Impact of global climate change on australian agriculture* Professor Tony Chisholm Agricultural and Resource Economics Group, School of Business, La Trobe University Abstract



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IMPACT OF GLOBAL CLIMATE CHANGE
ON AUSTRALIAN AGRICULTURE*


Professor Tony Chisholm
Agricultural and Resource Economics Group, School of Business,
La Trobe University


Abstract: This paper examines a series of research studies to determine the likely impact of global climate change on Australian agriculture. These include studies of the impact of climate change on potential crop production and world market prices, both in Australia and globally, as well as on the impact of greenhouse gas emission controls on Australian agriculture. It finds that the most important influence of climate change is its potential impact on world prices for agricultural commodities. With its export oriented agricultural sector, Australia would obtain economic benefits if climate change increased world agricultural commodity prices, and vice versa. Studies on the impact of the adoption by OECD countries of abatement policies for CO2 emissions from fossil fuel combustion show that the Australian agriculture sector would benefit, but all other sectors except manufacturing would suffer economic losses.

The impact of global climate change on Australian agriculture will be primarily influenced by the following factors:

¥ Direct impact of global climate change on AustraliaÕs agricultural potential.

¥ Impact of global climate change on world agricultural production and price levels.

¥ Impact of greenhouse gases emissions controls on Australian agriculture.

Significant Facts

¥ The Enhanced Greenhouse Effect (EGE) is a Ôglobal commonÕ problem.

¥ The IPCC (1996) Ôbest estimateÕ value of an increase in global mean surface air temperature is 2ûC by 2100 relative to 1990. This estimate is approximately one-third lower than the Ôbest-estimateÕ presented in 1990. The lower estimate is primarily due to the inclusion of the cooling effect of aerosols emissions. The climate sensitivity range is 1.0ûÐ3.5ûC for low to high climate change scenarios. The above estimates are in addition to the global mean temperature change of between 0.3 and 0.6 observed since the late 19th century to the early 1990s.

¥ The current stock of greenhouse gases in the atmosphere is very large relative to annual emission levels. The concentration of CO2 is increasing by about one-half per cent per year (Schelling, 1992).

¥ AustraliaÕs emissions of greenhouse gases account for around 1 per cent of global emissions. Thus, changes to AustraliaÕs level of emissions of greenhouse gases will have a negligible impact on the magnitude of global climate change.

¥ Increasing atmospheric concentrations of the most important greenhouse gas, CO2, has a direct fertilisation effect on agricultural and forestry yields and an indirect effect via climate change.

¥ Australia is a small (price-taking) export orientated country with respect to agricultural commodities.

¥ The global price elasticity of demand for agricultural commodities is highly inelastic.

From the above facts it follows that climate change impacts on global agricultural production will potentially have a greater impact on Australian agriculture than the direct impact of climate change on agricultural production potential within Australia. That is to say, the most important influence of climate change on Australian agriculture is its potential impact on world prices for agricultural commodities.

Some insight into the challenge of modelling the impacts of climate change on agriculture for a small trading country can be gleaned from Figure 1. A crucial aspect of modelling impacts of climate change is the current high level of uncertainty about most of the important parameters. The spread of uncertainty relating to the estimated change in global mean air temperature remains large: the upper limit is over three times the lower limit. The uncertainties are even greater in translating a temperature change into a complex of climate changes (Schelling op.cit.). Confidence in predicting hydrological changes and particularly climate changes for regional scales, compared with hemispheric-to-continental scale projections remains low (IPCC op.cit.).

The wide range of estimates from research on the impact of climate change on potential crop production reflect differences among climate scenarios and other unresolved factors, including the magnitude of the CO2 fertilisation effect, specification of crop variety or cultivar and the extent of adaptation by farmers.1

Research in response of wheat yields in Victoria found impacts ranging from -34 to +65 per cent for the same climate change scenario and site depending on which wheat cultivar was specified in the crop response model (Wang et al. 1992). To assume that farmers will not change the variety or cultivar of crops grown over the next 50 to 100 years as climate, technology and other factors change clearly leads to an over-estimation (under-estimation) of the costs (benefits) to climate change. However, it is extremely difficult to predict how farmers will adapt to changes in climate that are occurring simultaneously with technological change and other factors.

Despite the great difficulties of estimation, progress has been made in research on climate change impacts on global agriculture, see for example, Johnson (1991), Tobey et al. (1992), Rosenzweig and Parry (1994), Fisher et al. (1994), Rosenberg and Scott (1994) Darwin et al. (1995) and Reilly (1997). Table 1 summarises the results of research on the impact of climate change on world market prices and yields for all crops, assuming a doubling of CO2 concentration of the atmosphere by the year 2060. The results in Table 1 clearly show the high degree of sensitivity of world crop prices to changes in global production and the sensitivity of yield change estimates to climate scenario and assumptions relating to the CO2 fertilisation effect and degree of adaptation. The estimated changes in yields for all crops and for cereals in developed and developing countries are presented in Table 2. These results reflect a general conclusion of global studies, that agriculture in tropical regions which occur mainly in developing countries are likely to suffer the largest negative impacts of climate change.

Table 1: Percentage change in world market prices (and yields) for all crops, year 2060a

Scenario GISS GFDL UKMO

Without CO2 Fertilisation Effect 234 (-22.0) 270 (-25.0) 592 (-33.5)

With CO2 Fertilisation Effect 8 (-0.1) 17 (-2.8) 90 (-12.2)

Adaptation Level 1 2 (0.9) 10 (-1.7) 67 (-10.1)

Adaptation Level 2 -8 (3.2) -3 (1.0) 25 (-4.4)
Source: Compiled from Tables 9 and 10 Fisher et al. (1994). The bracketed figures are estimates of static climate yield impact, year 2060.

a Changes in all crop yields and world market prices in 2060 for 2 x CO2 scenarios (relative to case for 2060 without climate change) for the Goddard Institute for Space Studies (GISS), the Geophysical Fluid Dynamics Laboratory (GFOL), and the United Kingdom Meteorological (UKMO) general circulation models (GCMs).

Table 2: Percentage change in yields globally and for developed and developing countries, year 2060

Change in All Crops and Cereals Yields (per cent)

Region GISS GFDL UKMO

Global +0.9 (-1.7) -1.7 (-5.5) -10.1 (-12.9)

Developed Countries +13.1 (+7.8) +5.0 (+0.1) -3.6 (-6.7)

Developing Countries -3.2 (-9.2) -3.9 (-10.0) -12.3 (-17.8)



Change in World Market Prices (per cent)

+2 (+13) +10 (+22) +67 (+98)


Source: Compiled from Tables 9 and 10 Fischer et al. The figures in brackets are estimates for cereals. The above estimates apply to a scenario that includes the estimated beneficial physiological effects of increased CO2 concentrations and level 1 adaptation.

The sensitivity of estimates of the economic effects of climate change on world agriculture and Australia to particular assumptions is reflected in the results shown in Table 3. With its export-orientated agricultural sector, Australia would obtain economic benefits if climate change increased world agricultural commodity prices, and conversely.



Table 3: Net Annual Economic Changes in World Agriculture (billions of 1989 US dollars) for three GCMs

Scenario GISS GFDL UKMO

Without Fertilisation CO2 Effect -115.5 -148.6 -248.1 (+1133)

With Fertilisation CO2 Effect -0.1 -17.0 -61.2

Adaptation Level 1 7.0 (-7) -6.1 -37.6


Source: Reilly et al. (1994). The figures in brackets are estimates of the per capita economic gain/loss for Australia

Alden (1994) and Reilly et al. (1994) model the impact of climate change on world production and prices for the major agricultural commodities. AldenÕs study, without a CO2 fertilisation effect, found lowered world production and increased world prices for wheat, rice and sugar and increased world production and reduced world prices for maize, soybeans, beef, lamb and pork. Reilly et al. found that without a CO2 fertilisation effect or farmer adaptation the world prices increased for all of the commodities with the exception of a slight decrease in the lamb price. With both a CO2 fertilisation effect and adaptation, Reilly et al. found that world prices for rice, sugar and to a lesser extent maize increased substantially, but that little change was induced in the world prices for beef, lamb and pork. For wheat and soybeans, the direction of world price and production changes was found to be highly sensitive to the particular climate scenario (model) selected.

In a recent comprehensive study Darwin et al. (1995) evaluate four global-climate-change scenarios based on a doubling of atmospheric concentrations of CO2. The four scenarios are based on the GISS, GFDL, UKMO and Oregon State University (OSU) GCMs. The scenarios embody a range of average global temperature changes (2.8Ð5.2ûC) and precipitation increases (7.8Ð15.0 per cent). The study does not attempt to take into account the beneficial effects of higher concentrations of atmospheric CO2 on plant growth because there remains considerable debate about the size of this effect.

The Darwin et al. study applies a computable general equilibrium (CGE) global model, including eight world regions, in which land and climate resource changes are based on a geographic information system. The model is a static one, imposing various climate change scenarios on current economic and agricultural markets. Changing climate shifts the distribution of land across agronomic land classes.

The major conclusion of the study was that ÔGlobal changes in temperature and precipitation patterns during the next century are not likely to imperil food production for the world as a wholeÕ (Darwin et al.:vi). While world production of non-grain crops is predicted to decrease, production of grain and livestock is predicted to increase. However, costs and benefits of global climate change are unequally distributed around the world. Warming in high-latitude regions like Canada, for example, will lead to an increase in agricultural and forestry productivity. But warming in tropical regions, like South-east Asia (Indonesia, Malaysia, Philippines and Thailand), will generally result in a decline in farm and forestry productivity. Impacts on mid-latitude regions are mixed. For example, the impact on other East Asia (China, Taiwan and South Korea) and Japan is positive whereas the impact on agriculture in the European Community is generally negative. In the United States and a combined Australia and New Zealand region the direction of the impact varies between climate-change scenarios. Across climate-change scenarios, global water supplies increase by 6.4 to 12.4 per cent. In the Australia and New Zealand region three climate scenarios predict an increase in water supply of over 20 per cent.

The results of the Darwin et al. research on the impact of climate change on agriculture are more positive than those from previous research. In terms of direct crop yield impacts of climate change for the world in the no adaptation case, the Darwin et al. results are comparable to the earlier results of Rosenzweig and Parry (1994). However, the Darwin et al. results show that with adaptation the negative impacts are smaller than those derived in previous research and there may be overall benefits even without taking the CO2 effect into account.

From the perspective of global agriculture, the most recent research with a focus on adaptation potential in agriculture gives cause for cautious optimism particularly when we recognize that this research (and all earlier research) is based on the unrevised (IPCC 1990) higher estimate of climate change. Nevertheless, it is possible that due to some unresolved issues potential damages to global agriculture from climate change are being underestimated. The current state of knowledge is insufficient to permit climate scientists to say how extreme climate events, such as tropical storms, hurricane intensity and droughts will change. Current knowledge of the impact of climate change on pests and weeds is also sparse. It is possible to imagine scenarios of the above events which could have large negative agricultural impacts.

Schofield and Godden (1994) use linked MIAMI-ORANI models to analyse the direct impact of climate change on Australian agriculture. The results of their study summarised in Table 4, show that overall Australian agriculture benefits from climate change. The major loser from climate change is predicted to be the fruit industry which is the only industry in the Other Farming I category to have reduced exports. The main negative effect of climate change on the Australian fruit industry is predicted to be a significant lowering of Ôchilling daysÕ required to set the fruit.



Table 4: Climate Change Effects on Australian Agriculture Commodity Effects (per cent change)

ORANI Commodity Exports

Wool 2.64

Sheep 6.23

Wheat 8.61

Barley 7.33

Other Cereals 13.82

Meat Cattle 20.61

Milk Cattle and Pigs -2.07

Poultry -1.29

Other Farming 1* -13.69

Other Farming 2* -1.35
Source: Schofield and Godden (1994) results from MIAMI - ORANI models.

* Other Farming 1 consists of sugar cane, fruit and nuts.

* Other Farming 2 consists of vegetables, cotton, oilseeds and tobacco.

The study by Schofield and Godden does not attempt to model the impact of climate change on global agriculture; world agricultural prices are assumed to be constant. However, even if agricultural productivity overall in Australia benefits from climate change, as an agricultural exporting country, Australia may suffer significant economic losses if climate change turns out to be generally beneficial to world agriculture.

Several studies have analysed the impact of greenhouse gas emissions controls on Australian agriculture. Results from ABARE (1995, 1997) research based on the MEGABARE model show that the Australian agricultural sector would benefit from the adoption by OECD countries of abatement policies for carbon dioxide emissions from fossil fuel combustion. The benefit to the agricultural sector stems primarily from the devaluation of the Australian dollar caused by the predicted substantial reduction in exports of coal and other non-renewable resources. A similar result was obtained by Godden and Adams (1992) by applying the ORANI model to estimate the impact of a greenhouse gas abatement policy induced reduction of AustraliaÕs coal exports on the agricultural sector.

Phipps and Hall (1994) model the effects of reducing greenhouse gas emissions from Australian broadacre agriculture by 20 per cent. The reduction in emissions is achieved by reducing methane and nitrous oxide emissions and increasing the net absorption of carbon dioxide. Farm cash income for broadacre agriculture was estimated to fall by 36 per cent. This cost could be reduced by changing management techniques such as adopting minimum tillage practices to reduce the loss of soil carbon as CO2 from cropping.

In a recent study conducted on behalf of the National Landcare Program, Hassall and Associates (1997) conclude that Òno regretsÓ options exist to increase the net absorption of CO2 by expansion of agroforestry,2 improved pastures and minimum tillage. Reduction in land clearance and improvement in rangelands vegetation could make substantial contributions to reducing AustraliaÕs overall CO2 emissions, but the costs associated with these activities was not estimated.

Conclusions

Early research on the impact of climate change on agriculture suggested that the export-orientated Australian rural sector would benefit from higher world commodity prices resulting from a negative impact of climate change on global agricultural production potential. Recent research with a focus on the potential for adaptation to climate change indicates that global agricultural damages are likely to be smaller than previously estimated or there may be overall global benefits. However, a number of unresolved issues, such as change in occurence of extreme climatic events, could lead to larger damage estimates.

Nearly all research indicates that cold and temperate regions are more likely to have direct benefits from climate change while tropical regions are more likely to suffer losses. The little research that has been conducted on the direct impact of climate change on Australian agricultural production potential suggests there will be overall benefits, with the Australian fruit industry being the most adversely affected sector.

At this stage of research on climate change and agricultural production potential, numerical results should be interpreted as being merely suggestive of the potential magnitude of impacts for specific locations due to uncertaintities.

Research on the impact on Australia of the adoption by OECD countries of abatement policies for CO2 emissions from fossil fuel combustion show that the Australian agricultural (and manufacturing) sector would benefit, but all other sectors would suffer economic losses.

References

Alden, D. (1994), Climate Change and Agricultural Production: An Extensive Average Spatial Ecological Approach, Environment and Planning, 26: 121Ð136.

Darwin, R., Tsigas, M., Lewandrowski, J. and A. Raneses (1995), ÔWorld Agriculture and Climate Change: Economic AdaptationsÕ, Report No.AER-703, Economic Research Service, United States Department of Agriculture, Washington, DC.

Farquhar, G. (1976), ÔEffects of Vegetation on Climate and Atmospheric CO2 and Climate ChangeÑPart IÕ, in National Academies Forum, Australians and Our Changing Climate, Summary of Proceedings, pp.41Ð42.

Fischer, G., Frohberg, K. Parry, M.L. and Rosenzweig, C. (1994), ÔClimate Change and Food Supply, Demand and Trade: Who Benefits, Who Loses?Õ Global Environmental Change, 4:7Ð23.

Godden, D. and P.D. Adams (1992), ÔThe Enhanced Greenhouse Effect and Australian AgricultureÕ, in Reilly J.M. and M. Anderson (eds). Economic Issues in Global Climate Change: Agriculture, Forestry and Natural Resources, Westview Press, Boulder, pp.311Ð331.

Hassall and Associates (1997), ÔGreenhouse Implications of Sustainable Land Management PracticesÕ. Report prepared on behalf of the National Landcare Program, Department of Primary Industries and Energy (forthcoming).

IPCC (1996), Climate Change 1995 Economic and Social Dimensions of Climate Change. Contribution of Working Groups I and III to the Second Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press, Cambridge.

Johnson, S.R. (1991), ÔModelling the Economic Impacts of Global Change for Agriculture and TradeÕ, in Climate Change: Evaluating the Socio-economic Impacts, OECD, Paris.

Phipps, S. and N. Hall (1994), ÔReducing Greenhouse Gas Emissions from Australian AgricultureÕ, ABARE Research Report 94.5, Canberra.

Read, Sturgess and Associates, CSIRO Division of Atmospheric Research and Australian Wheat Forecasters (1996), ÔImpacts of Climate Change on Australian Grain ProductionÕ, monograph for Department of the Environment, Sport and Territories.

Reilly, J. (1997), ÔClimate Change and Agriculture - Local, National and Global ImpactsÕ, Outlook 1997, Proceedings of the National Agricultural and Resources Outlook Conference, Volum 2, ABARE, Canberra, pp.49Ð63.

Reilly, J., Hohmann, N. and Kane, S. (1994), ÔClimate Change and Agricultural Trade Who Benefits, Who Loses?Õ Global Environmental Change, 4:24Ð36.

Rosenberg, N.J. and Scott, M.J. (1994), ÔImplication of Policies to Prevent Climate Change for Future Food SecurityÕ, Global Environmental Change,Ó 4:49Ð62.

Rosenzweig, C. and M.L. Parry (1994), ÔPotential Impacts of Climate Change on World Food SupplyÕ, Nature 367 (Jan.) pp.133Ð138.

Rosenzweig, C. and D. Hillel (1995), ÔPotential Impacts of Climate Change on Agriculture and Food SupplyÕ, Consequences (Saginaw Valley State University) 1:23Ð32.

Schelling, T.C. (1992), ÔSome Economics of Global WarmingÕ, American Economic Review, 82(1): 1Ð14.

Schofield, P.J. and D. Godden (1994), ÔAustralian Agricultural Production and Trade Under a Potential Enhanced Greenhouse EffectÕ, paper presented to 38th Annual Conference of the Australian Agricultural Economics Society, Wellington, New Zealand, February, 1994.

Tobey, J., Reilly, J. and S. Kane (1992), ÔEconomic Implications of Global Climate Change for World AgricultureÕ, Journal of Agricultural and Resource Economics, 17(1): 195Ð204.

Wang, Y.P., Handako, J. and Rimmington, G. (1992), ÔSensitivity of Wheat Growth to Increased Air Temperature for Different Scenarios of Ambient CO2 Concentration and Rainfall in Victoria, Australia - A Simulation StudyÕ, Climate Research, 2:131Ð149.





1(1) Ideally, the impact of climate change on crop yield would be estimated through time. The author is aware of only one study Rosenzweig and Hillel (1995) that has attempted to estimate impacts on crop (wheat) yield through time from the present to 2060 (2xCO2).

2(2) The longer run contribution of agroforestry to net absorption of CO2 depends on whether or not the harvested wood is used for purposes which effectively maintain it in durable storage. Unless harvest is followed by durable storage, land planted to trees is a sink until the time of harvest, say 30 years, and then becomes neutral (Farquhar, 1996).


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