YIELD VARIABILITY AS INFLUENCED BY CLIMATE:

A STATISTICAL INVESTIGATION

CHI-CHUNG CHEN 1 , BRUCE A. McCARL 2 and DAVID E. SCHIMMELPFENNIG 3

1 Department of Applied Economics, National Chung-Hsing University, Taichung, Taiwan
E-mail: [email protected]
2 Department of Agricultural Economics, Texas A&M University, College Station, TX, U.S.A.
E-mail: [email protected]
3 Economic Research Service, United States Department of Agriculture, 1800 M Street, NW,
Room 4195, Washington D.C., U.S.A.
E-mail: [email protected]

Abstract. One of the issues with respect to climate change involves its influence on the distribu-
tion of future crop yields. Many studies have been done regarding the effect on the mean of such
distributions but few have addressed the effect on variance. Furthermore, those that have been done
generally report the variance from crop simulators, not from observations. This paper examines the
potential effects of climate change on crop yield variance in the context of current observed yields and
then extrapolates to the effects under projected climate change. In particular, maximum likelihood
panel data estimates of the impacts of climate on year-to-year yield variability are constructed for the
major U.S. agricultural crops. The panel data technique used embodies a variance estimate developed
along the lines of the stochastic production function approach suggested by Just and Pope. The
estimation results indicate that changes in climate modify crop yield levels and variances in a crop-
specific fashion. For sorghum, rainfall and temperature increases are found to increase yield level and
variability. On the other hand, precipitation and temperature are individually found to have opposite
effects on corn yield levels and variability.

1. Introduction

Inter-annual variability of agricultural yields is well known to depend on the

weather. Extreme weather events like hurricanes and droughts have had obvious
impacts on annual harvests, recently motivating two disaster relief bills for farmers.
More subtle seasonal phenomena also have been linked to agricultural productivity,
with Florida citrus freeze risk (Downton and Miller, 1993), and dryland maize
production in southern Africa having been shown to be influenced by El Niño
Southern Oscillation (ENSO) and other ocean circulation patterns (Cane et al.,
1994). Identification and prediction of the influences of seasonal-to-interannual
climate phenomena like ENSO, has brought attention to the impacts of year-to-year

Seniority of authorship is shared. This research was partially supported by and is a contribution
to the National Assessment of Climate Change, Agricultural Focus Group, supported by the U.S.
Global Climate Change Office. The views expressed are not necessarily those of the U.S. Department
of Agriculture.

Climatic Change 66: 239–261, 2004.

© 2004 Kluwer Academic Publishers. Printed in the Netherlands.
240 CHI-CHUNG CHEN ET AL.

fluctuations in climate. Some of the agricultural policy questions that are raised
are related to increases in farm size, access to farm support programs, and risk
spreading. In the design of farm programs and disaster relief legislation it may
be useful for policymakers and analysts to know if policies address intermittent
conditions or if changes in agricultural production technology and climate might
be expected to more permanently affect crop yield variability.
The considerable attention that has been devoted to climate change impacts on
agriculture has largely focused on fifty to 100 year mean climate change effects on
average levels of crop yields (Lewandrowski and Schimmelpfennig, 1999; Adams
et al., 1998). Crop yield variability has been considered in a few longer term cases,
but these studies do not generally incorporate sensitivity tests or estimate changes
in distributions of outcomes (Mearns et al., 1996, 1997; Schimmelpfennig, 1996).
Factors other than climate are known to influence crop yield variability. An-
derson and Hazell (1987) argue that adoption of common high-yielding varieties,
uniform planting practices, and common timing of field operations have caused
yields of many crops to become more strongly influenced by weather patterns,
especially in developing countries. Hazell (1984) makes similar observations con-
cerning cereal production in the United States. Roumasset et al. (1987) and Tollini
and Seagraves (1970) argue that increased fertilizer use has had an impact. Hurd
(1994) analyzes the effect of yield variability on the adoption of integrated pest
management in a heteroskedastic production model like our own.
An open question is how sensitive is inter-annual crop yield variability to
climatic change? The ultimate answer will depend upon future technological
progress, crop-climatic adaptation, and CO2 fertilization effects among many other
factors. These factors are difficult to model, but a current statistical answer can
be obtained from historical records relating crop yield variability to climate. To
address this we pool time-series and cross-sectional data including climate vari-
ables in an approach much like that employed by Mendelsohn et al. (1994) to
measure inter-annual yield variability impacts of shifts in climate. Specifically,
we examine data for U.S. corn, cotton, sorghum, soybeans, and wheat yields to
see how they are affected by climate conditions. In turn, we apply the estimation
results to the climate projections arising from the Hadley and Canadian General
Circulation Models (GCM) as used in the U.S. Global Climate Research Program’s
(US GCRP) National Assessment to develop estimates of the magnitude of the
climate change effect on crop yield variation.
Our results should help policymakers and stakeholders evaluate future agricul-
tural policy objectives such as rural income maintenance. Farm income and crop
insurance programs might be influenced by both mean agricultural productivity
and crop yield variability. Plant breeders have worked to increase average crop
yields through traditional plant breeding and biotechnology, which has increased
the speed of innovation, but these developments might also have caused yield vari-
ability to increase which would allow us to use statistical data to consider possible
future climatic effects on variability.
 YIELD VARIABILITY AS INFLUENCED BY CLIMATE: A STATISTICAL INVESTIGATION 241

2. Background on the Method

Just and Pope (1978) developed a stochastic production function specification that
allows explicit estimation of the effects of independent variables on the probability
distribution of output (p. 79). An added advantage of the approach is that it does
not impose dependence between an item’s effect on yield variability and its effect
on mean yield. Just and Pope (1978, 1979) described both a Maximum Likelihood
(MLE) (1978) and a three step, feasible generalized least squares (FGLS) (1979)
procedure for estimating the function.
Antle (1987) extended Just and Pope’s (1978, 1979) approach by developing a
moment-based stochastic production function that is used to estimate higher order
moments and subsequently a set of input demand functions and a distribution of
risk preferences. Love and Buccola (1991) applied related techniques to primal
risk models, allowing joint estimation of either technology and yield variability
or input demands and yield variability. Saha et al. (1994) showed how to jointly
estimate risk preferences and the production technology. Buccola and McCarl
(1986) investigated the small-sample properties of Just and Pope’s (1978, 1979)
three stage method, using Monte Carlo experiments. McCarl and Rettig (1983)
used the three step approach to examine the effects of changes in ocean conditions
on the variability of the salmon catch.
Despite the fact that Just-Pope production functions have traditionally been es-
timated by the three-step FGLS approach, Saha et al. (1997) show that MLEs are
more efficient and unbiased than FGLS estimates for small samples in Monte Carlo
experiments. There are apparently systematic errors associated with the FGLS
procedure, producing understated estimates of the risk effects of inputs, a serious
problem in the present context.

3. Panel Data Set for Estimation

To gain information on the inter-annual effects of climate we use annual obser-

vations across the U.S. states on crop yields and associated climate. Exploratory
data analysis indicated that differences between the variability of yields for indi-
vidual crop varieties were minor. There were trends in yields toward an increase
in variability particularly for corn, but also for the other crops, and we control for
this through our allowance for technology change. All of the corn varieties that we
examined were more variable than the next most variable crop, which was soy-
beans. State level aggregation was chosen for the crops because of the availability
of multiple years of yield data. We encountered few missing observations over the
relevant time period for each crop, and of course not all states grow all of the crops.
Our estimates of inter-annual yield variability contrast with the earlier litera-
ture on crop variability that estimated distributions of crop yields within a year
because those distributions were shown to change from year-to-year depending
242 CHI-CHUNG CHEN ET AL.

on the circumstances (Park and Sinclair, 1993; Kaylen and Koroma, 1991). For a
longer-term relationship, such as those considered for climate change, state-level
average climate over the growing season most accurately reflects annual growing
conditions for each crop by state.
State-level climate data were drawn from the
NOAA Internet home page. The temperature data are predominantly April to No-
vember averages for the relevant weather stations in a state. For regions growing
mainly winter wheat, we used the November to March average temperature. The
rainfall data are annual totals, reflecting both precipitation falling directly on a crop
and also inter-seasonal water accumulation.
Matching agricultural output data are state-level yields and acreage harvested
for 1973 to 1997 taken from USDA-NASS Agricultural Statistics for the contigu-
ous 48 states. This provides between 1200 and 1400 observations for each of the
various crops. Our approach makes it necessary to control for factors, other than
climate, that change over time and we control for technological change with a
deterministic trend, only after removing stochastic trends from the data. Moss and
Shonkwiler (1993) have shown that stochastic trends can be used to model central
tendency in crop yield distributions, so it is important to carefully characterize both
stochastic and deterministic trends.

4. Time Series Estimation

The Just-Pope production function can be estimated from panel data relating annual
yield to exogenous variables. This procedure produces estimates of the impacts
of the exogenous variables on levels and the variance of inter-annual yield. An
assumption of the model is that the included variables are stationary. Deterministic
and stochastic trends in variables can introduce spurious correlations between the
variables, because the errors in the data-generating-processes for different series
might not be independent (Granger and Newbold, 1974). In other words, corre-
lations might be detected between variables even though they are increasing for
different reasons and in increments that are uncorrelated (Banerjee et al., 1993,
p. 71).
An early method for accounting for the trends in many economic time series was
to include a deterministic time trend. Unfortunately, correlations between variables
may still be spurious even when deterministic time trends are taken into account.
To make matters worse, standard t-statistics on the time trend variable are inflated
when the other variables are non-stationary (Phillips, 1986). This might make it
seem that a time trend is properly accounted for when it is not. The solution to these

A potential shortcoming of this approach is that particular (agricultural) regions within a state
may experience consistently different temperatures and precipitation than state averages. It is also
possible that for larger growing regions (including several states) conditions might be expected to be
different on the edges of the region than in the middle of the region and state-level data might fail to
distinguish some of these fringe effects.
 YIELD VARIABILITY AS INFLUENCED BY CLIMATE: A STATISTICAL INVESTIGATION 243

Figure 1. Average crop yield by year.

problems is to first test for stationarity. Non-stationary variables can be differenced

once and retested. If the differenced versions are stationary, the variables are said
to be integrated order one or I (1). Stationary time series are integrated order zero
or I (0). Regressions on stationary variables may satisfy ideal conditions, and infer-
ences on a deterministic time trend can be made safely. Even though there are more
regions than annual observations in our data, any data set with a time dimension
of 20 years or more should probably be tested for its time series properties before
being used in empirical models that assume stationary variables.
Practitioners have tested for unit roots and used differencing or other filtering
techniques to make their variables stationary. Until recently the time-series charac-
teristics of a panel of data has been difficult to characterize. The observations on
one or more regions in a panel could be non-stationary when considered alone, but
with panel data models all of the regions are generally taken together. The concern
has been about how to characterize the time series properties of one variable made
up of many regions. New tests are available that offer more power than earlier
tests on regional series. These new tests for stationarity are applied to each vari-
able taking the whole panel at once. This avoids possibly conflicting time series
information on regions in the panel. There are several versions of these so-called
panel unit root tests that can account for the positive trends in the yields of these
crops shown in Figure 1, and they are discussed in Appendix A. An upshot of
the observed trends is that absolute variability is more consistent than if mean
yields fluctuated both positively and negatively, in which case it would probably
be necessary to consider relative variability.

We thank one of the referees for raising the relative variability issue.
244 CHI-CHUNG CHEN ET AL.

4.1. PANEL UNIT ROOT TEST RESULTS

Im et al. (1997) propose a series of unit root test statistics in dynamic heterogenous
panels based on individual Dickey-Fuller (Dickey and Fuller, 1981) regressions.
The panel is dynamic because unit root tests involve inference on lags of the depen-
dent variable. The test statistic is based on the mean of individual unit root statistics
and the details of the procedure are described in Appendix A. The results in Table I
come from applying the panel unit root test procedure to each individual potential
dependent (yield) and independent variable (acreage, rainfall, and temperature).
Table I shows that for corn, cotton, sorghum, soybeans, and wheat, the variables are
stationary as a panel, i.e., integrated order zero (I (0)), rejecting the null hypothesis
of a unit root.
There are several variations of these tests that we also performed. A slightly
modified test is described by Im et al. (1997) that is robust to serial correlation.
This test gives the same stationary vs. non-stationary results and we do not pursue
the autocorrelation question further until we specify the production function. An-
other modification to our original test, based on de-meaned variables in each panel,
yields slightly different results. Since the de-meaned version of the test is robust
to correlation across regions, we concluded that there may be correlation across
regions affecting the simpler model results, although this not a definitive test of
inter-regional correlation. We will show the existence of random region effects
in the production functions that we estimate in the next section. We proceed by
differencing the non-stationary variables indicated by this last test (sorghum yield,
cotton precipitation, and soybean temperature). These differenced variables were
re-tested and the results are also in Table I (second row in a cell when there are two
rows) and are shown to be stationary, i.e., I (0), eliminating the possibility that any
of the variables might have been integrated order two, i.e., I (2).
These panel time series characteristics of the data are used in formulating the es-
timation approach. While it might be plausible, even if a little surprising, that some
of the temperature and precipitation variables have long-term trends while some of
the yield variables do not, interpretation of these results should be undertaken only
after additional testing. Our concern is that stationary versions of all of the variables
are used in the panel production function model in the next section. This avoids
possible spurious correlations between variables and allows the establishment of
valid relationships. In addition, this allows inclusion of a deterministic time trend
in the production model that does not suffer from an inflated t-statistic.

4.2. THE MLE APPROACH TO ESTIMATING THE PRODUCTION FUNCTION

The previous sections established stationarity of the variables and random region
effects are determined to exist from applying the procedure in Appendix B. Neither
of these results rule out the possibility of deterministic trends. These results do
practically rule out spurious correlations between regional yields and the climate
variables because each of the variables are random walks (after differencing be-
 YIELD VARIABILITY AS INFLUENCED BY CLIMATE: A STATISTICAL INVESTIGATION 245
Table I
Unit root test results

Yield Acre Precipitation Temperature

(planted
acreage)

No-serial correlation
Corn 13.87 a 65.08 a 73.17 a 125.88 a
Cotton 14.48 a 35.38 a 83.74 a 81.18 a
Sorghum 14.83 a 51.34 a 91.02 a 88.42 a
Soybeans 34.37 a 52.39 a 56.73 a 104.00 a
Wheat 27.77 a 46.82 a 73.38 a 128.81 a

Serial correlation
Corn –4.86 a 64.37 a 63.88 a 126.07 a
Cotton 6.86 a 32.98 a 67.63 a 84.13 a
Sorghum –2.26 a 70.22 a 81.82 a 89.58 a
Soybeans 6.92 a 63.06 a 49.45 a 101.26 a
Wheat 2.31 a 50.88 a 64.19 a 126.20 a

Correlation across groups

Corn 2.79 a –3.72 a 7.10 a 9.92 a
Cotton 35.13 a –5.69 a 0.79 1.91 a
28.22 a
Sorghum 0.55 –3.34 a 2.54 a 2.21 a
10.40 a
Soybeans 8.17 a –6.98 a 5.53 a –0.48
499.13 a
Wheat 8.15 a –7.02 a 7.05 a 10.36 a
Table I reports three versions of Im et al.’s LM-bar test statistic. ‘Ser-
ial correlation’ statistics are robust to error term serial correlation, while
‘correlation across groups’ statistics are robust to serial correlation in the
cross-section dimension. When there are two statistics in a cell, the top
number is for the test on the undifferenced variable, and the bottom number
is for the test on the variable after it has been differenced once.
a Null hypothesis of non-stationarity is rejected with 99% confidence.

cause they are stationary) and the regional effects are random. Another factor to
consider is that crop yield variability (see Figure 2) appears to be increasing for
corn but not for soybeans. Following Saha et al. (1997), we proceed by estimating
production functions of the form

y = f (X, β) + h(X, α)ε , (1)

246 CHI-CHUNG CHEN ET AL.

Figure 2. Crop yield variability by year.

where y is crop yield (corn, cotton, sorghum, soybeans, and wheat), f (·) is an
average production function, and X is a set of independent explanatory variables
(climate, location, and time period). The functional form h(·) for the error term is
an explicit form for heteroskedastic errors, allowing estimation of variance effects.
Estimates of the parameters of f (·) give the average effect of the independent
variables on yield, while h2 (·) gives the effect of each independent variable on
the variance of yield. The interpretation of the signs on the parameters of h(·) is
straightforward. If the marginal effect on yield variance of any independent vari-
able is positive, then increases in that variable increase the standard deviation of
yield, while a negative sign implies increases in that variable reduce yield variance.
The log-likelihood function is then:


1 n  n
(yi − f (Xi , β))2
ln L = − n ∗ ln(2π ) + ln(h(Xi , α) ) +
2
2
. (2)
2 i=1 i=1
h(X i , α)

Due to advances in non-linear optimization procedures, the parameters α and β

can be estimated in a single-stage maximization of (2), under the assumptions that
yi ∼ N(f (Xi , β), h(Xi , α)2 ) and εi ∼ N(0, 1).

4.3. CROP YIELD PRODUCTION FUNCTION ESTIMATES

After controlling for random effects, the MLEs of the f (X, β) portion of the crop
production functions can be estimated and are displayed in Table III. Two specifica-
tions are tested, linear and Cobb-Douglas, and for precipitation and temperature for
 YIELD VARIABILITY AS INFLUENCED BY CLIMATE: A STATISTICAL INVESTIGATION 247
Table II
Panel model specification tests

Corn Cotton Sorghum Soybeans Wheat

Fixed vs. random

effects 15.37 a 6.44 a 7.52 a 14.45 a 12.06 a

Serial correlation 0.87 b 0.81 b 1.22 b 1.23 b 0.18 b

Range of
normality statistics
across states 0.29–3.24 c 0.01–93.6 0.05–6.65 c 0.08–2.25 c 0.11–2.74 c
a Null hypothesis is rejected with 99% confidence.
b Fails to reject the null hypothesis of no serial correlation with 99% confidence.
c Rejects the null hypothesis of non-normality with 99% confidence. The range is the minimum
and the maximum of the Wald test statistics across all states represented in the data set. A more
detailed table with skewness, kurtosis, and Wald statistics by state is available from the authors
upon request.

corn, cotton and sorghum these forms give similar results. The sign on precipitation
is positive for all three crops and is negative on temperature. This indicates that crop
yields increase with more rainfall and decrease with higher temperatures, holding
acreage constant and after controlling for a deterministic time trend that may serve
as a proxy for the non-stochastic portion of the advance of agricultural technology.
Higher temperatures positively affect soybean yields (Cobb-Douglas estimate
insignificant) and negatively affect wheat yields. The coefficients on the determin-
istic time trend are positive and significant as expected for all crops, except the
Cobb-Douglas estimates for cotton and wheat. This may come from the tendency
of Cobb-Douglas functional forms to pick up curvature because they are non-
linear over a wide range of parameter values, and may indicate a declining rate of
increase in the effect of technology on yield rather than an actual negative impact
of technology.

The coefficients for rainfall and temperature can be converted to elasticities by
multiplying by sample average climate and dividing by average yield. These elas-
ticities are reported in Table IV. For corn yields, the percentage effects of changes
in climate estimated from the Cobb-Douglas functional form are higher than the
linear estimates. Elasticities for the other crops are mixed, with uniformly high
elasticities being measured for both rainfall and temperature on sorghum. Tests of

Future research will investigate the extent of these non-linear effects by considering quadratic
and flexible functional form estimates for the entire sample and for regional sub-samples. Until this
further work on non-linear response of variability to climate is completed, these Cobb-Douglas
estimates should probably be considered as simply providing verification of the linear results (in
most cases).
248 CHI-CHUNG CHEN ET AL.

Table III
Estimated parameters for average crop yield production functions (f (X, β)) under linear and
Cobb-Douglas functional forms

Acre Precipitation Temperature Year Constant Log-likelihood

Corn
Linear 0.0146 a 0.9265 a –0.3843 a 3.3018 a 0.4430 –19169240
(0.00039) (0.00606) (0.01599) (0.06492) (0.9978)

Cobb- 1.0728 a 1.5148 a –2.9792 a 2.0470 a 0.0560 a 0.00

Douglas (0.00105) (0.00160) (0.00064) (0.00061) (0.00007)

Cotton
Linear –0.00010 a 0.00679 a –0.02731 a 0.02107 a 2.8990 a –106332
(0.000001) (0.00010) (0.00035) (0.00014) (0.02524)

Cobb- 0.30879 a 0.40751 a –0.74763 a –0.31626 a 2.6774 a 0.00

Douglas (0.00736) (0.01812) (0.02059) (0.01382) (0.01618)

Sorghum
Linear 0.00042 a 0.05786 a –0.02242 a 0.10573 a –1.4303 a –793264
(0.00002) (0.00086) (0.00281) (0.00186) (0.19234)

Cobb- 0.3895 a 1.8977 a –2.6070 a 1.3758 a 0.2610 a 0.00

Douglas (0.02159) (0.03633) (0.04189) (0.02864) (0.01441)

Soybeans
Linear 0.00149 a –0.16234 a 0.00386 a 0.34695 a 29.865 a –1636508
(0.000006) (0.00082) (0.00037) (0.00145) (0.04464)

Cobb- 0.1558 a 0.3640 a 0.0016 0.2113 a 1.5992 a 0.00

Douglas (0.00086) (0.00267) (0.00149) (0.00159) (0.00351)

Wheat
Linear 0.00130 a –0.15262 a –0.33372 a 0.63271 a 60.371 a –7505439
(0.000004) (0.00054) (0.00145) (0.00094) (0.08986)

Cobb- 0.03485 a 1.4178 a –0.37209 a –0.23611 a 1.6014 a 0.00

Douglas (0.01337) (0.03053) (0.00613) (0.01605) (0.00364)
Numbers in parentheses are standard errors.
a Significant at 99% confidence level.
 Table IV
Elasticity of average crop yield to a change in precipitation or temperature

Production Corn Cotton Sorghum Soybean Wheat

function form Precipi- Tempera- Precipi- Tempera- Precipi- Tempera- Precipi- Tempera- Precipi- Tempera-
tation ture tation ture tation ture tation ture tation ture

Linear 0.3273 –0.2433 0.0371 –1.5334 2.8844 –2.0866 –0.2068 0.0002 –0.1309 –0.5076
Cobb-Douglas 1.5148 –2.9792 0.4075 –0.7476 1.8977 –2.6070 0.34640 N.S. 1.4178 –0.3721

Linear elasticities are coefficients in Table III multiplied by average climate divided by average yield (see Figure 1).
N.S. – not significant.
YIELD VARIABILITY AS INFLUENCED BY CLIMATE: A STATISTICAL INVESTIGATION
249
250 CHI-CHUNG CHEN ET AL.

model adequacy were carried out and are described in Appendix C. Estimates of
the impact of climate variability on crop yields are presented in the next section.

5. Variability Results from the Estimated Model

The operative empirical question that can be addressed given the above results
involves the way that crop yield variability responds to changes in temperature and
precipitation. The clearest results are those for corn, cotton and sorghum where
we find results that are independent of functional form (Table V). In those cases
increases in rainfall decrease yield variability for corn and cotton, but increase it for
sorghum. Simultaneously, higher temperatures decrease the variance of cotton and
sorghum yields, but increase variability for corn. Such results are not surprising if
one looks at the characteristics of the physical locations of these crops coupled with
common crop cultural conditions. Corn is grown best in more temperate zones and
has high water requirements. Yields in hotter drier conditions are generally lower
and more variable as the estimation confirms. Sorghum is generally grown in higher
temperature lower rainfall conditions, and the results show lower temperatures or
more rainfall increase variability. Cotton is grown in the hotter but often more
humid areas of the Southern U.S., again a fact not inconsistent with the finding that
variability increases as temperature and rainfall are reduced.
Elasticities giving the percentage increase in variability for a percent increase in
rainfall and temperature variability are reported in Table VI. Cotton and sorghum
rainfall variability elasticities are all small, with a one percent increase in rainfall
leading to a half of one percent or less increase or decrease in yield variability.
Cotton and sorghum have high temperature variance elasticities with a one-percent
change in temperature leading to an up to eleven percent decrease in yield variabil-
ity. Similarly large elasticities are obtained for rainfall effects on corn and wheat
yield variability. Elasticities for corn, cotton, sorghum and wheat have the same
sign across functional forms. Soybean elasticities are less than one, but the signs are
inconsistent across functional forms making these results harder to interpret. The
distinction between the impacts of climate on levels and variance of yields raises
several policy questions related to crop insurance and climate change assessment
that will be addressed in the next several sections.

5.1. POTENTIAL EFFECT OF PROJECTED CLIMATE CHANGE

To gauge the potential effect on yield variability of currently projected climate

change, we use the climate change projections for 2090 from the U.S. Global
Climate Change Research Program’s National Assessment. Those projections were
developed using the Canadian and Hadley global circulation models (for details see
USGCRP). Each projection includes specific changes in regional precipitation and
temperature which were in turn plugged into the Cobb-Douglas functional form of
YIELD VARIABILITY AS INFLUENCED BY CLIMATE: A STATISTICAL INVESTIGATION 251
Table V
Estimated parameters for crop yield variability functions (h(X, α)) under linear and
Cobb-Douglas functional forms

Acre Precipitation Temperature Year Constant

Corn
Linear 0.0005 a –0.2720 a 0.1172 a 0.2052 a 9.4197 a
(0.000002) (0.00070) (0.00105) (0.00217) (0.0555)

Cobb- 0.4711 a –1.4461 a 0.8923 a 0.1356 a 2.2785 a

Douglas (0.00116) (0.00284) (0.11526) (0.00019) (0.4744)

Cotton
Linear –0.00007 a –0.04405 a –0.15506 a 0.03161 a 9.2579 a
(0.000005) (0.00068) (0.00095) (0.00052) (0.06642)

Cobb- 0.2537 a –0.02124 a –3.5800 a 0.34964 a 13.519 a

Douglas (0.00534) (0.00798) (0.22972) (0.00798) (0.9732)

Sorghum
Linear 0.00028 a 0.01431 a –0.07847 a 0.03925 8.7116 a
(0.00003) (0.00015) (0.00041) (0.00030) (0.0291)

Cobb- 0.2373 a 0.48029 a –2.5633 a 0.55248 a 11.238 a

Douglas (0.00672) (0.00399) (0.05870) (0.00269) (0.2211)

Soybeans
Linear –0.00006 a –0.02048 a –0.16895 a –0.00148 a 5.0756 a
(0.000001) (0.00021) (0.00139) (0.00033) (0.01035)

Cobb- 0.0210 a 0.8194 a 0.0586 a 0.2028 a 0.4920 a

Douglas (0.00356) (0.02242) (0.00267) (0.00846) (0.0803)

Wheat
Linear –0.00003 a –0.06201 a –0.00167 a 0.05412 a 6.4186 a
(0.000001) (0.00006) (0.00015) (0.00015) (0.01034)

Cobb- 0.14732 a –1.6473 a 5.0875 a –2.1145 a –8.8744 a

Douglas (0.01035) (0.01493) (0.24809) (0.02403) (0.9673)
Numbers in parentheses are standard errors.
a Significant at 99% confidence level.
 252

Table VI
Elasticity of crop yield variance to a change in precipitation or temperature

Functional Corn Cotton Sorghum Soybean Wheat

form for Precipi- Tempera- Precipi- Tempera- Precipi- Tempera- Precipi- Tempera- Precipi- Tempera-
yield tation ture tation ture tation ture tation ture tation ture
variability

Linear –9.7187 7.5058 –0.3028 –10.9386 0.5230 –5.3517 –0.7932 –0.2739 –2.1572 –0.1035
Cobb-Douglas –1.4461 0.8923 –0.0212 –3.5800 0.4802 –2.5633 0.8194 0.0586 –1.6473 5.0875
CHI-CHUNG CHEN ET AL.

Linear elasticities are coefficients in Table V multiplied by average climate divided by average yield (see Figure 1).
 YIELD VARIABILITY AS INFLUENCED BY CLIMATE: A STATISTICAL INVESTIGATION 253

Figure 3. Percentage decrease in corn and cotton yield variability (for year 2090) under projection of
climate change (Canadian GCM) from Table VII.

the estimated production function in the previous section. The climate change pro-
jections can be plugged into the variability estimates because they are constructed
to be independent of mean changes in climate from the historical record.
The results are given in Table VII and show uniform decreases in corn and
cotton yield variability of up to 25%, uniform increases in soybean yield variability
and mixed results for sorghum and wheat. Figures 3 and 4 show the geographical
relationship between different results and illustrate how consistent they are within
regions (between nearby states). These results should be considered with some
caution of course, because of the uncertain nature of projected future changes in
climate (only two of many available climate scenarios have been presented) and the
possible effects that future changes in climate variability could have on the yield
distributions.

There is some evidence that intensification of the hydrological cycle at higher temperatures
leads to increased weather variability that might have unforeseen impacts on crop yield distributions.
 254

Table VII
Percentage increase in crop variability for year 2090 under alternative climate change projections from Global Circulation
Models (GCMs) a

Canadian GCM projection Hadley GCM projection

Corn Soybeans Cotton Wheat Sorghum Corn Soybeans Cotton Wheat Sorghum

CA –12.84 –11.81
CO –13.35 –0.40
GA –10.35 –6.92
IL –25.71 21.28 –24.73 18.90
IN –8.73 8.06 –26.31 20.30
IA –36.89 33.14 –26.83 20.90
KS –14.39 0.75 –18.16 3.38
LA –13.03 –7.97
MN –2.87 4.01 –13.97 10.60
MT 32.86 –6.36
CHI-CHUNG CHEN ET AL.

MS –13.92 –7.73
NE –16.15 –1.72
OH 7.60 19.85
OK 16.34 –9.27 –17.07 2.83
SD –21.75 –6.94 –24.37 –19.10
TX –13.21 27.86 –10.83 –8.05 2.26 –3.10
a Neither of the regional climate change projections considered here include CO fertilization effects. The size of these ef-
2
fects can be substantial in controlled settings, but regional long-term climate predictions usually do not distinguish regional
differences in the impacts of CO2 fertilization, reflecting the current state of scientific understanding of the phenomenon.
 YIELD VARIABILITY AS INFLUENCED BY CLIMATE: A STATISTICAL INVESTIGATION 255

Figure 4. Percentage change in soybeans and wheat yield variability (for year 2090) under projection
of climate change (Canadian GCM) from Table VII.

5.2. YIELD VARIABILITY OVER TIME

Thus far we have made use of the historical record in determining, among other
things, the sign of the association between climate variables and inter-annual av-
erage and variance of crop yields. We then used climate change projections to
see how much the historical record indicates that yield variability might change
when forecasted out-of-sample. In addition to these results, we also determined
from the historical record that the average and the variance of crop yields exhibited
significant time dependence. Table III shows average yield increased over time
while Table V shows in most of the cases that variability also increased over time.
This is consistent with the assertions in a number of previous efforts, as collected
in Anderson and Hazell (1987), that increased mean yields are associated with
increased yield variability.
One interpretation of these results is that agricultural policy objectives such as
farm income maintenance may not be working in concert with successful attempts
to improve crop production technologies that have focused primarily on increas-
ing average yields. From the standpoint of the out-of-sample forecasts, continued
future trends toward increased yield variability could be quite disruptive if the
climate change projections turn out to be accurate and new institutions have not
256 CHI-CHUNG CHEN ET AL.

been developed to deal with the added variability in farm yields. The Cobb-Douglas
specification for cotton and wheat are the only two results that do not fit the pattern
we describe and these anomalies may arise from the combination of a non-linear
specification and the fact that yields for these crops have leveled-off or declined
slightly.

6. Concluding Comments

This study has developed quantitative estimates of the impacts of annual average
climate conditions on yield variability of major agricultural crops across the U.S.
This is accomplished by estimating a Just-Pope stochastic production function us-
ing a time series and panel data set of U.S. crop yields for major crops by state. The
results show changes in average climate conditions cause alterations in crop yield
levels and variability. The effects are found to differ by crop. For corn, precipitation
and temperature are found to have opposite effects on yield levels and variability.
More rainfall causes corn yield levels to rise, while decreasing yield variance. Tem-
perature has the reverse effects. For sorghum higher temperatures reduce yields and
yield variability. More rainfall increases sorghum yields and yield variability.
An evaluation of the estimated results over climate change projections reveals
how future projected climate change may influence yield variability. In partic-
ular, under the Canadian and Hadley scenarios used in the USGCRP national
assessment, future variability decreases for corn and cotton while it increases for
soybeans, while we find mixed effects for wheat and sorghum. Such results indi-
cate directions that public or private breeding programs might need to take for the
different crops if a future goal is to reduce variability while maintaining average
crop yields.

Appendix A: Panel Unit Root Tests

The panel unit root tests we use are from Quah (1994), Im et al. (1997), and Levin
and Lin (1992, 1993). Quah’s test does not allow for region specific effects. Since
we showed the importance of region effects in the paper, we rely on Im et al.’s test.
Their test shows better finite sample performance than the tests due to Levin and
Lin, in Monte Carlo simulations on panels with a large number of regions relative
to the number of time periods.

The test is valid when the errors in the region regressions are serially uncor-
related, and normally and independently distributed across regions. Under these
circumstances their test statistic is distributed as standard normal as long as the
number of regions (N) is large relative to the number of time periods (T ). For

Application of the Im et al.’s test to another data set can be found in Coakley and Fuertes.
Heimonen uses Levin and Lin’s test.
 YIELD VARIABILITY AS INFLUENCED BY CLIMATE: A STATISTICAL INVESTIGATION 257

wheat, corn, and soybeans we have 25 annual observations with a few sub-state
level observations. There are, e.g., 1400 observations for wheat, with 25 years of
data across 56 regions. This is the widest panel, but for all the crops considered
here, N is large relative to T .
Suppose that yield or climate, yit , has a representation as a stochastic first-order
auto-regressive process for region i and time period t,

yit = αi + βi yi,t −1 + εit , i = 1, . . . , N; t = 1, . . . , T , (A1)

where yit = yit − yi,t −1 and εit are independently and identically distributed both
across i and t. The null hypothesis of a unit root in (1) is then a test of

H0 : βi = 0 for all i .

Appendix B: Fixed or Random Effects in the Panels of Data?

The time series properties of the variables are established in the paper, and this
appendix takes the additional step of establishing if the individual panels of data
have fixed or random state (individual) effects. The time series results indicated
that some of the variables in Table I may have correlations across regions. To test
for fixed or random region effects in the model, several approaches are available.
Suppose a panel model with two-way error components is depicted as follows

yit = α + Xit β + uit i = 1, . . . , N; t = 1, . . . , T , (A2)

where uit = µi + λt + vit , µi denotes the unobserved specific region effects, λt is

an unobserved time effect, vit is the disturbance term, and their variances are σµ2 ,
σλ2 and σv2 respectively.
The Breusch and Pagan test considers the null hypothesis that the variance of
region and time specific effects is zero in (A1). Honda suggests a one-sided version
of this test, which is preferred because of expected non-negative variance compo-
nents. Honda’s version of the test is a uniformly most powerful test of H0 : σµ2 = 0
vs. fixed effects. The test statistic (Baltagi, 1995, p. 62) is,
   
NT ũ (IN ⊗ JT )ũ H0
− 1 −→ N(0, 1), (A3)
2(T − 1) ũ ũ

where N is the number of cross-sections (regions); T is the number of time-series

observations; ũ is an NT × 1 vector of residuals; IN is an N × N identity matrix;
JT is a T × T matrix of ones; ui ∼ IID(0, σu2 ), vit ∼ IID(0, σv2 ).
The results from the estimation of (A2), in the second row of Table II, indicate
that the null hypothesis is rejected for all five equations, and a zero variance on the
region effect is rejected with 99% confidence. These results indicate the existence
258 CHI-CHUNG CHEN ET AL.

of random region effects, information used in the specification of the production

function.

Appendix C: Tests of Model Adequacy

This Appendix tests the adequacy of the panel production function models used
in the paper. The classical assumption of the random effects model is that the
errors are region specific. The significance of a deterministic time trend along with
the other stationary variables leads us to consider if regional production function
errors might also be time specific. If serial correlation was previously ignored,
estimates in Table III could be consistent but inefficient, with biased standard er-
rors. Log-likelihood values are presented in Table III, but because the mean and
variance of crop yields are estimated simultaneously using maximum likelihood
these diagnostic statistics also apply to Table V.
Since random region effects were shown to exist from the results in Table II, it
seems appropriate to test for serial correlation jointly with this information. Baltagi
and Li (1995) present a series of tests for serial correlation that are carried out
jointly with various assumptions concerning region effects. Their Lagrange Multi-
plier (LM) test for zero first-order serial correlation assuming random region effects
is the same whether the alternative is AR(1) or MA(1) (Baltagi, 1995, pp. 91–93),
which is fortunate as we have no way of testing which is the appropriate alternative.
For AR(1) serial correlation, a new specification of the error terms in Equation
(2) are as an AR(1) process with vit = ρvi,t −1 + εit , εit ∼ N(0, σε2 ). The null
hypothesis is the restriction on this equation that H0 : ρ = 0. The test statistic
LM = (D̂ρ )2 Jˆ11 is distributed χ12 for large N, where
σ̂12 − σ̂ε2
D̂ρ = [N(T − 1)/T ] +
σ̂12
  ¯  ¯ 
 JT ET JT ET
+ (σ̂ε /2)û IN ⊗
2
2
+ 2 G + 2 û
σ̂1 σ̂ε σ̂12 σ̂ε

Jˆ11 = N 2 T 2 (T − 1)/det(Jˆ)4σ̂14 σ̂ε4

σ̂ε2 = û (IN ⊗ ET )û/N(T − 1)
σ̂12 = û(IN ⊗ J¯T )û/N
J¯T = JT /T ,
ET = IT − J¯T .
and û are the maximum likelihood residuals under the null hypothesis. Jˆ is an
information matrix while G is a bidiagonal matrix with bidiagonal elements all
equal to one.
 YIELD VARIABILITY AS INFLUENCED BY CLIMATE: A STATISTICAL INVESTIGATION 259

Test results for serial correlation are displayed in the third row of Table II, along
with the Appendix A results. The results for serial correlation fail to reject the
null hypothesis, indicating no serial correlation in the production functions for all
five crops. Since the regional production function errors are not time specific, the
standard errors of the estimates in Table III are correct.
Another assumption of the maximum likelihood models is that the error terms
in each state are normally distributed. A standard test of this assumption is a Wald
test derived by Greene (chapter 6) and the test statistic is
 
b1 (b2 − 3)2
W =n + ∼ χ22 , (A4)
6 24
where b1 is a skewness coefficient, and b2 is a kurtosis coefficient. Significant de-
partures from the skewness and kurtosis of the normal distribution are indicated by
a large test statistic, W , that is distributed chi-squared with two degrees of freedom.
We reject the null hypothesis of non-normality with 99% confidence or greater for
all crops in all states except cotton in Arizona, California and Missouri. Ranges of
test statistics results across all states are reported in the last row of Table II. Moss
and Shonkwiler (1993) find non-normality in U.S. corn yields, but since we do not
find evidence of non-normality in the distribution of residuals we do not investigate
further the possibility of yield non-normality.

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(Received 17 March 2003; in revised form 20 January 2004)