Yielding to the Weather: How Climate Change Impacts Planting Decisions and Consumers

Abstract

Climate change is affecting crop yields worldwide and presenting threats to the global food supply chain. The

increased risk of climate catastrophes has incentivized small agricultural firms and even nations to collaborate

in their production efforts, yet competitive practices remain present as small firms look for ways to undercut

competitors. In this paper, we characterize the impact of climate change on crops’ yields and analyze the

downstream ramifications these changes have on consumers as well as agricultural firms’ planting decisions,

both in collaborative and competitive markets. We assume that firms can influence prices by deciding on

planting quantities in or across several growing regions, which will result in random crop outputs depending

on environmental conditions. As weather and climate trends vary across growing seasons, we analyze how

changes to the yield distributions affect consumer surplus and the greater agricultural supply chain under

both the market structures of a monopolistic firm and competing firms. In particular, we show that when

the correlation in yield between agricultural regions decreases, consumer surplus under a monopoly always

increases but may decrease in the case of competition. We also show that competing firms may benefit from

an increase in yield volatility, while a monopolistic firm’s profit will always decrease after such changes to

the yield distribution. We further show that an increase in the average yield hurts competing firms in some

instances, while a monopolistic firm always benefits from an increased average yield. These results show that

a lack of coordination between competing firms could, therefore, be hurting consumers and firms alike. We

illustrate our results and their implications for firms’ planting decisions by using cocoa production in Central

and Western Africa as an example. Our results provide guidance for agricultural operations on how to adapt

to climate change.