A Ricardian Analysis of the Impact of Climate Change on South American Farms

Abstract

This study estimates the impact of climate change on South American agriculture taking into account farmer adaptations. The study used a Ricardian analysis of 2300 farms to explore the effects of global warming on land values. In order to predict climate change impacts for this century, were examined climate change scenarios predicted by three Atmospheric Oceanic General Circulation Models (AOGCM): the Canadian Climate Center (CCC), the Centre for Climate System Research (CCSR), and the Parallel Climate Model (PCM) models. Several econometric specifications were tested, and five separate regressions were run: for all farms, small household farms, large commercial farms, rain fed farms, and irrigated farms. Farmland values will decrease as temperature increases, but also as rainfall increases except for the case of irrigated farms. Under the severe Canadian Climate Center (CCC) scenario, South American farmers will lose on average 14% of their income by the year 2020, 20% by 2060, and 53% by 2100, but half of these estimates under the less severe Centre for Climate System Research (CCSR) scenario. However, farms will lose only small amounts of income under the mild and wet Parallel Climate Model (PCM) scenario. Both small household farms and large commercial farms are highly vulnerable, but small farms are more vulnerable to warming, while large farms are more vulnerable to rainfall increases. Both rain fed and irrigated farms will lose their incomes by more than 50% by 2100, with slightly more severe damage to irrigated farms, but the sub sample analysis treats irrigation as exogenous.

Keywords: climate change, agriculture, Ricardian approach, South America

JEL Classification: Q54