Dependency of Crop Production between Global Breadbaskets: A Copula Approach for the Assessment of Global and Regional Risk Pools

Gaupp, F., Pflug, G. ORCID: https://orcid.org/0000-0001-8215-3550, Hochrainer-Stigler, S., Hall, J., & Dadson, S. (2017). Dependency of Crop Production between Global Breadbaskets: A Copula Approach for the Assessment of Global and Regional Risk Pools. Risk Analysis 37 (11) 2212-2228. 10.1111/risa.12761.

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Abstract

As recent events have shown, simultaneous crop losses in different parts of the world can cause serious risks to global food security. However, to date, little is known about the spatial dependency of lower than expected crop yields from global breadbaskets. This especially applies in the case of extreme events, i.e., where one or more breadbaskets are experiencing far below average yields. Without such information, risk management approaches cannot be applied and vulnerability to extremes may remain high or even increase in the future around the world. We tackle both issues from an empirical perspective focusing on wheat yield. Interdependencies between historically observed wheat yield deviations in five breadbaskets (United States, Argentina, India, China, and Australia) are estimated via copula approaches that can incorporate increasing tail dependencies. In doing so, we are able to attach probabilities to interregional as well as global yield losses. To address the robustness of our results, we apply three different methods for constructing multivariate copulas: vine copulas, ordered coupling using a minimax approach, and hierarchical structuring. We found interdependencies between states within breadbaskets that led us to the conclusion that risk pooling for extremes is less favorable on the regional level. However, notwithstanding evidence of global climatic teleconnections that may influence crop production, we also demonstrate empirically that wheat production losses are independent between global breadbaskets, which strengthens the case for interregional risk pooling strategies. We argue that through interregional risk pooling, postdisaster liabilities of governments and international donors could be decreased.

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