The World Bank Policy Research Working Paper No. 5468, November Thomas W. Hertel and Stephanie D. Rosch (2010)

The paper investigates the potential impact of climate change for the poor and assesses the link between climate change and poverty. The authors focus on agriculture as a means by which impacts of climate change are transmitted to the poor and conclude with a discussion on policy implications.

Although countries most likely to be affected by climate change are characterized by abject poverty, they are located in regions where such a change can be countered with innovative agricultural practices. Places such as sub-Saharan Africa are particularly vulnerable to climate change and poverty rates reach around 40% of the total population. The paper seeks to study the potential consequences of climate change on the poor and aims to evaluate the links between climate change and poverty through agriculture.

Hertel and Rosch surveyed a variety of previous research on the potential impact of climate change on agriculture. Several methods were identified in order to run a simulation. The crop growth simulation model incorporates a model known as the Decision Support System for Agrotechnology Transfer (DSSAT) and covers six crop types. It simulates crop growth as a function of soil, water availability and temperature. Simulations to assess the impact of climate change on agricultural productivity can be run by altering temperature and rainfall amount. A variant of this model, known as the Agro-PEGASUS model, estimates that a 2 degree celsius rise in global temperatures causes average maize and soybean yields to increase in high income countries, while the low income countries experience a drop in yields for spring wheat, soybeans and maize. For developing countries, poverty tends to be concentrated in rural regions and this drop in yields suggests that farm incomes in poor nations could decline and worsen poverty levels.

The second approach, the hedonic approach estimated the impact of climate changes on land values and the authors reviewed research which states that the wet regions of Eastern India might benefit from an increase in temperature whereas the drier Western regions will face a decline in land quality. Analysis on Africa reveals that although global warming has adversely impacted dry land farming, it has nevertheless benefited irrigated agriculture and such higher temperatures encourage small farmers to shift from cropping to livestock. Hertel and Rosch also offer a limitation of the hedonic approach and state that some optimal values for the climate variables are unlikely, indicating that the model does not accurately predict data beyond the range of observations.

In order to link climate change to agriculture and poverty, the authors then review more research by breaking down the impact of climate change on poverty into several components.  The first is the consumption impact and the authors state that higher food prices, due to adverse climate conditions reducing food production, should hurt consumers everywhere – higher food prices reduce consumers’ purchasing power. More significantly, since the poor tend to spend a higher proportion of their income on food, climate changes should have a greater unfavorable impact on them. Significantly since the poor tend to spend a higher proportion of their income on food, climate changes should have a greater unfavorable impact on the poor. The second impact is felt on farming households earnings. The authors theorize that in the absence of any other input price increases, an adverse impact on productivity from climate change will reduce earnings for farmers. Any productivity decline means that prices of farmer-owned inputs increase and without any price increases in the other inputs of production, farmers cannot share the price change with the suppliers of non-farm inputs.

However the authors point out that the extent of the price rise will depend on the relative price elasticity of the agricultural goods. If the climate shock impacts only one plot of land, then the farm level elasticity will be very high, that is, a 1% increase in prices will cause demand to fall by more than 1%. The returns to farmers will therefore fall during such a productivity shock. If the shock hits the entire region, the elasticity will be rather small i.e. inelastic, meaning that a 1% increase in prices will result in a less than 1% fall in demand – farmer returns will rise in this case. Therefore the authors surmise that farm households will benefit from adverse climate changes if the adverse shock is widespread across regions, if farm demand for products is inelastic and if supply response is inelastic.

The third impact is on the factor markets and on nonfarm households. Hertel and Rosch review the research that focuses on the impact of flooding on agricultural wages in Bangladesh. They find that the impact of floods on agricultural wages in Bangladesh depends on the timing of the flood, its severity and the duration. If the floods require replanting of the fields, the demand for labor may shoot up while floods in general could have an unfavorable impact on wages as the demand for labor is reduced. The authors also discuss some circumstances under which poverty could actually fall. Four conditions were put forward. Firstly, if the adverse climate change is not localized and the farm level demand and supply are inelastic, any increase in agricultural prices will cause farm household incomes to rise. Second, if poverty is concentrated mostly in agriculture then the poor gain from the occurrence of the first condition. Thirdly, the climate shocks result in increased demand for labor and finally, if the farm sector contains a large share of unskilled labor in the economy, then non-farming poor households might gain from higher wages.

The final impact of climate change on poverty is through the impact on non-priced or natural resource goods. The paper covers empirical evidence from other studies which show that dwindling natural resource goods like wild foods, minerals, dyes etc. are likely to have significant impact on the poor. Findings from Zimbabwe indicate that poor households get 40% or more of their incomes from environmental goods and in the Democratic Republic of Congo an estimated 31% of household income is derived from bush meat. As such natural resource goods represent a major fraction of cash incomes of the poor with 90% of bush meat and 25% of harvested wild plants being sold in urban markets in Congo. Therefore the decline of such goods from climate shocks has an even more unfavorable impact on the poor.

The authors acknowledge that agriculture is not the only means through which climate changes can impact the poor; potential damages to infrastructure such as roads, buildings and houses will result in adverse shocks for the population. The paper further recommends policies to mitigate the adverse climate shocks on poverty such as investing in human capital and infrastructure, enabling migration and investing in water storage and irrigation.