Iddo Kan and Ayal Kimhi* - UNU-WIDER Kimhi.pdf · –Why is Israeli agriculture a good case study? 7

Climate Change, Agricultural Adaptation, and Food Prices: A Partial Equilibrium Approach using Micro Data

Iddo Kan and Ayal Kimhi*

* Authors are affiliated with the Department of Agricultural Economics and Management, the Robert H. Smith Faculty of Agriculture, Food and Environment, The Hebrew University, and with the Center for Agricultural Economic Research.

* Kimhi is currently visiting at the Research Institute for Humanity and Nature (RIHN) in Kyoto, Japan.

Helsinki, September 28th, 2012

Structure of presentation

• Methodological approach • Application to Israeli agriculture

2

Modeling farm responses to climate change

• Production approach: experimental or empirical effects of climate change on yields

• Ricardian approach: empirical effects of climate change on farm profits or land values

• Integrated approach: empirical effects of climate change on farmers’ decisions feeding into market equilibrium changes that in turn affect farmers’ decisions.

3

How will climate change affect agriculture?

• Direct effect: Farmers will alter their crop portfolios

• Indirect effect: crop prices will change as a result of the changes in supply, and this will lead to further changes in crop portfolios

• New equilibrium: these effects feed into each other until convergence

4

Previous research and our contribution

• Kaminski et al. (AJAE, forthcoming): A structural model of regional land allocation among crop-technology bundles

• Our contribution: – Adding the market equilibrium component – Estimating land allocations at village level – Allowing for corner solutions in land allocation

5

Analysis Flowchart Production

factors

Village-level crop portfolio and land allocation model

Climate factors

Nationwide demand

Demand elasticities

Value of local production and imports

Output prices

Consumer surplus

Nationwide production

Nationwide partial equilibrium

Structure of presentation

• Methodological approach • Application to Israeli agriculture

–Why is Israeli agriculture a good case study?

7

<0 0-300

300-600

600-1200

Jordan Valley

Coastal Plain

Mountain Range

Altitude 135 km

22,000 km2

Sea of Galilee N 470km

Mediterranean Sea

8

Dead Sea

Red Sea

SEASONS

Rainy Winter November-March

Dry Summer June -August

9

Semi Arid

Arid

50 mm

1,200 mm

Sub Tropic

Egypt

Lebanon

10

Varied climate conditions, topography and soil types stimulate the development of unique agricultural technologies Climate : Subtropical to Arid Topography : - 408m to 1,208m Soil : Sand dunes to Heavy Loam

11

Value of agricultural production (2010)

2% of Net Domestic Product 12

Climate Change Forecast for Israel

100

200

300

400

500

600

700

1970 1980 1990 2000 2010 2020 2030 2040 2050 2060

mm/year

Year

Precipitation

8

10

12

14

16

18

20

22

24

26

28

30

32

1970 1980 1990 2000 2010 2020 2030 2040 2050 2060

C o

Year

Temperature January April July October Average

13

Previous research on Israel

• Kan et al. (2007) – Mathematical programming applied to regional data – 20% decrease in net farm revenues by 2100

• Fleischer et al. (2008) – Ricardian approach applied to farm-level data – Moderate climate change beneficial but extreme

changes harmful • Kaminski et al. (forthcoming)

– structural land allocation model applied to regional data from Israel

– Up to 10% decrease in aggregate farm profits by 2060

14

Data • 1992-2002 annual data from 793 communities • 7 crop-technology bundles:

– Irrigated field crops – Rain-fed field crops – Open-field vegetables – Covered vegetables – Deciduous fruits – Subtropical fruits – Citrus and other fruits

15

Egypt

Lebanon

Agricultural communities

16

Crop portfolios

Activity Fraction of

growers All sample (dunam)

Per-grower (dunam)

_______________________________________________________________________________________________________________

Vegetables, covered 27% 27 101

Vegetables, open field 73% 804 1,105

Field crops, irrigated 56% 879 1,573

Field crops, rain-fed 65% 1,319 2,016

Deciduous fruits 36% 123 338

Subtropical fruits 63% 174 274

Citrus & other fruits 82% 421 513 17

Climate data Precipitation mm/year 395.1 Precipitation S.D. mm/year 121.6 Degree days - January Co 145.1 Degree days –April Co 328.7 Degree days – July Co 576.9 Degree days – October Co 441.3 Degree days – inter-annual S.D. Co 198.9 Degree days – intra-annual S.D. Co 5.6 Degree days above 34 Co Co 0.46 Degree days below 8 Co Co 6.4

18

Crop price indices

19

40

50

60

70

80

90

100

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Field crops Vegetables Citrus Other fruits

Climate variables coefficients

20

Variable Vegetables Covered

Vegetables Open field

Field crops Irrigated

Field crops Rain-fed Deciduous Subtropic.

Citrus & Other

Precipitation -1.543** 19.69*** 9.21*** 8.715** 7.759*** -0.532 -17.73***

Precipitation S.D. 6.897*** -32.65*** -14.87** -72.07*** -18.93*** 7.521*** 51.98***

Deg. days - Jan. -8.232*** 15.13** -8.701 11.73 -2.736 -9.753*** 9.341**

Deg. days –April -0.242 58.61*** 34.44*** -16.03* 25.55*** -0.730 -7.721**

Deg. days – July 30.52*** 49.3*** 42.58*** 50.58*** -18.89*** -9.886*** 12.81**

Deg. days – October -10.69*** -17.93* -37.23*** -4.802 -43.71*** 27.49*** 11.36*

DD - inter ann. S.D. 2.99* 1.229 11.33** 82.05*** 17.76*** -8.067*** 2.681

DD - intra ann. S.D. -1552*** -920 -2796*** -1851** -1852*** 419.4*** 917.8***

DD above 34Co 61.83** -476.6*** -885.5*** -1190*** 152.3*** 221.2*** -472.8***

DD below 8Co -5.118** 20.54*** 27.02*** -34.04*** 14.61*** -1.568 5.705*

100

200

300

400

500

Precipitation by climate Periods

1981-2000 2001-2020 2021-2040 2041-2060

600

700

1970 1980 1990 2000 2010 2020 2030 2040 2050 2060

mm/year

Year

Climate Change Relative to 1981-2000 (%)

- 20 0

20 40 60 80

100 120 140 160

2001 - 2020

2021 - 2040

2041 - 2060

- 100 - 80 - 60 - 40 - 20

0 20 40 60 80

100 120 140 160

Demand functions

0

0.5

1

1.5

2

2.5

3

3.5

0 0.5 1 1.5 2

Price Index

Quantity Index

Field crops

International price

Forecasted price indices

80

90

100

110

120

130

140

150

160

1981-2000 2001-2020 2021-2040 2041-2060

Field Crops Fruits Vegetables

Vegetables Vegetables Vegetables

Fruits Fruits

Fruits

25

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Citrus & other plantations Sub tropic plantations Deciduous Field crops, rainfed Field crops, irrigates Vegetables, open space Vegetables, covered

Forecasted land allocations

1981 - 2000

Baseline

2001- 2020

2021- 2040

2041- 2060

Fixed prices

2001- 2020

2021- 2040

2041- 2060

Partial equilibria

26

0

20

40

60

80

100

120

140

1981-2000 2001-2020 2021-2040 2041-2060 2001-2020 2021-2040 2041-2060

Quantity Index of Total Production

Baseline Fixed prices Partial equilibria

27

0

1

2

3

4

5

6

7

8

9

1981-2000 2001-2020 2021-2040 2041-2060 2001-2020 2021-2040 2041-2060

Value of Total Production (million NIS)

Baseline Fixed prices Partial equilibria

28

0

1

2

3

4

5

6

7

1981-2000 2001-2020 2021-2040 2041-2060

Production

Imports

Production Production Production

Imports Imports

Value of Production, Imports and Consumption under partial equilibria (million NIS)

Summary

• Climate change is expected to bring about considerable changes in Israeli agriculture

• Ignoring price changes may lead to erroneous production expectations

• Our methodology takes into account: – Effects of price changes – Changes in crop portfolios at the farm

level, including corner solutions 29

Wastewater recycling

30 Source: Lavee and Ash (forthcoming)

0

500

1,000

1,500

2,000

2,500

3,000

1960 1970 1980 1990 2000 2010 2020 2030

Desalinated

Recycled

Natural

Water sources (million m3)

Source: Yoav Kislev, Taub Center (2012)

32 Source: Modified from Yoav Kislev, “Water Pricing” (2010) and Taub Center (2012)

Water prices and direct costs water for agriculture (in $US/CM, 2010 prices)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

1950 1960 1970 1980 1990 2000 2010

Price

Cost