The influence of extreme weather events on farm economic performance — a case study from Serbia

Saša Z. TodorovićUniversity of Belgrade, Faculty of Agriculture

Sanjin M. IvanovićUniversity of Belgrade, Faculty of Agriculture

Natalija Lj. BogdanovUniversity of Belgrade, Faculty of Agriculture

Irrespective of the fact that there is a considerable amount of scientific evidence on denying climate change (Dunlap, 2013; Björnberg et al., 2017; Karlsson and Gilek, 2020), there is a widespread agreement that the climate changes (Pachauri et al., 2014) and that humans seem to be responsible for it (Cook et al., 2016). It significantly impacts agriculture and food systems (Gornall et al., 2010; FAO 2016) as the effects become more pronounced (McCallum et al., 2013). In the Europe, the climate changes have already caused a shift of agro-climatic zones to the north, prolonged growing season and increased active temperature accumulation (Peltonen-Sainio et al., 2009; EEA, 2019). The pre-dictions are that these processes will continue by the end of century, result-ing in an increase in drought frequency and intensity in the Mediterranean area, western Europe and northern Scandinavia (under the climate scenario RCP 4.5), and/or more intense droughts all over Europe (under the worstcase climate scenario RCP 8.5) (Spinoni et al., 2018). Yet, the effects of climate change vary by regions, as well as predictions of future scenarios and seasonal pat-terns. The predictions are that in southern Europe agri-culture sector will be adversely affected by an increase of the heat wave intensity (high confidence) (Kovats et al., 2014; IPCC, 2019); that the migration of agro-climatic zones in eastern Europe will be twice as fast as that recorded during the period 1975–2016 (EEA, 2019); and that extreme precipitation in northern Europe will increase (Kovats et al., 2014; Zampieri et al., 2017). The impact assessments of climate changes on agri-culture sector have been extensively examined, at a multiple scales and in a variety of contexts (Moore and Lobell, 2014; Olsen and Bindi, 2002), yet without considering the complex interdependencies within human and environmental systems (Harrison et al., 2015).

However, various scenarios of future change in climate variables impacting the productivity of agriculture sec-tor, predict similar patterns of changes in crop yields for the EU 2080s: southern Europe would experience yield decreases (25% under 5.4°C scenario), central Europe regions would have moderate yield changes, whereas the northern Europe regions would benefit from growing yields (Ciscar et al., 2009; Iglesias et al., 2012; Knox et al., 2016). According to Zurovec et al. (2015) on the territory of Western Balkan drought is “frequent adverse climatic event over the last decade”. In Serbia, there is an increase in average annual temperatures of about 0.6°C/100 years, with a higher trend in the northern and mountainous parts of the country (MAEP, 2015). Nonetheless, compared to the second half of the twentieth century, Serbia has been exposed to more frequent extreme weather occurrences and natural catastrophes in the recent two decades. As per relevant studies, there were 2,000 natural disasters in Serbia between 1980 and 1990, with 2,800 instances documented through-out the 1990s (Kovačević et al., 2012; Lukić et al., 2013; Anđelković and Kovač, 2016). Within the first two dec-ades of the twenty-first century, these patterns remained as the severity and frequency of natural disasters grew and became more extreme. Serbia was affected by severe floods in 1999, 2002, 2005, 2006, and 2014, with most of them taking place during the growing period (April–June) (FAO, 2020).

At the same period of time (1999–2019), Serbia experienced above-average temperatures followed by drought in 2003, 2007, 2012, 2015, and 2017. Addition-ally, the 2012 and 2017 years were among the driest, with record-low rainfall, severely impacting Serbia’s agricultural output (FAO, 2020). Temperatures surpassed 35°C for more than 50 days in a row in 2012, resulting in a loss of crop output of over one million hectares and damage caused of more than $141 million (USAID, 2017). The results of the temperature forecast show an increase in temperature between 0.5°C and 2°C in the next fifty years. The recent regional climate models indicate that in the near future can be expected surplus rainfall in summer and early autumn period (which is in line with current trends), as well as the significant drop in precipitation in the distant future. Regional Climate Model (RCM) also suggests for Serbia an average annual decrease in precipitation, ranging from 0% to 25% / 100 years (MAEP, 2015).Considering the high importance of agriculture sec-tor for Serbian economy (forming of about 7% of Gross domestic products (GDP)), and livelihood of rural dwellers (40% of total population), the economic losses and damages caused by climate changes can have a profound effects.

Despite the large number of studies examin-ing the effects of climate change on individual sectors (Stričević et al., 2020), crop yields (Jančić, 2013), and regions (Lalić et al., 2011; Armenski et al., 2014), the impact on farmers income has not been systematically assessed, mostly due to the lack of data at the level of individual farms or smaller territorial units. Hence, both agricultural producers and policy makers are deprived of the number of important inputs relevant for decision making.This paper aims to fulfil the gap in understanding the economic effects of climate change on dominant types of farms in Serbia. To determine this, we con-ducted analysis of selected financial indicators of farm performances in the 14 districts of Serbia which were, in two consecutive years, affected by both floods (2014) and drought (2015). In 2014 heavy rainfall and flood-ing severely affected many parts of Serbia’s territory. According to estimations provided by different sources, in total, 1.6 million people, and 34,500 family holdings were affected by flood and related disasters (WB, 2015; FAO, 2015). The following year (2015) was characterized by extreme drought which affected majority of Serbian territory causing significant drop in most crop yields. In addition to these two years, the analysis also included 2016, during which the weather conditions were stable. A wide variety of approaches have been used in the different countries/regions to determine the damage caused by extreme weather events. Most of the methods used for economic evaluation of flood damage in agriculture are limited to the national level, while “little research is carried out on the transferability of local methodologies” (Brémond et al., 2013). Research conducted by Cogato et al. (2019) revealed that the relations between extreme weather events, food security and economic loss are of major interest within scientific community.

Nevertheless, authors noticed “low level of international collaboration of the vulnerable countries” related to research of extreme weather events, while “develop-ing countries have only more recently been approached through international research”. Similarly, Jongman et al. (2012) emphasized the need to develop models for flood damage assessment not only on European but also on global level. Merz et al. (2010) discussed that attention is usually paid to flood hazard assessment, while flood damage assessment “is frequently seen as some kind of appendix within the risk analysis”. The authors also noticed that methodology for damage assessment related to other natural disasters (such as storms or droughts) is even less developed. Similarly, Parisse at al. (2020) stated that in future research it is necessary to “consider indica-tors for events such as hail and strong wind”. Messeri et al. (2015) discussed relations between weather types in Italy and frequency of f loods and landslides. Considering each weather type, specific risk indexes for entire country as well as for specific Italian regions were determined (applicable on seasonal and annual level). Such approach could help in appropriate planning, prevention and reduction of damages caused by unfavourable weather events. Vallorani et al. (2018) discussed relations between large‐scale circulation and local climate because they “could be useful to evaluate the weather and climate risk on a regional scale linked to extreme weather conditions such as heavy precipitation, flood or drought events and heat waves or cold spells”.

In such a way it is possible to develop adequate tools (applications) which are “related to water and energy resources management, agronomy, severe weather risk prevention and seasonal forecasts”.Generally, approaches used in assessing the effects of natural hazards may be summarized within the two main concepts — economic loss assessment and financial loss assessment (Penning-Rowsell et al., 2013):

  • An economic loss assessment is usually performed on a macro-scale level (i.e. for the entire country or region, usually larger than the affected area) by macroeconomic variables, such as changes in GDP, changes in the output volume and the trade balance, employment etc.
  • A financial loss assessment is performed on a micro-scale level (farm) or at the meso-level (of a local community), while the crop damage is usually used as a simplistic proxy of the total damage.

When assessing financial loss in agriculture, various economic indicators are used in the existing literature. According to comprehensive review conducted by Brémond et al. (2013) the most frequently used indica-tors for estimation of financial loss in plant production are the Gross product and Gross margin adjusted with variable costs. Similarly, Thieken et al. (2008) used percentile deduction of average revenues to calculate crop loss related to flood damage, while Jega (2018) analyzed changes in income of smallholder farmers to evalu-ate effects of flood disasters. Antolini et al. (2020) used HAZUS-MH estimation model to evaluate crop loss by multiplying damage to crops by crop prices. In the same way Shrestha et al. (2018) performed flood dam-age assessment by estimation of yield loss and its multi-plication by the value of farm gate price. Torrente (2012) explained post disaster losses in agriculture as forgone output (income) as a result of disaster as well as higher production costs.

Vega-Serratos et al. (2018) estimated the damage caused by floods on the basis of production costs of the crop (depending on the phase in its production). Ana-lyzing performance of farms affected by drought, Lawes and Kingwell (2012) used indicators such as return on capital, business equity, the debt-to-income ratio and operating profit per hectare, while Kingwell and Xayavong (2017) also used retained profit per hectare.


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