatial resolution to forecast the local effects of global change. Here, we present a spatial multi-agent system (MAS) model using a positive mathematical programming approach of constrained optimization to simulate farms’ land-use adaptation to future drought conditions and its economic impact on agriculture in Germany. The MAS model represents the spatial heterogeneity of farms in terms of essential biophysical attributes by locating agents on a country-wide 4x4km grid. Statistical yield functions capture the impacts of biophysical factors, such as soil moisture, on crop production. The modeling approach employs scenario-based analyses of droughts, including scenarios such as prolonged drought periods, above average temperatures, and consecutive drought years, as well as future climate scenarios drawn from established literature. These scenarios quantify the impact of future extreme events through the integrated economic and hydrological parameters such as cost of water, profit and irrigation requirements. The results show the effects of potential future droughts on the agricultural sector in the study area and highlight important impacts on farmers’ land-use decisions that deserve more attention in climate change impact analysis.