Economic Impacts of Extreme Weather Events on Farm Households: Evidence from Thailand

Sirikarn LertamphainontPhD student, ACDE

November 4, 2013 Crawford PhD Conference

Crawford School of Public Policy, Australian National University

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• The incidence of natural disasters or extreme weather events has been growing over time everywhere in the world, especially in Asia and the Pacific region.

• In a warming climate, there is convincing evidence that extreme hydro-meteorological events like floods and droughts will become more frequent and more forceful.

• Agricultural production in Thailand is dependent on natural weather conditions because of poor irrigation system.

• Very little is known about the impacts of extreme rainfall events for the case of Thailand nationwide.

• The study of the role of risk-coping mechanisms in Thailand is still limited in general.

Introduction & Motivation Data Specification Estimation Results Conclusion

Motivation

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Literature review • The existing literature

o uses subjective measures of rainfall shocks which could have endogeneity problem with measures of household income and consumption expenditure (e.g. Kurosaki, 2006, 2013; Dercon et al., 2005; Makoka, 2008)

o Applies simple rainfall anomaly to represent shocks (e.g. Asiimwe and Mpuga, 2007)

o uses only measure of household consumption expenditure to represent household welfare (e.g. Thomas et al., 2010; Skoufias et al., 2012)

o focuses on only one particular event in Thailand, the flood in 2011 (Poapongsakorn et al., 2012)

o concentrates on the effects of climate change in 4 villages of Sisaket province in Thailand (Felkner et al., 2009)

Introduction & Motivation Data Specification Estimation Results Conclusion

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Research questions

• Question#1

How do extreme rainfall conditions affect the farm households’ welfare which is measured by income and consumption expenditure?

• Question#2

How do these adverse effects of rainfall shocks vary across subgroups of the sampled farm households who are differentiated by their own endowment factors and livelihood portfolios?

Introduction & Motivation Data Specification Estimation Results Conclusion

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Data

• Household socio-economic data

Five streams of repeated cross-sectional farm household survey during 2006−2010 collected annually by the Office of Agricultural Economics (OAE)o Concentrating on the farm households who certainly

engage in agricultural production activitieso Nationwide survey throughout 76 provinces in Thailand

• Weather data

Provincial-based daily and monthly rainfall time-series collected by the Thai Meteorological Department (TMD)

Introduction & Motivation Data Specification Estimation Results Conclusion

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Equation [1] shows the average effects of exogenous rainfall shocks on household income and consumption expenditure:

• Qidpt is the level of household income or consumption expenditure per adult equivalent of household i in district d and province p at time t

• Wpt is the set of constructed provincial-based measures of rainfall shocks that occur in province p where household i lives at time t

• Hidpt is the collection of time-invariant production and household characteristics of household i in district d and province p at time t

•d represents district fixed effects

•t represents time fixed effect

•idpt is a zero mean, heteroskedasticity-corrected, i.i.d error term

' 'ln idpt pt idpt d t idptQ W β H θ

Empirical Specification-1

Q1: How do extreme rainfall conditions affect the farm households’ welfare?

Expected result: < 0 and consumption smoothing

Introduction & Motivation Data Specification Estimation Results Conclusion

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' ' 'ln ( )idpt pt idpt pt idpt d t idptQ u W H W G αφ ψ

Q2: How do these adverse effects of rainfall shocks vary across subgroups of the sampled farm households having different endowment and livelihood?

Expected result: < 0 and > 0

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Introduction & Motivation Data Specification Estimation Results Conclusion

Empirical Specification-2

Equation [2] shows the average effects of rainfall shocks on household income and consumption expenditure when accounting for the availability of risk-coping options (mainly asset/endowment-based options) and means of livelihood:

• Gidpt is the collection of household-level characteristics of household i in district d and province p at time t in representing (1) the availability of risk-coping options and (2) livelihood portfolios

Note: *, **, *** indicate statistical significance at 10%, 5% and 1%, respectively

Estimation Results: Eq. [1] 8

Introduction & Motivation Data Specification Estimation Results Conclusion

Household income:

Household consumption expenditure:

Estimation Results: Eq. [2] 9

Household income and risk-coping options:

Estimation Results: Eq. [2] 10

Household expenditure and risk-coping options:

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Household income and livelihood portfolios:

Estimation Results: Eq. [2] 11

Household expenditure and livelihood portfolios:

Conclusion

• Crop income is highly sensitive to rainfall shocks as compared with other sources of income. o Compensation from livestock and non-farm income

• Consumption smoothing is evident

• Risk-coping options that could help the farm households to smooth income and consumption: o Savings and non-farm earnings

• Wealth-differentiated farm households have access to effective risk-coping options differently.

Introduction & Motivation Data Specification Estimation Results Conclusion

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