By Harrison Manyumwa

MSc in Agricultural and Applied Economics (2015)

Department of Agricultural Economics and Extension

University of Zimbabwe

- a critical literature review…

Introduction – definitions

Climate change and agriculture – the impacts

Critical economic analyses of the impacts of climate change

Conclusion

Scientific basis of climate change established in the 19th century (Stern, 2006).

Two major definitions of climate change (IPCC and UNFCCC)

change in the state of the climate that can be identified (e.g. using statistical tests); persists for an extended period, typically decades or longer; change in climate over time, is due to natural variability or as a result of human

activity (IPCC, 2007 )

change of climate that is attributed directly or indirectly to human activity alters the composition of the global atmosphere (is) in addition to natural climate variability observed over comparable time periods

(UNFCCC, 1992)

There is an interesting relationship between climate change and agriculture and the economic implications

Agriculture is both a contributor to and a victim of the effects of climate change.

This relationship can be viewed in a variety of trade-offs that agricultural production systems face as the climate changes

The growing evidence on climate change is that it is in large measure anthropogenic.

Greenhouse gas (GHG) emissions are considered the major cause of climate change.

Major sources of GHG emissions globally by order include:

1. Electricity generation

2. Land use changes (largely deforestation, which is also related to the opening up of new lands for agriculture)

3. Agriculture (cultivation, organic and inorganic fertilizer etc.)

4. Transport

(Stern, 2006)

In addition to higher temperatures and lower precipitation in some parts of the world; climate change may also mean…

1. Higher than normal precipitation for some areas…

Negative: Flooding may occur in some regions destroying life and property

Positive: Increases in precipitation (i.e. level and timing) may increase soil moisture in water-short areas benefitting plant systems

2. Climate change may also mean higher than normal atmospheric carbon

Negative: Higher carbon concentrations reduce transpiration as plants reduce their stomatal apertures

The result is lower precipitation

Positive: On the other hand, an atmosphere with higher CO2 concentration would result in higher net photosynthetic rates.

3. Other possible impacts…

Climate change may result in a “Warm-glow” effect for some species (esp. micro-organisms), this may also increase disease incidence

The bottom line is:

Different locations of the world will be affected differently by climate change;

Hence, the distributional aspects of climate change need to be taken into account, and

the uncertainty about the impacts is quite huge.

Climate change is an environmental problem and it involves a negative externality – i.e. “the emission of GHG damages others at (little or) no cost to the agent

responsible for the emissions” (Stern, 2006).

Scarcity definition of economics – It is the science which studies human behaviour as a relationship between

scarce means (resources) which have alternative uses (Robbins, 1945).

Climate change impacts alter resource endowments creating the economic problem of scarcity – e.g. declining productivity of land or loss of labour (caused by climate change)

will trigger significant socioeconomic problems

Two sides of the coin –

In developed countries climate change leads to low life losses, but huge capital losses

In developing countries, climate change leads to low capital losses and significant life losses (Tol, 2002).

These capital and labor losses have significant implications on the production function

The standard theory of externalities can provide useful initial insights on climate change (Gowdy, 2007; Beckerman & Hepburn, 2007; Stern 2006)

However, climate change is still quite a tricky subject because –

1. It has long-term horizons

2. It is a global scale problem

3. It has major uncertainties

4. It has strong interactions with other market failures (e.g. oil cartels, monopolies and other market failures)

There are two major economic views on how the problem of climate change should be analyzed

One is the standard economic view, and the other is the behavioral economics view

A standard economic approach suggests that –

aggregate, monetary impact estimates of climate change are necessary to engage in a cost-benefit analysis of GHG reduction policy (see Tol, 2002)

On the other hand, behavioural economics perspectives argue that the standard economic approach to climate change policy is flawed in that – It (unrealistically) places exclusive emphasis on rational responses to monetary

incentives (for climate smart behavior) (Gowdy, 2007).

Some of the main arguments of the behavioral economics view–

(Climate change) policy requires the promotion of a “collaborative solution” to a game with “free-rider” problems (Stern, 2006; Beckerman & Hepburn, 2007).

Institution of a collective global way forward required

Local commitments to GHG reduction are more important than international commitments.

The analysis of climate change intersects with many disciplines such as:

1. Economic growth and development

2. Industry

3. Innovation and technological change

4. Institutions (play a key role in adaptation)

5. International economy (supply, prices, comparative advantage)

6. Public finance;

7. Information and uncertainty;

8. Environmental and public economics.

And others you can think of…

Establishing a comprehensive estimate of the impact of climate on human welfare is exceedingly difficult

Two main challenges in estimating or measuring the economic impacts (uncertainty and adaptation)

1. The adaptation challenge

2. The uncertainty challenge

Agricultural and climatic systems are dynamic and managed ecosystems (Adams, et al., 1998).

Humans are continuously changing/responding/adapting to changes in –

crop and livestock yields,

food prices,

input prices,

resource availability, and,

technological change.

Complex (adaptive) nature of humans is a challenge in measuring impact

Climate change is considered an uncertainty.

Not possible to estimate probability of occurrence

Most researchers are unclear about how to deal with this uncertainty in their estimations of the economic impacts of climate change.

A study by Tol, R., 2002, “Estimates of the Damage Costs of Climate Change”. Published in: Environmental and Resource Economics, Volume 21, pp. 47-73

Calculates adaptation costs of climate change as – the difference between the impact without adaptation and the impact with

adaptation

i.e. the losses of not being adapted to the changed situation.

Given the complexity associated with measuring climate change impacts, The study estimates of impact of climate change are derived from literature

which is to a large extent outside the economic discipline.

Study predicted that:

The impact of a 2.5 o C mean global temperature increase will cause a percentage change in the Gross Agric. Product (GAP) of different regions

Most (though not all) regions in the world will face a negative change in GAP due to a 2.5 o C increase in mean global temperature

GAP in OECD Europe, Centrally planned Asia, and Central and East Europe and former Soviet Union will grow by 0.55%, 1.73% and 0.94% respectively (even if these regions do not adapt to the change in climate)

These surprising results may reveal that agriculture in very cold regions of the world might just benefit from higher than usual temperatures

However, according to the study, Africa, Latina America, South and South East Asia are set to experience negative agricultural growth as a result of increasing global mean temperatures.

If all regions adapt to changing climate, “higher temperatures will be met by higher agricultural outputs”

See table 1.

Without adapation With adaptation

Best

guess

Standard

deviation

Best

guess

Standard

deviation

OECD America (excluding

Mexico)

-0.25 1.3 0.99 1.33

OECD Europe 0.55 1.03 2.09 1.12

OECD Pacific (excluding

South Korea)

-0.15 1.61 0.8 1.62

Central and East Europe and

former Soviet Union

0.94 1.19 2.65 1.13

Middle East -0.44 0.41 0.58 0.48

Latin America -0.76 0.6 0.55 0.07

South and South East Asia -0.66 0.28 0.63 0.33

Centrally Planned Asia 1.73 0.98 3.1 1.01

Africa -0.23 0.23 0.47 0.28

Estimated impact (i.e. percentage change in Gross Agricultural

Product), for a 2.5 ◦C increase in the global mean temperature Tol,

2002.

The study attempts to make innovative use of available secondary data

However, secondary data does not always match specific study purposes

This has seen the author creating customized regions

The author had to aggregate country data

This hides some underlying peculiarities and may not give a true reflection

Effect of population growth not captured

The Climate Vulnerability Monitor, 2012 presents case studies on the impacts of climate change in Ghana and Vietnam

A key emerging issue is the impact of CC on labour productivity

In Ghana, almost 40% of the total labour force is employed in the agriculture sector Therefore the losses in labour productivity are strongly linked to agriculture

and overall economic performance

It is forecasted that climate change related loss in labour productivity will translate to 6.1% loss in GDP by 2030

Impact of climate

change on ….

2010 (% of

GDP lost)

Description 2030 (% of

GDP loss

projected)

Description

…labour productivity 3.0 Acute 6.1 Acute

…fisheries 0.3 High 1.1 Acute

…agriculture 0.4 Severe 0.7 Acute

…sea level rise 0.3 Moderate 0.4 Moderate

…biodiversity 0.1 Moderate 0.2 High

(DARA and the Climate Vulnerable Forum, 2012)

Just like in Ghana, it is estimated that labour productivity will cost Vietnam the most, translating to 8.6% GDP loss in 2030 compared to 4.4% in 2010

Over half of this labour force is employed in agriculture.

Fisheries and agriculture are also among the top five impact areas of climate change in Vietnam.

It is estimated that the carbon economy effects for agriculture constitute a 0.2% loss to GDP in 2010, but are converted into a 0.1% gain to GDP by 2030 Possible carbon fertilization effects???

Impact of climate change

on…

2010 (% of

GDP lost)

Descriptio

n

2030 (% of

GDP loss

projected)

Description

…labour productivity 4.4 Acute 8.6 Acute

…sea level-rise 1.5 High 2.7 High

…fisheries 0.5 Severe 1.6 Acute

…agriculture 0.2 High 0.4 Severe

…heating and cooling 0.1 High 0.3 Severe

…floods and landslides 0.1 Acute 0.1 Acute

…biodiversity 0.1 Moderate 0.1 Moderate

…drought 0.1 Acute 0.1 Acute

Climate change adaptation is a key issue.

Some of the questions include –

the financing of adaptation and,

the best methods and approaches to sustainable adaptation

The degree to which people or communities adapt to climate change is a function of their livelihood systems and structure, which are inclusive of:

Livelihood assets

Institutions

Livelihood strategies

This is explained by the DFID Sustainable Livelihoods Framework

An important version of adaptation is resilience, i.e. the degree to which people and communities adapt without changing their functional form

• Livelihoods are dynamic

• People + communities have

different strengths (assets)

which they endeavour to

convert to livelihood

outcomes

• Critically, institutions,

organizations and policies

shape livelihoods

• The choices (strategies)

that people adopt are

affected by many things

that cannot be understood

in a straitjacket approach

Examples of adaptations from (Stigter & Ofori, 2014) include:

Diversified crop and community nutrition programmes in Malawi

using legumes (e.g. pigeon peas and groundnuts) as local sources of nitrogen and food in Malawi

In Zimbabwe, some farmers have reintroduced more traditional non-hybrid maize varieties vs. the hybrid, high input intensive (sensitive) varieties.

However, currently available maize germplasm in Zimbabwe (and sub-Saharan Africa, in general) is not suitable for projected climate change conditions.

Evidence suggests that climate change will lead to changes in agricultural product and food supply

This lead to changes in prices/relative prices of these commodities, and consequently changes in comparative advantages

This in turn leads to changes in the economic welfare (economic surpluses) of agricultural producers and consumers.

However, the distribution of impact could be quite varied

Climate change is essentially an economic problem, but a very complex one.

It involves externalities, but the externalities are marred by major uncertainties and market failures (such as oil cartels, state monopolies etc.)

The distributional impacts of climate change call for a collaborative economic solutions (among the “winners” and “losers”)

The need for adaptation is urgent - “winners” need to help “losers” become more resilient

Adams, R., Hurd, B., Lenhart, S. & Leary, N., 1998. Effects of global climate change on agriculture: An interpretive Review. Climate Research, Volume 11, pp. 19-30.

DARA and the Climate Vulnerable Forum, 2012. Climate Vulnerability Monitor: A Guide to the Cold Calculus of a Hot Planet. 2nd ed. Madrid: Fundación DARA Internacional.

Eliot, C. W. & Bullock, C. J., 2001. An inquiry into the nature and causes of the wealth of nations, by Adam Smith; edited by C. J. Bullock.. 1 ed. New York: Collier & Son.

Gowdy, J., 2007. Behavioral Economics and Climate Change Policy, New York: Rensselaer Working Papers in Economics.

Robbins, L., 1945. An Essay on the Nature and Significance of Economic Science. 2nd ed. London: MacMillan and Co. Ltd

Stern, N., 2006. What is the Economics of Climate Change. World Economics, 7(2), pp. 1-10.

Stigter, K. & Ofori, E., 2014. What Climate Change means for Farmers in Africa. African Journal for Food, Agriculture and Nutrition Development, 14(1), pp. 8428-8444.

Tol, R., 2002. Estimates of the Damage Costs of Climate Change. Environmental and Resource Economics, Volume 21, pp. 47-73.