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A key principle of direct seeding mulch-based cropping systems is the retention of crop residues on the soil surface to preserve soil water for crop growth. In this study the impact of surface crop residue on water use and production risk associated with rainfall variability is analysed for two contrasting tropical sites. The two sites are La Tinaja in semi-arid Mexico and Planaltina in humid Brazil. The crop growth model STICS, version 3.0 was updated with a simple empirical module, incorporating the following effects of surface residue on soil water balance: (1) rainfall interception and subsequent mulch evaporation; (2) radiation interception with associated reduction of soil evaporation and (3) reduction of surface water runoff. The results of the model simulations showed that the effect of radiation interception at both sites was much more important than the effect of intercepting rain. The high sensitivity of model yield predictions to surface water runoff, especially in La Tinaja, highlighted the importance of a careful parameterisation of the surface water runoff formalism. The model results suggested that even small amounts of surface residue are effective at reducing water loss and increasing yield. In La Tinaja, grain yield was increased at least two-fold with retention of 1 Mg ha-1 surface residue. In Planaltina, the advantage of water conservation by surface residue is partly offset by increased drainage losses. As a consequence, the impact of crop residue mulching on grain yield was lower at that site.