The impact of weather fluctuations and climate shocks on farmers’ welfare: insights from rural Ethiopia

ABSTRACT

This paper examines the welfare effect of inter- and intra-seasonal weather shocks using a nationally representative dataset. Results show that both rainfall and maximum temperature variability appear to exert a negative impact on the considered outcomes. Higher between-years average of rainfall implies an increase in income. This impact is nonlinear when the shock is computed over shorter reference periods and is higher in the upper tail of the income distribution. Moreover, small levels of rainfall variability have a positive effect on income, but only up to a certain threshold, after which the effect becomes negative. There is a nonlinear relationship between welfare outcomes and the first two moments of the maximum temperature distribution. Agricultural extension services, access to rural credit and use of sustainable land management practices (SLM) are crucial to mitigating the negative welfare effects.