Sunday, May 15, 2011

Nimble Farmers Redux

At a given point in time, farmers must choose what crops to grow.  The wise farmer will compare his expected profits from each choice.  Profits will depend on input choices, his production technology, climate conditions and world prices of output.  The same farmer might make different choices if he lived under different climate conditions.  Variation in climate conditions across nations provides a type "lab" to see how a given farmer might respond if climate change affects the temperature and rainfall conditions where he currently lives.

In this paper, PRADEEP KURUKULASURIYA and ROBERT MENDELSOHN use some nice micro data to study this issue. Here is their abstract:

"This paper examines the impact of climate change on primary crops grown in Africa. An
innovative approach is presented that bridges the gap between agro-economic and traditional
Ricardian models. We label it a ‘structural Ricardian model’. It first captures the type of crop a
farmer will select and then examines the conditional net revenue of that crop. The model is
estimated using a sample of over 5000 farmers across 11 countries in Africa. The analysis finds
that farmers shift the crops they plant to match the climate they face. Studies that fail to account
for crop switching will overestimate the damages from climate change and underestimate the

This makes intuitive sense and matches the predictions of "optimistic" climate change adaptation economists.

I read the paper quickly and it does not appear that they collected any data on the farmers themselves such as their cognitive skills or their ability to borrow money to finance new capital investments.  Why does this matter?  Suppose that Matt is a farmer in Africa and I have plenty of experience growing crop X but due to climate change that my yields of X have declined by 70%.   I can either move to the city or change my game and grow crop Z that is more suited to the new climate conditions on my land.  But, there are transition costs to changing my ways and moving my production from X to Z.   If I have general human capital, then this transition will be easier, it will also be easier if I have access to financing to buy the equipment needed to produce Z.    Implicit in this paper's logic is that transition costs for farmers (to change their game from growing X to Z) are low.   Organizations such as the Gates Foundation can play a leadership role here educating farmers in at risk areas and helping them to make this transition.  This is an example of the "small ball" for adapting to climate change.

What I like about this paper is that it presents new empirical work on the "big point" of investigating whether poor African farmers are passive victims or whether they step up and make choices to maximize their probability of success when faced with different climate conditions.