Climate change poses a significant threat to global food security, impacting agricultural production directly and indirectly. Direct impacts include altered temperature and precipitation patterns affecting crop yields. Indirect impacts stem from the increased prevalence and severity of crop pests and diseases (P&Ds) due to changing climatic conditions. Dried red peppers, a crucial staple in Korean cuisine and a major agricultural commodity, are particularly vulnerable to these combined effects. Their open-field cultivation makes them susceptible to various P&Ds and fluctuating weather patterns. This study aims to comprehensively analyze the sequential effects of climate change, P&D damage, production changes, and subsequent social welfare changes within the Korean dried red pepper market. Unlike previous studies that focused solely on direct or indirect effects, this research integrates both to provide a more holistic understanding of the economic consequences of climate change on agricultural social welfare.

Numerous studies have examined the impact of climate change on agricultural yields. Some research has focused on the direct effects of temperature and precipitation on crop productivity, finding negative impacts from extreme weather events and temperature deviations from optimal ranges. Other studies have explored the indirect effects of climate change, highlighting the increased incidence and severity of crop P&Ds under altered climatic conditions. Previous research has also assessed the economic consequences of P&Ds, often focusing on specific outbreaks and their impact on market prices and production losses. However, few studies have comprehensively integrated both the direct and indirect effects of climate change on crop production and social welfare, particularly within the context of a specific crop like dried red peppers.

This study employed three sequential models to analyze the impacts of climate change on dried red pepper production and social welfare. **1. Pest and Disease (P&D) Damage Model:** This model assessed the influence of climatic factors (temperature, rainfall, humidity, sunshine hours, and their deviations from historical averages) on the damage rates of four major P&Ds affecting dried red peppers: phytophthora blight (PB), anthrax (Ath), viral diseases (VD), and tobacco moths (TM). A left-censored panel Tobit model was used due to the presence of many zero observations in the P&D damage data. A Chamberlain random effects (CRE) Tobit model was applied to address potential issues with fixed effects estimation in short panel data. **2. Yield Model:** This model analyzed the direct and indirect effects of climate change on dried red pepper yields. The dependent variable was yield, while independent variables included climatic factors (categorized into planting, growing, and harvesting periods) and the predicted P&D damage rates from the first model. A fixed-effects panel model was employed, chosen after statistical tests indicated its superiority over random-effects models for this specific dataset. **3. Equilibrium Displacement Model (EDM):** This model evaluated the effect of yield changes (both direct and indirect) on market prices and quantities of dried red peppers. The EDM assesses the shifts in market equilibrium resulting from exogenous shocks (in this case, climate change impacts), using assumed price elasticities of supply and demand and initial market price and quantity data. Sensitivity analyses were performed by varying price elasticities of supply and demand to explore the robustness of the results. RCP 6.0 temperature change scenarios were used to simulate future climate change impacts over three decades (2030, 2040, and 2050).

The P&D damage model revealed that climatic factors significantly affected the damage rates of all four P&Ds. Temperature deviations from historical averages had a positive impact on damage rates for all four P&Ds; humidity deviation showed significant impacts, which were negative for PB and VD while being positive for Ath and TM. Sunshine hours showed a negative effect on PB and VD and a non-significant effect on Ath and TM. The yield model showed that temperature during the planting and harvesting periods had positive effects on yield, while growing period temperature had a negative effect. Rainfall also showed varied impacts, with positive effects on planting period yield but negative effects on growing and harvesting periods. Notably, predicted P&D damages from the first model consistently showed a significant negative impact on yield, which suggests that climate change indirectly reduces yields primarily through P&D damage rather than direct temperature effects. The EDM analysis showed substantial social welfare losses resulting from both the direct and indirect effects of climate change. Social welfare losses increased dramatically over time and varied depending on assumptions for price elasticities of supply and demand. The social welfare loss ranged from 6.8 billion KRW to 251.2 billion KRW (approximately 1% to 36.2% of the 2021 total production value).

The findings highlight the significant and increasing negative economic impact of climate change on dried red pepper production in Korea. While temperature increases can enhance yields, this positive effect is largely offset by the escalating P&D damage. The sequential nature of the modeling approach allowed for a clear demonstration of how climate change indirectly influences social welfare via P&Ds and reduced yields. The large social welfare losses projected underscore the importance of implementing adaptive strategies to mitigate these impacts. The results stress the critical need for effective pest management practices, improved disease prediction models, and possibly climate-resilient cropping systems.

This study provides a comprehensive assessment of climate change impacts on dried red pepper production and social welfare in Korea. It demonstrates a clear, sequential relationship between rising temperatures, increased P&D damage, reduced yield, and significant economic losses. The findings underscore the need for proactive measures to manage P&Ds and build resilience in the face of climate change. Further research should focus on exploring different adaptive management strategies and incorporating demand-side shocks and government policies into the model. The methodology presented in this paper offers a valuable framework for assessing the economic impact of climate change on other crops and agricultural systems globally.

This study focused on dried red peppers in Korea, limiting the generalizability of the findings to other crops or regions. The model relied on certain assumptions about price elasticities, and deviations from these assumptions could affect the magnitude of projected welfare losses. The time frame of the data used might affect the accuracy of future projections as forecast errors will increase the further into the future predictions go. The model considered only supply-side shocks, and future studies should incorporate demand-side factors and government policies for a more comprehensive analysis.