Quantifying the value to the farmer from adopting climate risk-reducing technologies

Technology adoption and innovation are strategies available to farmers seeking to adapt to climate change and variability, which adopt input- or process-based technologies that improve the climate resilience of their production systems (e.g., technologies reducing yield or profit risk). Typical feasibility analyses, however, do not quantify the economic benefits arising from the higher stability of profits but, instead, restrict the assessments to the impacts of the higher average profits. We present an economic approach based on the expected utility theory to quantify the value to the farmer from adopting a climate risk-reducing technology. Our methodology allows us to decompose this value into two components: one due to the average profit increase and the other from the reduction in the profit’s volatility. To showcase our approach, we use two technologies employed as adaptation strategies in crop and livestock production systems in Uruguay. We find that more risk-averse farmers assign a relatively high value to the lower profit volatility, amounting to 4–32% of the total additional value gained for adopting these technologies. Our methodology can be used to assess the adoption of other risk-reducing technologies in the agricultural sector and shed light on the beneficial impacts on farmer’s welfare.