Impacts of Climate Change on Major Crop Yield and the Thai Economy : A Nationwide Analysis Using Static and Monte-Carlo Computable General Equilibrium Models

Abstract

Climate change is a major concern for developing countries because changing weather conditions would significantly affect agricultural production output.  Employing half of its total labor supply and land in agricultural activities, Thailand is considered one of the major food-exporting countries vulnerable to climate change.  Despite the forecast of future weather volatility and its effect on Thailand’s major crop yield such as rice, cassava, sugar cane, and corn, there is a lack of studies examining the resulting nationwide economic impact.   This study aims to explore the economy-wide impacts of crop yield fluctuation on the Thai economy by using both static and Monte-Carlo CGE models.    For effects on agricultural markets, simulation results indicate that prices and quantities of corn and cassava are the most sensitive to weather oscillation.   In the nation-wide impact, both static and Monte-Carlo CGE models show that rice is the most significant crop because its volatility in price and quantity causes the highest impact and fluctuation on both the macro level and in terms of income distribution.  The Monte-Carlo CGE model demonstrates that the fluctuation of impact on government and institutions can be reduced when volatilities of all four crop outputs are pooled.    This suggests the possibility to design a crop insurance scheme to minimize the impact of volatility through risk pooling.