ABSTRACT
Introduction Climate variations can have major implications for humankind. In developed economies, the scale of economic activity in climate-sensitive sectors and related upstream and downstream activities implies that even relatively small climate anomalies can generate significant losses in absolute dollar terms. In developing countries, the scale of economic activity is much smaller, and the absolute dollar value of costs of climate disruptions is commensurately lower. In relative terms, however, the costs of climate variability in developing countries can be enormous, due to a relatively high importance of climate-sensitive industries in the overall economy. In addition, the human cost of significant variations in climatic conditions can be very high due to poverty and the related lack of capacity to cope with climate shocks once they have occurred.Reliable climate forecasts provide one potential means for reducing the economic effects of climate variability. Recent improvements in medium-range forecasts of several months to one year have enhanced this potential considerably. Nevertheless, while a growing body of research suggests that reliable climate forecasts should be valuable, the magnitude of potential economic gains, as well as the sources of those gains, remains poorly understood.In this chapter, the economics of climate forecasts are considered, with particular attention to the case Mozambique. To provide a context for understanding the economic consequences of climate variability and the potential benefits of seasonal forecasts, a wide range of literature is
reviewed. Much of this literature is based on analyses of developed economies, particularly the United States. The climatic and economic situation in Mozambique is then described, and the results from a modeling study that examined the economic value of climate forecasts in Mozambique are presented. These results point to the agricultural marketing system as a major potential source of gains from the application of climate information. Following up on this result, a rapid appraisal survey of the marketing system in Mozambique was carried out to identify potential options for reducing domestic marketing margins.
