Climate risk management in agriculture using alternative electricity and water resources: a stochastic programming framework

Climate change, extreme weather events, and water scarcity have severely impacted the agricultural sector. Under scarce conventional water supplies, a farm faces a decision between reducing production through deficit irrigation and leveraging alternative water and energy resources to continue producing large quantities of crops and these investments would have to be balanced against an unknown climate. Therefore, we develop a framework for farm investment decisions structured as a two-stage stochastic quadratically constrained linear program that maximizes farm profit over a 25-year period while considering an uncertain future climate and the costs of investing and operating various electricity and water technologies. We create four representative climate futures and two climate probability distributions that represent different beliefs that the decision maker might have about the likelihood of each climate scenario occurring. Then, we compare four solutions where decisions are made on information ranging from perfectly knowing the climate and weather to only the average precipitation. Our results show that expected profit and crop yield heavily depend on a decision maker’s given climate probability distributions. Aggressively preparing for an extreme climate can cause significant losses if a more moderate climate is realized. Furthermore, given a future climate, year-to-year weather variability can also corrode the potential cost savings from investing in alternative resources. The insights from this framework can help agricultural decision makers determine how to address climate uncertainty, water scarcity, and to a limited degree weather variability via investments in alternative water and electricity resources that can help improve resilience and fortify profits.