The Value of Rainfall Forecasts in the Rainfed Rice Areas of the Philippines

Abstract

The value of rainfall forecasts for rainfed rice production in the Philippines is estimated under the assumption that farmers adjust the quantities of fertilizer and labor if rainfall forecasts are available. Using a panel of 46 rice farmers in Tarlac, Philippines, a heteroskedastic production function with growing season rainfall (July to October) as one of the independent variables is estimated. The expected value of rainfall forecasts under the assumption of simultaneous adjustments in both fertilizer and labor was estimated to be slightly more than 1% of the net return from rice production. Taking the rainfed rice area in the Philippines of 1.2 million ha and a net return of $446/ha, the total value of the forecast was estimated to be $6.6 million per year. The expected value was also estimated under the assumption that, instead of forecasts of rainfall amounts for each year, forecasts made are for rainfall “above average”, “average”, or “below average”. The value of rainfall forecasts was found to be highest and ranged between 1.4%-4.5% of the net return when the forecast is ‘above average’. The Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) could help farmers by investing more of its resource for the accurate prediction of ‘above average’ rainfall events.