Economic impacts of El Niño southern oscillation: evidence from the Colombian coffee market

El Niño Southern Oscillation (ENSO) is a naturally occurring phenomenon that affects weather around the world. Past ENSO episodes have had severe impacts on the economy of Colombia. We study the influence of ENSO on Colombian coffee production, exports, and price. Our structural econometric specification is consistent with an economic model of the market for Colombian coffee which, in the short run, is characterized by a downward‐sloping demand curve and by a vertical supply curve. We show that El Niño (i.e., positive shocks to ENSO) is beneficial for Colombian production and exports and decreases the real price of Colombian coffee. On the contrary, La Niña (i.e., negative shocks to ENSO) depresses Colombian coffee production and exports and increases price. However, the overall impact of ENSO shocks is small. Both in the short run and in the long run, shocks to international demand for Colombian coffee are more relevant than supply‐side shocks in Colombia in explaining the dynamics of the price of Colombian coffee. Our results suggest that a given coffee price shock can have beneficial, detrimental, or negligible effects on the Colombian economy, depending on its underlying cause. As a consequence, policy responses to coffee price shocks should be designed by looking at the causes of the shocks.     

El Niño southern oscillation and its effects on world vegetable oil prices: assessing asymmetries using smooth transition models

In this research, we examine the effects of El Niño southern oscillation (ENSO) on market dynamics of major vegetable oil prices. We adopt a smooth transition vector error correction modelling framework to analyse the impacts of ENSO events on the vegetable oil prices and, more interestingly, to investigate the asymmetric nature of the ENSO dynamics and price responses to ENSO shocks. The results confirm self‐exciting type nonlinearities in the ENSO dynamics, and presence of the so‐called transactions cost band in the system of vegetable oil prices. These nonlinearities yield the history‐specific asymmetries in the vegetable oil price dynamics, wherein effects of ENSO shocks on the ENSO dynamics and the vegetable oil prices vary considerably between different ENSO regimes. In general, positive deviations, El Niño events, result in the vegetable oil price increase, while negative deviations, La Niña events, result in decrease in the prices. We illustrate these effects using generalised impulse‐response functions and the derived asymmetry measures.     

Climate and agricultural risk: measuring the effect of ENSO on U.S. crop insurance

Predictive models of climatic phenomena can aid in insurance program design and decision making. Extreme weather outcomes have been linked to the El Niño Southern Oscillation (ENSO), which globally impacts agricultural production. This study demonstrates that extreme ENSO events alter cotton yield distributions in the Southeastern United States. These impacts translate into economically meaningful effects on crop insurance premium rates. Commercial insurers can use publicly available information to determine if government‐set premium rates are mispriced, and in turn extract economic rents via the federally mandated Standard Reinsurance Agreement. By ceding underpriced policies in El Niño and La Niña years, we find that private insurance companies can reduce paid indemnities by 10–15% on average.