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Impact of Climate Change on cereal grain production in Russia

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 Impact of Climate Change on cereal grain production in Russia

Leppänen, Simo1
Saikkonen, Liisa2
Ollikainen, Markku3

(This version September 2014. Draft, do not cite without permission.)

Abstract

In this paper, we analyze the effects of climate change on cereal grain production in Russia. Our study
focuses on the effects of climate change on the cereal grain production, because cereal grain crops,
especially wheat, are economically the most important agricultural products in Russia. The climate change
impacts are identified from regional data through short-term weather variation and mid-term change in
weather variables enabling us to address potential adaptation to climate change. The results of the study
suggest that in the short term the warmer and longer growing seasons are beneficial for cereal grain yields
in colder regions, whereas the impact is opposite for warmer regions with higher cereal grain yields. The
increase in winter temperatures has a significant positive impact on grain yields both models. The results
for precipitation are less robust, but intuitively they suggest that increase in precipitation is detrimental to
cereal grain production during the harvest season. Based on the climate scenarios the average annual
temperature and precipitation will increase in the most Russian regions by the year 2020 and 2050
(compared with the averages of the years 1995-1999). In the model excluding adaptation, the predicted
climate change will impact the total cereal grain yield in Russia by -11% to -5% by 2050 depending on the
underlying climate scenario. However, based on model allowing mid-term adaptation, the predicted
climate change will increase the cereal grain yields in Russia by 1-14 %, respectively. These results suggest
that excluding the possible adaptation measures from the study can exaggerate the negative climate
change impacts on agriculture. Nevertheless, our results suggest also that maximum benefits to yields are
obtained in a mild warming scenario (not more than 2 °C) while warming beyond that will be less beneficial
and the total impact is highly dependent on how warming is distributed within the year.

JEL codes:

Keywords: climate change, agriculture, agricultural adaptation, winter cereals, non-linearity, Russia

1
Aalto University School of Business, Center for Markets in Transition (CEMAT), corresponding author. Email:
simo.leppanen@aalto.fi
2
Aalto University School of Business, Center for Markets in Transition (CEMAT), Email: liisa.saikkonen@aalto.fi
3
University of Helsinki, Department of Economics and Management, Email: markku.ollikainen@helsinki.fi

1
1. Introduction

During the last few decades, the impacts of climate change on different sectors of the economy have been
extensively studied as evidence on the human impact on climate is mounting. However, few sectors are as
important as agriculture which provides economies with the basic necessities, such as food and raw
materials. Furthermore, the link between climate and agriculture is obvious and intuitive. This is why
agriculture is probably the most studied topic in climate change impact analysis (for recent econometric
studies that use U.S, African and European data see, e.g. Burke and Emerick, 2013; Schlenker and Lobell,
2010; Moore and Lobell, 2014).

However, climate change can affect agricultural production directly by changing climatic conditions in
agricultural areas and indirectly by e.g. altering the global market prices of agricultural products and inputs
and thus the total effect is not always clear. In the US, despite the most extensive literature on the theme,
the relation of climate change (CC, henceforth) and agriculture is still inconclusive (Dechênes and
Greenstone, 2007). This is at least partly due to the differences in the estimation methods and especially in
how they control for the potential adaptation measures. For the developing countries’ agriculture the CC
impact estimates tend to be negative (e.g. Schlenker and Lobell, 2010, for Africa and Guiteras, 2009, for
India). This negative impact is due to weak adaptation ability and the fact that the climate of these regions
already tends to be very warm and arid.

Studies focusing on colder countries which are regarded as the most potential CC beneficiaries, are very
scarce and they rarely take possible human adaptation measures into account. One potential target of such
analysis is Russia which as a whole is a relatively cold nation. Due to its size the direct impacts of CC on
Russian agriculture, and notably on cereal grain crop production, vary depending especially on the latitude,
continentality and topography of a studied region. Such variation is beneficial for econometric analysis of
CC impacts on agriculture. Russia is an auspicious area to study the impacts of CC on agriculture also due to
its increasingly important role as a global wheat exporter and the fact that its climate has during the last
decades warmed considerably more than the global average, and this warming would seem to be
intensifying (Roshydromet, 2008). Broadly speaking, CC is expected to increase the average annual
temperatures and precipitations in most parts of Russia. It is therefore commonly assumed that CC and
especially increases in average temperatures may have positive impacts on cereal grain production in the
medium and high latitudes of Russia where short and cold growing seasons restrict agricultural crop
production. However, the question remains whether the possible increases in the cereal grain production
of the central and northern areas compensate for the yield losses that may result from climate change in
the currently productive southern areas.

2
The objective of this paper is to study the impacts of CC (precipitation and thermal variables) on Russian
cereal grain production. We approach this problem using two different econometric estimation strategies
with historical panel data on Russian agriculture and climate. The first estimation strategy (fixed-effects
model) is related to a paper by Deschênes and Greenstone (2007, DG henceforth) on impacts of CC on US
agriculture. It identifies CC impacts through short term (annual) weather variation and therefore it cannot
take into account long- or mid-term adaptation to CC. The second estimation scheme (long-difference
model) follows the work of Burke and Emerick (2013, BE henceforth) which also estimates the impacts of
CC on US agriculture. This estimation method employs the differences in mid-term climate (in our case,
1995-1999 and 2006-2010) and therefore it is better suited to take possible adaptation methods into
account. By comparing the results of the two methodologies we are able to assess the magnitude of the
adaptation impact on the estimation results. In addition, we employ non-linear analysis to take into
account the vast heterogeneity of Russia’s regions.

We use our estimation results to predict the CC impacts on Russian cereal yields in the context of climate
scenarios. To our knowledge, there are no previous studies which use these methods to assess the impact
of CC on Russian agriculture. Also, studies with Russian agricultural data that would include adaptation are
virtually non-existent. Our results indicate that predicted change in climate can affect Russian cereal grain
yields negatively if adaptation does not occur. However, the results of the long-difference model that
enables mid-term adaptation suggest that neglecting the possible adaptation effects may give overly
pessimistic results and the effects can be positive in a scenario of mild warming. The rest of the paper
proceeds as follows. We introduce Russian agricultural sector and previous analysis on it in Section 2.
Section 3 presents our estimation strategy and data. Section 4 shows our estimation results and their
interpretation in the context of climate change scenarios. Section 5 concludes.

2. Agriculture in Russia and relevant literature

Although agriculture currently accounts only for about 4% of the whole Russian gross domestic product
(World Bank, 2014), its role is notable in many Russian regions such as in Southern Russia’s Republic of
Kalmykia where the agriculture’s share of the gross regional product is roughly a third (Rosstat, 2012).
Furthermore, the importance of Russia as a cereal grain producer and exporter has increased significantly
since the end of the twentieth century4. At the moment, Russia is one of the largest cereal grain producers
in the world, with 2011-2012 average annual global production shares of 9.9% for wheat and 13.6% for

4
In the developed countries the share of agriculture of total GDP is generally low, even for countries with high global
production shares. For example, agriculture only accounts for 1% of the GDP in the U.S (World Bank, 2014). The
United States is one of the largest wheat and corn producers in the world (FAO, 2014).

3
barley (FAO, 2014). Economically wheat is the most valuable agricultural export product in Russia with an
average annual monetary value of 2.6 billion US dollars during the years 2008-2010 (36.1% of the value of
all Russian agricultural exports) (FAO, n.d.)5. In 2011, Russia was the fifth largest exporter of wheat (after
US, France, Australia and Canada) and the sixth largest exporter of barley (after France, Australia, Germany,
Argentina and Ukraine), whereas in 2000 Russia was only the 18th largest exporter of wheat and the 11th
largest exporter of barley (FAO, 2014). It has also been estimated that the Russian heat wave and droughts
of 2010 as well as the resulting national export ban of cereal grains contributed in more than doubling the
global wheat prices that year (IPCC, 2014). According to Liefert et al. (2013) Russia could become the top
wheat exporter by the year 2021, due to increasing wheat production in Russia and decreasing wheat
cultivation in other countries such as the U.S, Argentina, France and Canada. Part of the relative increase in
Russian expected wheat exports can be explained by the progress in agricultural biotechnology which
enables the cultivation of soybeans and corn in arable areas of other countries which were previously
allocated to wheat production (Liefert et al., 2013).

Currently, the Russian regions that produce the highest total quantities of cereal grains are in the Southern
European Russia (Figure 1). Cultivation of grains is profitable in these regions mostly because of fertile
“black soil” (chernozem), favorable climatic conditions, and existing agricultural technology and
infrastructure. The average annual (during 1995-2010) cereal grain production of the ten most productive
regions6 was 51% of the total cereal grain production in Russia. Winter wheat7 cultivars are popular and
widely cultivated in the productive regions of southern European Russia8. This is because the potential
yields of winter wheat are higher than for spring wheat. On the other hand, the winter wheat yields are
highly sensitive to the climatic conditions during sowing, germination and vegetative phase (fall and winter)
which makes their cultivation risky. Between years 1996-2005 winter wheat accounted for 38% of total
Russian wheat area and 52% of total wheat production in Russia. During that period, the average harvested
yields were 1.35 and 2.44 tons per hectare for spring and winter wheat, respectively (Liefert et al., 2013).
The share of the wheat area that is under winter wheat cultivation has increased significantly during the
existence of the post-Soviet Russia. Between years 1995-1997 winter wheat accounted for 34% of the total
wheat area, whereas during 2008-2010 winter wheat was cultivated on 48% of the total wheat area.

5
The export value of barley in 2008-2010 was the fifth largest of the agricultural products, after wheat, sunflower oil
(7.7%), tobacco (6.0%) and beverages (5.1%) (FAO,2014).
6 st nd rd th th th th
These regions are: 1 Krasnodar, 2 Stavropol, 3 Rostov, 4 Tatarstan, 5 Altai Kray, 6 Bashkortostan, 7 Saratov,
th th th
8 Volgograd, 9 Omsk and 10 Orenburg. Eight of these regions (all except Altai Kray and Omsk) are located in the
Southern European Russia (Liefert et al., 2013).
7
Winter cereals are sown in the fall and they are harvested in mid-late summer or early fall. Winter cereals germinate
in the fall and stay in a vegetative state over the winter season.
8
The 10 most productive regions (Krasnodar, Stavropol, Rostov, Tatarstan, Altai Kray, Bashkortostan, Saratov,
Volgograd, Omsk and Orenburg) covered 69% of Russian winter wheat area during 1996-2005 (Liefert et al, 2013).

4
Figure 1 Total cereal grain production and harvested yield by administrative region (average of 1995-2010
in 1000 tons) (Rosstat, 2012)

Russian agriculture has gone through a series of changes since the collapse of the Soviet Union in 1991.
Right after the breakdown of the Soviet state many of the large, previously state owned farms and other
agricultural production units were privatized. However, most of them stayed technologically and
managerially intact and inefficient until the 21st century when large agro-holding companies started to
attract modernizing investments to the Russian agricultural sector (Liefert and Liefert, 2012). The main
structural effect of privatizing the agricultural sector was the plummeting of the livestock production during
the nineties. The cereal grain production in Russia also decreased temporarily after the downfall of the
livestock industry, because there was no longer domestic demand for cereal feed. However, in many
Russian regions, the opening of the international trade made cereal grain production profitable and
comparatively more advantageous than animal farming, which finally resulted in higher cereal grain exports
and meat imports (Liefert and Liefert, 2012). The harvested wheat yields in Russia have increased steadily
during the past two decades. Liefert et al. (2013) argue that the main causes of increased yields are farm-
level technological and managerial improvements and investments. According to their study, the increase
in winter wheat yields between the precipitation-wise similar years of 1997 and 2004 was 29% for the ten
most important agricultural regions9 in Russia. However, the study by Liefert et al. (2013) does not take into
account other climatic factors, or specify whether some of the farm-level improvements and investments
may be perceived as adaptation measures to the changes in the longer term climatic averages between the
years 1997 and 2004.

9
These regions are Stavropol, Rostov, Krasnodar, Saratov, Volgograd, Voronezh, Kursk, Tambov, Kalmykia and
Tatarstan (Rosstat, various years).

5
To support animal farming and to decrease the dependency on imported livestock products, the main
objective of the current Russian agricultural policy is to subsidize domestic livestock production either by
direct subsidies or by trade policy instruments (OECD, 2013). Trade policy has further been used to
maintain national food security during the years of low cereal grain yields, but the profitability of Russian
grain production as such is generally not dependent on subsidizing policies. Russian trade and agricultural
policies are based on national food security doctrine with high self-sufficiency goals. For example the
Russian self-sufficiency goal of 2012 was 95% for cereal grains and 85% for meat and meat products
(Wegren, 2012). Since joining the WTO in 2012 Russia has been obligated to lower the trade
barriers/subsidies on imported/exported agricultural products. However, Russia may use part of the funds
that were previously allocated for trade-distortive policies to support national agricultural production by
means that are not perceived as trade distortive (Wegren, 2012).

The regional governments of Russian regions have relatively strong grip on their agricultural production.
The local governments worry about their own food security and therefore they are especially concerned
about the viability of large farms in their areas. Thus, the local governments usually encourage large farms
and agro-holding companies to take over smaller farms by for example providing larger companies with tax
reductions and soft loans (Liefert et al., 2013). When it comes to food security and domestic trade, the
actions of Russian regions are generally driven by selfish motives (Dronin and Kirilenko, 2008 & 2011). The
free trade of agricultural products between the regions of Russia is restricted by this behavior because the
local decision-makers of the regions are concerned about their local food securities. According to
simulation study by Dronin and Kirilenko (2008 & 2011) the limits of trade between the regions can
increase the negative impacts of CC on agricultural production and especially on the national food security
in Russia. They also examined the adaptation of Russian food security to CC by increasing the federal food
reserves and arable area in different regions. One of the main conclusions was that open trade could
provide a more effective mechanism to cope with possible climate induced food crisis, than increasing the
national food reserves or arable land when there are barriers to trade between different regions of Russia
(Dronin and Kirilenko, 2008 & 2011).

The majority of the literature that has focused on the impacts of CC on Russian agriculture state that the CC
may affect grain yields positively in some areas of Russia, but these positive effects could be outweighed by
negative impacts in other areas especially in the Southern European Russia (Alcamo et al., 2007; Dronin and
Kirilenko, 2008; Kirilenko and Dronin, 2011, Kiselev et al., 2013, Safonov and Safonova, 2013). The negative
impacts of CC on agriculture are caused mainly by excess heat, especially in the southern areas, and
unfavorable spatial and temporal distribution of precipitation. It is also expected that, in the areas with
high grain yields, the extreme weather events (droughts, storms etc.) will become more frequent and the
aridity of the growing season will increase as the climate changes (IPCC, 2014; Alcamo, 2007). Contrary to

6
the northern and eastern areas, the Southern European areas of Russia with high cereal grain yields also
have very fertile soils. Therefore warming of the northern areas may not compensate for the lower yields
due to worsened climate conditions in the high yield areas (Dronin and Kirilenko, 2008; IPCC, 2014; Kiselev
et al., 2013 ). According to e.g. Kirilenko and Dronin (2011), CC will result in wetter summers in the
northern areas where waterlogging already is a problem. This may reduce the positive impact of the
warming climate on the crop yields in the northern areas. In the Siberian regions of Russia, the CC can
cause heat waves that are harmful for crop production (Kirilenko and Dronin, 2011). On the other hand, the
water availability can increase in the Siberian Russia which may reduce the negative impacts of severe heat
waves (Alcamo et al., 2007). According to Teixeira et al. (2013) Russia is one of the areas where the heat
stress will increase, but the risk of heat stress will increase more for other crops than wheat which is the
most important agricultural crop in Russia. Prishchepov et al. (2013) have studied the impacts of different
determinants on agricultural land abandonment in the post-Soviet European Russia between the years
1990-2000, and they found no evidence that climatic factors had affected land abandonment during the
relatively short study period of 10 years.

According to most of the above literature, the overall effects of future climate change on Russian
agriculture and especially on cereal grain production will more likely be negative than positive. However,
almost none of these studies take properly into account the possible CC adaptation measures that farmers
and societies may undertake to adjust to, and to take advantage of the new climatic conditions. Tthe
studies acknowledge the existence of these measures but do not take them into account in the analyses.
This is especially the case with the micro-level adaptation options which are undertaken by individual
farmers. These options include for example improved drainage or irrigation, alternative crops or crop
cultivars, and changes in the sowing schedule. In their analysis on the impacts of CC on Russian food
security, Dronin and Kirilenko (2008 & 2011) examined the macro-level CC adaptation measures of
increasing national food reserves and arable land area, but they did not take into account the farm-level
micro-adaptation options. The exclusion of possible adaptation measures from the analyses on the effects
of CC on agriculture may exaggerate the negative impacts. Moreover it is not likely that in the longer term
the agricultural producers will continue their business as usual and not adapt to the possible changes in
their production environment. The Russian climate policy has been accused of being passive and shallow,
which may delay and hinder the implementation of publicly funded macro level adaptation measures
(Sharmina et al., 2013). Therefore it can be argued that the current state of the Russian climate policy
emphasizes the importance of farm level CC adaptation options relative to the overall agricultural climate
change adaptation in Russia.

7
3. Empirical methodology and data

3.1. Empirical Methodology

As already stated, adaptation is the key question in all econometric literature related to climate change and
agriculture. Failing to take into account the adaptation gives us at best an estimate for the worst case
scenario where agents do not adapt to observed CC. It can be argued that in short term it might be difficult
for the agents to change their perception of local climate due to natural variation in the weather10. Also,
the static and costly investments such as irrigation and drainage systems are usually built after a longer
consideration period when the agents are convinced that the climate has changed permanently. Therefore,
in longer term as the new climate becomes more reliably observable, non-adaptation is not plausible taking
into consideration that agents constantly adapt to e.g. market shocks.

Mendehlson et al. (1994) approached the adaptation problem through a so called hedonic approach where
future CC impacts are identified from land prices assuming that they reflect the future discounted revenues
from the agricultural land. The main challenge of the hedonic model is the difficulty of consistent
estimation of climate effects on land values due to unmeasured characteristics such as soil quality. In the
following, we will present our two estimation models and their conceptual justification where adaptation
plays a significant role. The models are closely related to those used by DG (2007) and BE (2013). The first
estimation method identifies CC impact through short term weather variation and the second one from
differences in mid-term climate. The adaptation possibilities are very limited in the former model while the
latter allows mid-term adaptation such as alternative crop varieties and changes in the sowing schedule. It
should be noted, however, that due to our limited time span it is probable that longer term adaptation such
as irrigation systems cannot be credibly accounted for.

Before presenting the estimation strategies, we should properly define the difference between the terms
weather and climate. Dell et al. (2012) note that in the literature the term climate is reserved for the
distribution of weather outcomes (e.g. annual average temperature, precipitation etc.) and can be
summarized by averages over longer time periods, while the term weather refers to a particular realization
from the climate distribution (i.e. climate at certain point in time) and can vary notably in the short term. In
this paper, we will use the same terminology. It should be emphasized that climatic variables are
econometrically ideal in the sense that they are clearly exogenous and could be interpreted as natural
experiment treatments and thus they have strong identification properties.

10
For example, as Guiteras (2009) notes according to the IPCC (Christensen and Hewitson, 2007) a discernible signal of
a warmer mean climate for the growing season in South Asia will take ten to fifteen years to emerge from the annual
noise.

8
DG (2007) argue that by setting the farmers’ profits as the dependent variable in a fixed effects setting we
can estimate the economic cost of CC on agriculture. This is because the potential short-term monetary
gains and costs from CC (including adaptation costs) should be reflected in the returns of profit maximizing
farmers. Thus, the identification of CC impacts is done through short-term weather variation and the fixed
effect model is able to control omitted time invariable factors. The shortcoming of this model is that it
cannot take into account longer-term adaptation strategies such as investments in the static technologies
or slow changes in farm management. DG argue that the fixed effects model still outperforms traditional
crop models since it controls for short term adaptation. However, although a fixed effect model adequately
controls for price effects, DG’s approach to use profits as dependent variable is not able to capture the
effect of storage on agricultural returns (even if lagged weather is included in the model). The effect of
storage on agricultural profits is shown to be an important factor by Fisher et al. (2012). Besides, as argued
by BE, the agricultural profits do not necessarily include all relevant costs such as the value of employment
through grey economy or locally produced agricultural inputs. If these hidden costs respond to the
changing climate, this may cause a bias in the estimation results.

Our first estimation approach is to run a fixed effects model with a physical cereal grain yield as the
dependent variable instead of agricultural profits. This is due to conceptual issues, such as the effect of
storage and hidden costs on agricultural profits, as well as data issues since the reliability of agricultural
profit data is questionable for Russia. Furthermore, in our case we are more interested in the larger social
impacts of CC via agriculture, thus grain production might in any case be a more appropriate outcome
variable than agricultural profits. This is because the potential negative effects of destroyed yields caused
by CC on farmers’ profits are partly mitigated by an increase in prices. However, these price rises are paid
by consumers and the total social welfare remains lower. The regional cereal grain yield data for Russia is
only available for the total harvest of cereal grains, not for specific cereal grain crops. Therefore our study is
not able to differentiate the effect of CC on the yields of different cereal grain crops.

Thus, we first estimate a reduced form fixed effects model:

( ) ∑ (1)

where Y is the harvested yield per harvested area, i.e. yield. The subscript denotes the region and refers
to year. The relevant literature (e.g. DG, BE and Guiteras, 2009) largely uses the agronomic approach of
growing season degree days (GDD, henceforth) instead of average temperatures (e.g. Mendehlson et al.
1994) as the main independent weather variable. The motivation is to capture the non-linear impact that
temperature has on plant physiology. However, it is possible that the degree day approach is not sufficient

9
to capture all non-linearities especially in such heterogeneous country as Russia. This is why the functional
form of the GDD variable X in equation (1) is not pre-specified.11

The weather variables which take a linear functional form in equation (1) are denoted by . Because
winter cereals and especially winter wheat are widely cultivated in Russia, we aim to control for the effect
of winter weather conditions. In Russia, the main threats for the sowing, germination and the vegetative
phases of winter cereals are hard frosts (USDA, n.d.). We control this by introducing an annually
overlapping variable for the average temperature in August-March (i.e. lag of August-December and
current January-March) which controls the temperature in the fall and winter season. Some studies (e.g.
DG) include only total growing season precipitation as a regressor while others (Guiteras, 2009) try to
detect the importance of the timing of precipitation. We follow the latter approach and construct separate
precipitation variables for the growing season and harvesting season in Russia. It is natural to expect that
an increase in the growing season precipitation is beneficial for grain yields while the opposite is true for
the harvesting period. We also include a variable for lagged August-October total precipitation to control
for its effects on the sowing of winter cereals. The model defined by equation (1) also includes fixed effects
related to year and region which are denoted by and respectively controlling things like nation-wide
economic shocks and regional topology and soil type.

As discussed earlier, the fixed effect model has very limited ability to control for adaptation while the
hedonic model suffers from the omitted variable problem. A promising approach to account for agricultural
adaptation more comprehensively has been recently introduced by BE. Their approach is so called long
difference (LD) model which compares yield averages over several years in two distinct periods of time. In
the long difference model the problem of omitted time-invariant variables is removed through differencing.
Comparing two time periods far apart means that there has been more time to adapt to the change from
the original climate to the new one. Finally, the farmers have likely adapted to the CC between the two
time periods by updating their views of local climate and by re-optimizing their cultivation practices and
technologies accordingly. Formally, in this case, we are looking at a model (following Dell et al., 2012)

∑ ( ) ( ) (2)

where the time description d refers to a time period that is long enough to capture the local climate from
annual weather variation. Here the variables denoted by also include the growing season degree day

11
After scrutinizing the data we concluded that including a quadratic degree day variable is not able to fully grasp the
2 3
non-linearities and a cubic term is needed. That is f(X)=β1X+β2X +β3X . Schlenker and Roberts (2009) and Guiteras
(2009) examine non-linearities through temperature bins. However, the temperature bins approach would require
relatively large amount of data for robust estimation (in practice, geographically highly detailed data at e.g. county
level) because a sufficient amount of data and variance would be required for each temperature bin. This is a
constraint with our data some 70 regions.

10
variable which now enters linearly because we did not find a significant non-linear form for it. In this model,
lag of precipitation (i.e. for the winter sowing period) is not included because in a period average setting
lagged effect is not very sensible and would be highly overlapping with the harvest period precipitation.
Thus the harvest precipitation variable now also partly controls for winter crop sowing conditions. For
identification, the climate variables of Zjid have to vary enough from the climate during the previous period
Zji,d-1 and the needed time distance depends on the study area in question. For the US agriculture, BE used
five year periods of 1978-1982 and 1998-2002. For a study about CC and economic growth with global
country level data Dell et al. (2012) use fifteen year averages of 1970-1985 and 1985-2000. Due to the
limited data span available for post-Soviet Russia, we use five year average similarly to BE with a maximum
time interval allowed by the data. This leaves us with estimation periods of 1995-1999 and 2006-2010.
Despite the short time periods and intervals, our data provides potential for identification in a long
difference setting because of a clear difference in the climatic variables between the two time periods. Dell
et al. (2012) and BE discuss the various benefits of the long difference approach compared with hedonic
and FE estimation strategies. In mid- to long-term time periods and intervals, CC may induce the adaptation
behavior of the economic agents (e.g. technology and policies), the intensification of CC effects (e.g.
desertification) and general equilibrium effects (price and factor re-allocation) that cannot be captured with
a FE model (Dell et al., 2012). Furthermore, a comparison of the FE and LD estimates enables the analysis of
magnitude in adaptation from short to the longer term12.

The long difference models are not a panacea, though. For example, if the two time periods are too far
apart, e.g. several decades, it might be that the transmission mechanism between climate and agriculture
has changed so much that it is not plausible to assume a common regression coefficient for the two
periods. Such setting could happen due to technological advancement used in adaptation. Also, the LD
model is not able to address the problem of time-varying omitted variables. This is why we include the
amount of fertilizers used per sowing area as another independent variable13. However, the Russian
fertilizer data is only available for all crops (not only for grains). Thus, it should be considered more of a
proxy for technological and structural14 change in regional agriculture, although there is a relatively strong
0.55 correlation between the change in regional grain yield and regional fertilizer use between the LD
periods. We will define the variables for the mineral and organic fertilizers separately as there are notable

12
In both FE and LD estimations, we follow the literature (e.g. BE) by using the log of yield and weighting the
regressions by the square root of average planted area.
13
Another potential indicator of agricultural technology is irrigation. However, in Russia only about 3.6% of total
cultivated area is irrigated and the most productive regions have limited ability to expand irrigation (Alcamo et al.
2007). The irrigated area produces roughly 5% of Russia’s agricultural cereal grains. We have regional data on
irrigation but this variable was non-significant in all regression which could be interpreted as evidence for the limited
role of irrigation in Russian agriculture.
14
The amount of organic fertilizers is linked to the intensity of animal farming in the given region. The organic
fertilizers consist mainly of animal feces.

11
regional differences in their use15. It is worth noting that as we are examining the total grain production
instead of the production of a single crop such as wheat, we are also indirectly partly controlling for the
adaptation through crop choice (within grains) as it can be assumed that farmers use optimal crop mix for
the local climate. It should also be noted that even though the LD model might be conceptually better than
the FE model, in our case it is less robust due to the scantiness of observations. As the Russian agricultural
data is of relatively high level of aggregation we only have 71 observations in the LD model compared with
the more than one thousand in the FE model.

In a setting where the statistical units (here Russian administrative regions) are spatially correlated, the
error terms could be correlated as well (spatial autocorrelation) which would violate the assumption of
non-correlated error terms. While spatial autocorrelation leaves estimated coefficients unbiased it can
undermine inference and therefore lead to incorrect standard errors. This could be the situation in our case
since neighboring regions are correlated climatically in Russia. A typical remedy for such a problem is
clustering the standard errors at a higher level of spatial aggregation. Unfortunately, this is not practically
possible in our case16. Thus, when viewing our results it should be noted that the standard errors are robust
to heteroskedasticity and temporal autocorrelation between years but not to spatial autocorrelation.

3.2. Data for estimations

Due to the size of the country, there are significant differences in the climatic conditions between the
Russian regions. We demonstrate this in Figure 2 which presents the mean annual temperatures and
precipitations in the different regions of Russia (averages of 1995-1999). In the coldest regions of east
Siberia the mean annual temperature is below -10°C, whereas in the warmest regions of south European
Russia the mean annual temperature reaches higher than +10°C. Also the annual precipitation of Russian
regions differs between 250-1000 mm, which means that the annual precipitation of the rainiest region is
roughly fourfold compared with the driest region. However, it should be noted that the illustrative maps in
Figure 2 do not show the annual temporal distributions of climate variables which significantly influence
the cereal grain yields.

15
Mineral fertilizers usually include commercial industrial fertilizers, whereas organic fertilizers normally include
mainly livestock manure that is applied for fertilization.
16
Clustered standard errors assume the number of clusters to approach infinity and would require at least 40-50
clusters to operate properly (Wooldridge 2003, Kézdi 2004). In our case the natural clustering classification would be
the next administrative level, i.e. Federal districts, but there are only eight of them. Furthermore, one might try to
build clusters based on climatic characteristics but from less than 80 regions it is difficult to meaningfully build
sufficient amount of clusters.

12
Figure 2 Mean annual a) temperature (°C) and b) precipitation (mm) (average of 1995-1999)
(http://gaez.fao.org)

Our weather and climate data for the study period of 1995-2010 is obtained from the web-database of the
All-Russian Research Institute of Hydro-meteorological Information (meteo.ru) which is funded by Russian
Federal Service for Hydrometeorology and Environmental Monitoring (Roshydromet). The database
provides daily, monthly and annual temperature and precipitation data over several decades for roughly
five hundred weather stations located around Russia. The weather data was calculated from the weather
stations located within each region. Typically, several weather stations were located within the region and
the weather data was averaged from these stations to get a regional figure. For the large northern and
eastern regions we included only weather stations situated relatively close to regional capitals. We also
excluded weather stations that are situated at very high altitudes. On the average we used 3.5 stations per
region to calculate the weather data.

To take into account the annual temporal distribution of precipitation and temperature we defined climatic
variables for the different stages of the crop life-cycle. In order to define the annual growing season degree
days we first retrieved daily average temperatures for the whole growing season (April-August) including
the early harvesting season. For calculating the GDD variables we used the minimum and maximum
threshold temperatures of 8°C and 32°C (similarly to DG and Guiteras, 2009). We also derived separate
values for the total precipitation during the growing season (April-June) and harvesting season (July-
September), because especially during the early growing season cereal crops need enough precipitation for
the growth, but as the harvest season approaches excess precipitation can be harmful for the crop yield.
Finally we defined values for the climatic variables which are used to present the climatic conditions that
are essential for the winter cereal yields. These variables are the lagged total precipitation during the
sowing season of the winter cereals (August-October) and the annually overlapping average fall-winter
temperature (August-March). Data for the cereal grain yields (including all cereal grain crops) and fertilizers

13
were taken from the Regioni Rossii publications of Russia’s Federal State Statistical Service (Rosstat). The
descriptive statistics of the variables are presented in Table 1.

Table 1 Descriptive statistics of the variables

Variable Description Mean Std. Dev. Min Max

Yield Log of grain harvest per harvested
0.42 0.4 -0.97 1.65
area, tons/ha
Degree days (GDD) Growing season degree days 1135.9 345.5 227.3 2279.5
Winter temperature Annually overlapping average
-0.7 5.02 -18.2 9.9
temperature in August-March
Precipitation Total precipitation in April-June
155.0 69.78 13.8 607.1
growing season
Precipitation Total precipitation in July-
190.2 74.32 9.9 576.1
harvest season September
Precipitation winter Lag total precipitation in August-
57.1 21.93 7.9 143.8
sowing October
Fertilizers mineral Mineral fertilizers by sowing area
24.5 25.11 0.0 219.4
in agriculture, kg/ha
Fertilizers organic Organic fertilizers by sowing area in
1374.0 1943.2 0 16300
agriculture, kg/ha

As can be concluded from Table 1, there is significant variation in the seasonal climate variables and
fertilizer use between the regions of Russia. Our estimation data include Russian regions where the
agriculture accounted for more than 2% of the total gross regional product in 2002 (excluding Moscow, St
Petersburg and some of the colder regions) leaving us with 71 regions.

3.3. Climate change scenarios

Finally, we are interested to assess what are the effects of future climate change on Russian cereal grain
production. Like the actual climatic conditions, the CC predictions also differ significantly for the different
regions of Russia. Figure 3 presents the regional predictions for the changes in the annual temperature and
precipitation compared to the mean values during 1995-1999. The predictions are based on two different
scenarios (A2 and B1) which define how the anthropocentric greenhouse gas emissions will increase in the
future. In the scenario A2, the emission concentration of the atmosphere will increase faster than in the
scenario B1 .This is because in the scenario B1 the economies focus more on the global environmental
sustainability than on the rapid growth like in the scenario A217. In Figure 3, we choose to present the

17
B1: low population growth, high GDP growth, low energy use, high land use changes, low resource (mainly oil and
gas) availability, medium pace and direction of technological change favoring efficiency and dematerialization. A2:

14
2020s climate predictions for the scenario B1, and 2050s predictions for the scenario A2, to emphasize the
effect that a choice of scenario and time span has on the CC estimates. The CC predictions in Figure 3 are
derived from the GAEZ database (http://gaez.fao.org) that is provided by the United Nations Food and
Agricultural Organization (FAO) and the International Institute for Applied Systems Analysis (IIASA).
According to both CC predictions, the mean annual temperatures and annual precipitations will increase in
most parts of Russia. However, the changes are more drastic in the A2 2050s scenario. Both scenarios
predict that CC will increase annual mean temperature and decrease annual precipitation in those Southern
European regions which are the most important cereal grain producers.

Figure 3 The predicted changes in the mean annual temperature and precipitation (average of 1995-1999)
(http://gaez.fao.org)

For the predictions of the future GDD values we also utilized the GAEZ database (http://gaez.fao.org) which
employs major general circulation models and historical weather data from the Climate Research Unit of
East Anglia18 to predict the changes in the future climate. However, the predicted GDD variables provided

high population growth, medium GDP growth, high energy use, medium-high land use changes, low resource mainly
oil and gas) availability, slow pace and direction of technological change favoring regional economic development.
18
New, M., Hulme, M. and Jones, P.D., 1999: Representing twentieth century space-time climate variability. Part 1:
development of a 1961-90 mean monthly terrestrial climatology. Journal of Climate 12, 829-856
New, M., Hulme, M. and Jones, P.D., 2000: Representing twentieth century space-time climate variability. Part 2:
development of 1901-96 monthly grids of terrestrial surface climate. Journal of Climate 13, 2217-2238

15
by GAEZ are calculated using different values for the minimum temperatures (5°C and 10 °C) than what is
used in our study (8°C), and they do not limit the maximum temperature of the GDD. Therefore we use the
GDD predictions provided by GAEZ to derive crude estimates on the likely relative range of changes in the
future GDD variables. For the other climate variables, the predictions for future are obtained from a
Climate Change Scenarios data portal (https://gisclimatechange.ucar.edu/)19 by The US National Center for
Atmospheric Research (NCAR). Using the data from these two sources (GAEZ database and Climate Change
Scenarios data portal), we derived predictions for our climate variables based on scenarios A2 and B1 from
1995-1999 averages to 2020s and 2050s. The CC predictions were simulated for the GAEZ database by
HadCM320 model, whereas Climate Change Scenarios data portal employs NCAR’s own Community Climate
System model. We use both scenarios B1 and A2 with time spans of 2020s and 2050s to compare the
differences between the two alternative scenarios given two different time horizons.

4. Results

4.1. Results of estimations

In this section, we will present the results of our estimation models. Table 2 gives the FE estimation results.
The functional form of the GDD variable was not pre-specified in the FE estimation and we found that third
order polynomial specification for GDD variable is highly significant and better able to capture the impacts
of GDD on grain yields than linear or quadratic functional forms. Figure 4 shows the shape of the GDD
polynome and its derivative (“sum of betas”, right axis), which can be perceived as the effect of GDD on
cereal grain production at different GDD zones. From this figure, we can see that an increase in GDD is
highly beneficial (polynome curbs upwards and derivate is positive) at the low temperature regions with
low GDDs. However, relatively fast the effect turns negative, being the most harmful around 1400-1500
GDDs. The regions of which GDD averages fall in this interval are among the warmest regions in Russia,
where the excess heat during the growing period likely increases the risk of droughts. In many of these
regions the access to irrigation is limited and therefore the impacts of increased GDDs on cereal grain yields
are negative. Somewhat counter-intuitively the harmfulness of increased GDDs diminishes in the very
hottest regions. However, this result is at least partly driven by the effects of seven regions with the highest

New, M., Lister, D., Hulme, M. and Makin, I., 2002: A high-resolution data set of surface climate over global land areas.
Climate Research 21
Mitchell, T.D. and Jones, P.D., 2005: An improved method of constructing a database of monthly climate observations
and associated high-resolution grids. International Journal of Climatology 25, 693-712
19
NCAR GIS Program. 2012. Climate Change Scenarios, version 2.0. Community Climate System Model, June 2004
version 3.0. http://www.cesm.ucar.edu/models/ccsm3.0/ was used to derive data products. NCAR/UCAR. URL:
http://www.gisclimatechange.org. Data Access Date: 8.9.2014.
20
http://www.metoffice.gov.uk/research/modelling-systems/unified-model/climate-models/hadcm3

16
GDDs. Six of these regions have extensive access to agricultural irrigation, which likely decreases the
negative impacts of increased GDDs on cereal grain yields. The nationwide estimate for the impact of GDDs
on the cereal grain yield (calculated from the derivatives using a grain area weighting) is -0.0007.
Coefficients for the other variables are highly significant and intuitive. Winter season temperature is
positive suggesting that one 1 °C increase in average winter temperature leads to almost three percent
higher grain yields. Increased precipitation during the early growing season is beneficial to the grain yield,
whereas excess humidity during the harvest season causes damage to the yields. Increased precipitation
during the sowing of winter cereals also has a negative effect on the cereal grain yields.

a
Table 2 Results of the fixed effects estimation Figure 4 Effect at different degree days

Degree days 0.0039

(0.00116)***
Degree days_squared -3.43E-06
(8.90E-07)***
Degree days_cubic 8.18E-10
(2.15E-10)***
Winter temperature 0.0289
(0.00902)***
Precip. winter sowing -0.0018
(0.00052)***
Precip. growing season 0.0012
a. X-axis is the degree day (GDD), left axis the value of
(0.00019)***
f(X) and right axis the derivative at different degree
Precip. harvest season -0.0007 days. Upward line shows the Russian average.
(0.00014)***
Standard errors in parentheses. In the regression there are
1065 observations. Time dummies included but not reported.
*,**,*** give significance at 10%, 5% and 1% level, respectively.

Table 3 presents the results of the LD estimation. As discussed earlier, the LD estimation takes adaptation
better into account than the FE model, but due to the low amount of observations the estimation results
are less reliable. According to the estimates of the FE and LD models, the effect of GDDs is much worse in a
longer term (0.16%) than in a short annual term (0.07%). On the other hand, in the LD model, the positive
impact of winter temperature on cereal grain yields is higher than in the FE model. This would indicate that
the agricultural producers are likely to adapt to the warmer winters by e.g. increasing the cultivation of
winter cereals. Similarly to the FE model, the effect of the precipitation during the harvest season (now also
controlling partly for the winter cereal growing season) is negative, whereas the precipitation during the
growing season is not significant. This could be due to the fact that there has not been a notable change in
the growing season precipitation between the two study periods, which hampers the identification of

17
growing season precipitation variable and the estimation of its impacts. According to the estimation results
of the LD model, the increased use of the both mineral and organic fertilizers has clearly been beneficial to
the cereal grain yields. This impact can be perceived as the effect that the technological and structural
change of agriculture has had on the cereal grain yields between the two time periods.

Table 3 Long difference estimation

Degree days -0.0016

(0.00067)**
Winter temperature 0.1762
(0.04253)***
Fertilizers mineral 0.0033
(0.00138)**
Fertilizers organic 0.0001
(0.00003)**
Precip. growing season 0.0005
(0.00089)
Precip. harvest season -0.0024
(0.00081)***
R-squared 0.63
No. of observations 71

4.2. Simulation results for the climate scenarios

Finally, we shall discuss what our estimation results mean in the framework of climate scenarios. We
calculated a Russian wide grain yield impact of predicted temperature variables and a total effect including
also the impact of predicted precipitation by weighing regional impacts with their share of total Russian
grain area average over the whole study period of 1995-2010. The impact is a change in the yield from the
average yield of 1995-1999 to the expected average yield in the 2020s and 2050s based on scenarios B1
and A2. The impact was calculated using our regression estimates and the predicted changes in the climate
variables. The simulation results are presented in Table 4.

In Table 4, the first rows show the climate scenarios for the whole Russia, including the predicted changes
in those temperature and precipitation variables that were used in our estimation models. In the following
rows the table shows the impact (%) of temperature variables on the cereal grain yield for the whole
Russia. We can see that based on the FE model with very limited adaptation the positive effect of winter
warming is not able to counter the negative effect of the higher GDD. According to the FE-model the net
temperature effect is negative in all scenarios. With the LD model the situation is reversed and the net
effect of temperature on the cereal grain yield is positive. When using the LD-model, the positive effect is

18
larger in the A2 scenario compared with the B1 scenario, due partly to higher predicted increase in the
winter temperature.

Table 4 Climate scenarios for Russia and impact of change of climatic variables in
different climate scenarios, changes calculated from 1995-1999 average to 2020s and 2050s

2020s 2050s
Climate scenarios
B1 A2 B1 A2
Growing season degree day change for whole Russia 131-328 127-335 268-661 338-862
Winter temperature change for whole Russia, °C 1.8 2.1 2.7 4.0
Precipitation change in sowing season of winter cereals, Russia, mm. / % 5/3 5/3 9/5 14 / 8
Precipitation change in growing season, Russia mm. / % 4/3 2/1 9/6 10 / 6
Precipitation change in harvest season, Russia mm. / % 4/2 0/0 8/4 12 / 6
a
Impact of degree days on yield, %, FE-model [-10,-8] [-7,-5] [-16,-12] [-22,-18]
Impact of winter temperature on yield, %, FE-model 4 5 6 9
Net impact of temperature variables on yield, %, FE-model [-6,-3] [-2,0] [-10,-6] [-13,-9]
Net impact of temperature variables on yield, %, LD-model [3,8] [14,19] [0,9] [3,13]
b
Total climatic impact on yield in the scenario, %, FE-model [-5,-2] [0,2] [-9,-5] [-11,-7]
Total climatic impact on yield in the scenario, %, LD-model [4,9] [16,21] [1,10] [4,14]
a. Brackets show the range of the percent change depending on the degree day prediction definition (5° or 10° Celsius
as threshold). We use these two thresholds as the degree day predictions were not available directly for the 8°
threshold used in our estimations. All impact figures calculated with regional grain sowing area weighting.
b. Combined effect of temperature and precipitation

The last two rows of the table 4 show the predicted total net CC effect when the impact of predicted
precipitation variables are included in the results. The inclusion of the predicted precipitation variables has
a slightly positive impact on the cereal grain yield in all the studied scenarios. Figure 5 demonstrates the
regional differences in the future CC impact results between the two models for the 2050s Scenario B1.
According to the regional differences between the models the course (negative/positive) of the CC impacts
on cereal grain yields varies especially for the central regions of the European Russia.

Based on the FE model the negative net impact of temperature between the 2020s and 2050s seems to
grow significantly due to the warming climate. Furthermore, while according to the LD-model, the net
temperature effect is positive in both 2020s and 2050s scenarios, the positive effect is likely to be notably
smaller for the 2050s. This suggests that a notable warming (>2 °C) brings no further benefits to yields even
with mid-term adaptation measures, and in boreal conditions such as in Russia. However, it should be
noted that our results on the impacts of predicted CC on the cereal yields of the 2050s should be taken with
some reservations. Firstly, it is likely that the uncertainties related to climate predictions for the 2050s
scenarios are notably higher than for the 2020s scenarios. Also some of the predicted changes in the 2050s
climate variables are significantly higher than the variation in the historical climate data used in our
estimations. To summarize, our results suggest that in a limited adaptation scenario (FE-model) grain yields

19
will drop up to 5% by the 2020s and up to 11% by the 2050s due to CC, while in a mid-term adaptation
framework (LD-model) yields will increase by 4-21 % by 2020s but by 2050s the benefits are only 1-14 %.

Figure 5 The impact of climate change on regional cereal grain yields according to
the 2050s Scenario B1 (regions with higher than 0.5% share of total production)

5. Conclusions

In this paper, we aimed to estimate the effects of climate change on Russian cereal grain yield. We followed
two econometric estimation strategies with different approaches to the possible climate change adaptation
measures. In the first estimation framework, we only took into account the limited within season climate
change adaptation possibilities, whereas with the second estimation strategy we studied the impacts of
adaptation in longer term. While the latter model is beneficial due to more flexible and extensive approach
to adaptation measures, it is also less robust due to the scantiness of observations in our case. In the
limited adaptation model we found a non-linear effect between yields and growing season degree days.
Increase in the growing degree days has a positive impact on cereal grain yields in colder regions. On the
other hand, according to the long difference model, the linear impact of growing degree days on cereal
grain yields is negative. Meanwhile, the increase in the winter temperatures is clearly beneficial especially
in both models. Results concerning the effects of precipitation on cereal grain yields are less robust, but the
negative impact of excess rain during the harvest season is quite solid.

In the light of the climate scenarios, our results suggest that in a limited adaptation model, grain yields will
drop by as much as 5% by the 2020s and 11% by the 2050s, while according to the longer term adaptation
framework yields will increase by 4-21 % by the 2020s but by the 2050s the increase is only around 1-14 %.

20
This indicates that only a moderate warming of climate will increase cereal grain yields even with an
extensive choice of adaptation measures and in boreal conditions such as in Russia. However, as a final
conclusion, our results suggest that exclusion of the possible adaptation measures from the study of
climate change impacts on any anthropocentric phenomenon may exaggerate the negative impacts.

Acknowledgements

We would like to thank Mika Kortelainen and Peter Berck for valuable comments. We are very grateful for
The Academy of Finland for financing this study (grant No. 255635, headed by Prof. Riitta Kosonen from
Aalto University, Center for Markets in Transition).

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