21.5.1 Adaptation and adjustment
Economic analysis of adaptation generally follows a path of investigation that considers those options that could be used to ameliorate losses without increasing costs. Once this baseline impact is established, further analysis of changing markets identifies whether commodity prices would increase or decrease as a result of changes in yields around the world. Then the analysis considers technological options and assumes that only those that would improve profitability are adopted. The following general classes of technological options show promise in ameliorating agricultural losses: changed sowing dates; multiple crops per growing season; planting of different crops or different crop varieties; development of new crop varieties; use of irrigation; changes in fertilizer use and tillage practices; and improved short-term weather forecasting (Reilly et al., 1996).
A separate issue from adaptation is the cost of adjustment. Adjustment costs arise when firms are forced to retire equipment or capital investment before it would normally wear out, or only slowly learn about and adopt new technology and management options. Whether farmers would face significant adjustment costs in adapting to climate change depends on the lifetime of capital equipment, adoption rates and the rate at which climate changes. Some evidence exists on the lifetimes of important agricultural investments and times required for adoption of new technologies. This evidence suggests that 3-14 years are required for new variety adoption, 8-15 years for new variety development, 10-12 years for adoption of new tillage systems, 15-30 years to adopt a new crop, 3-10 years to open new agricultural lands, 20-25 years for the lifetime of irrigation equipment, and 50-100 years for the lifetime of dams and irrigation systems (Reilly, 1995). Except for longer-lived investments such as dams and irrigation equipment, adjustment would not appear to impose greater costs if local climate changes gradually at the rate indicated by global transient runs. Changes in precipitation patterns, however, may result in abrupt local changes in climate and thus impose adjustment costs. Very little solid evidence on local transient rates of climatic change exists; thus, it is difficult to establish whether adjustment costs will be significant.
Effects of climatic change on a region, national economy, and consumers of food and fibre depend on both how global production potential changes and how climate affects a region's agriculture directly. Trade affects the distribution of costs and benefits of climatic change; regions that are negatively affected by climatic change will seek to import food and fibre from areas with surplus production. If global production declines and agricultural prices rise, then producers in a region may gain from the higher prices even if yields fall somewhat. Consumers worldwide would be adversely affected by higher food and fibre prices. If world prices fall, agricultural producers may lose even if their yields improve slightly, because revenue (price x quantity) declines if the decrease in price is greater than the increase in production. Reilly et al. (1994) illustrated these effects for a range of climatic scenarios. Fischer et al. (1994) demonstrated that, under some circumstances, differential capacity to adapt can lead to further shifts of cereal production from tropical regions to temperate regions as a result of trade.
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