Drought risk management in agriculture: A copula perspective on crop diversification

Jonas Schmitt, Frank Offermann, Andreia F. S. Ribeiro and Robert Finger

Agricultural Economics, 2024, vol. 55, issue 5, 823-847

Abstract: Drought events are a major cause of large crop yield losses with implications for food security and farmers’ incomes. Growing multiple crops simultaneously during a cropping season is a well‐known on‐farm risk management strategy to cope with these drought risks. However, the effectiveness of this crop diversification under different severity levels of drought and how this effectiveness is influenced by the crop composition is unclear. This article provides new methodological and empirical insights to assess the effectiveness of such diversification, in particular to cope with extreme drought. We apply and evaluate nested Archimedean copulas and elliptical copulas to assess simultaneous farm‐level yield losses of different cash crops in German agriculture (winter wheat, winter barley, winter rapeseed, sugar beet, and grain maize) under different drought severity levels (N = 249,756; regionally pooled farm‐level crop‐yield pairs, 1995–2019). We show that on‐farm crop diversification contributes to cope with drought risks, but its effectiveness varies considerably across regions, crop pairs, and drought severity. Our results underline that cropping system diversification alone is often not sufficient to cope with drought risks, but that the right crop combinations are needed. For example, during a severe drought (one in 20 years event), 26.4% of farmers in eastern Germany suffered simultaneous yield losses of at least 20% in winter wheat and winter barley, while 19.1% of farmers in eastern Germany suffered simultaneous yield losses of at least 20% in winter wheat and sugar beet. Farmers should therefore be encouraged to grow crops with more diverse phenological requirements throughout the year.

Date: 2024
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