ECONOMIC IMPLICATIONS OF CLIMATE CHANGE ON NEPALESE AGRICULTURE SINCE 1980

SYNOPSIS

Submitted to Kumaun University Nainital for the Degree of Doctor of Philosophy in Economics

Naveen Panta Research Scholor Department of Economics DSB Campus Kumaun University Nainital Uttarakhand

Prof. Rajnish Pande Supervisor Prof. Department of Economics DSB Campus Kumaun University Nainital Uttarakhand

2009

TITLE The title of the present research work is ECONOMIC IMPLICATION OF CLIMATE CHANGE ON NEPALESE AGRICULTUREINCE 1980.

INTRODUCTION Nepal lies at 2622' to 3027'N latitude and 804' to 8812'E longitudes with an altitudinal range from 60 meters in the south to 8,848 meters in the north at the peak of Mt. Everest. There is therefore extreme spatial climate variation in Nepal from a tropical to artic climate within a span of only about 200 kilometers. Total area of Nepal is 147,181 km and broadly divided into three ecological regions: the Terai (plain area, 23% of the total area), the hills (42% of the total area) and the mountains (35% of the total area). Physiographically, the country is divided into five regions the Terai (up to 330 meters [m] altitude), the Siwalik zone (1202,000 m), the Middle Mountains (500 3,000 m), the High Mountains (2,2004,000 m), and the High Himal region (>4,000m). The country is landlocked and bordered by India in the east, west and south, and the Peoples Republic of China in the north. Nepals economy is overwhelmingly dependent on agriculture. A total of 3091000ha (21% of total land) area is cultivated for agriculture, 32 percent of which is irrigated, and it accounts for 36% of the gross domestic product (GDP). Agriculture also provides a livelihood to nearly 68% of the labour force. A heavy reliance on agriculture makes Nepals economy very sensitive to climate variability. The country is susceptible to disasters, including flash flood, GLOF (Glacier lake outburst flooding) and melting snow in the mountains and droughts and inundation in the Terai. The pattern of land ownership in Nepal is asymmetric, and its distribution is highly skewed. Small and scattered production scale, weather based production systems, decreasing size of average holding (by 25%, from 0.88 hectares to 0.66 hectare during 1995/96 2003/04) and relatively low use of production inputs. The climate in Nepal varies from the tropical to the arctic within the 200 km span from south to north. Much of Nepal falls within the monsoon region, with regional climate variations largely being a function of elevation. National mean temperatures hover around 15 C, and increase from north to south with the exception of mountain

valleys. Average rainfall is 1,500 mm, with rainfall increasing from west to east. The northwest corner has the least rainfall, situated as it is in the rain shadow of the Himalayas. Rainfall also varies by altitude; areas over 3,000 m experience a lot of drizzle, while heavy downpours are common below 2,000 m. Although annual rainfall is abundant, its distribution is of great concern: flooding is frequent in the monsoon season during the summer, while droughts are not uncommon in certain regions in other parts of the year. In Nepal, the environment and livelihoods are closely linked. The majority of people still depend on forests for firewood as well as for timber, medicinal plants, and forestry products. They also use forests to graze livestock and to collect fodder to feed the large number of livestock raised to supply the manure essential for agricultural crops. As majority of the Nepalese population depends on agriculture for a livelihood and follow traditional cultivation practices, relying on rainwater and the seasons, any changes in climatic conditions affecting rainfall patterns will have an adverse impact on the livelihoods of most of the Nepalese people, which mean that there is always the high risk of food insecurity. Climate change which refers to increase in atmospheric temperatures and change in rainfall patterns due to increased level of greenhouse gases such as carbon dioxide(CO2), methane(CH4), ozone(O3), nitrous oxide(N2O), and chlorofluorocarbons(CFCs) affects agriculture and will eventually affect the economic well being of the population. Climate change affects temperature and water resources but also agriculture and subsequently food security. The effect of climate change and drought on agriculture and food security will have serious implications for sustainable development. Food security in Nepal is already threatened by trade, population growth, human induced deforestation and desertification. Climate change is another factor threatening the ability of people to obtain food. Nepals agriculture will face many challenges over the coming decades as the soils are degrading and water resources will place enormous strains on achieving food security for growing populations. These conditions may be worsened by climate change. Warming of more than 2.5C could reduce global food supplies and contribute to higher food prices. In Nepal most of the irrigated terraces are turned into rainfed land

and due to this the production is decreasing. Decline in food production would lead to more malnutrition and huge consequences particularly for children. Recent analyses of national temperature records show high inter-annual variability, and that maximum temperatures in Nepal are progressively increasing in line with global and regional records. From 1977 and 1994, the mean annual temperature is estimated to have increased by 0.06C, and is projected to increase by another 1.2C by 2030, 1.7C by 2050, and 3.0C by 2100. Days and nights are becoming warmer and cool days and nights are becoming less frequent. Precipitation extremes show an increasing trend in intense precipitation events at most recording stations. The assessment indicates that more weather-related disasters such as floods and landslides can be expected in future. The warming is found to be more pronounced in the higher altitude regions of Nepal such as middle-mountain and Himalaya, while the warming is significantly lower or even lacking in Terai and Siwalik regions. Further, warming in the winter is more pronounced compared to other seasons. Increases in seasonal temperatures are likely to affect agricultural production and yield. Being a predominately agrarian nation, impacts on livelihoods are likely to be significant, largely from climate change impacts on crops production and the raising of livestock, and erosion of livelihood assets. Communities are likely to suffer increased loss of infrastructure and shelter from flooding events, loss of productivity from increased incidents of malnutrition and disease and displacement from extreme events (floods, droughts, and outbreaks of disease) and loss to earning capacity. There is a significant and consistent increase in temperatures projected for Nepal for the years 2030, 2050 and 2100 across the various climate models. Increases in temperatures are somewhat larger for the winter months than the summer months. Climate models also project an overall increase in annual precipitation. There is slight increase in projected winter precipitation and somewhat more pronounced for the increase in precipitation during the summer monsoon months (June, July and August). Thus based on this analysis there is reasonably high confidence that the warming trend already observed in recent decades will continue through the 21st century.

PRESENT STATE OF KNOWLEDGE Chang (2002) carried out research on the potential impact of climate change on Taiwans agriculture and found climate variation have a significant but non-monotonic impact on crop yield. From the results of the yield response regression method, he concluded that temperature increases are favourable to the yields, while precipitation increases are mostly yield decreasing. Mendelsohn et. al. (1994) used farmland prices to measure the impact of global warming on agriculture. From their research in the United States they found higher temperature in all seasons except autumn reduces average farm values, while more precipitation outside of autumn increase farm values. Sanghi and Mendelsohn used a cross-section Ricardian method to measure the climate sensitivity of agriculture in two large developing countries Brazil and India. Using panel data from both countries their study measured how net farm revenue vary with climate. On the basis of the estimated relationship, they found global warming could cause annual damages in Brazil between 1%and 39% and between 4% and 26% by the end of the century under different climate change scenarios in the absence of carbon fertilization effect. Seo and Mendelsohn developed multinomial logit model of farmers choice of crops to explore how South American farmers adapt to climate by changing crops, from a sample of 949 farmers of seven countries they found the both temperature and precipitation affect the crops farmers choose. Farms that are cooler are more likely to choose potatoes and wheat, average temperature farms tend to choose maize, soybeans and rice, and farms in warm locations choose fruits, vegetables and squash. Farms in dry locations tend to choose maize and potatoes, farms in moderately dry conditions tend to pick soybean and wheat, farms in wet conditions choose fruits and vegetables, squash and rice. The results of the study suggest that farmers have adjusted crop choice to fit their local climate conditions. Applying Ricardian technique to estimate the effect of climate change on smallholder agriculture sector in Sri Lanka, Kurukulasuriya and Ajwad (2007), found climate change will have a significant impact on profitability. The effect of climate change depends heavily on the scenario. With mild warming and large increase in

precipitation they predict benefits of 22% and with medium warming and only a small increase in precipitation they predict a loss of 23%. They also predict that, the wet high elevation areas may well benefit from warming whereas the hot dry lowlands are expected to be adversely affected. Fischer et. al. (2005) developed a comprehensive assessment of the impact of climate change on agro-ecosystems over this century at a global level. They found climate change and variability may result in irreparable damage to arable land and water resources in some regions, and with serious local consequences for food production. These losses will be felt most profoundly in developing countries with low capacity to adapt.

OBJECTIVES The research attempts to estimate the impact and analyze choice of adaptation strategies of the farmers to minimize risk and maximize benefits under changed climate. The purpose of this study is to explore useful information needed for estimating the short term (20-30 years) and long-term (80-100 years) impacts of climate change on agriculture, helping decisionmakers The research will pursue the following objectives: To identify the impact of rainfall and temperature change on net revenue from Nepalese agriculture while controlling for the effect of other factors. To use estimated model parameter to predict future climate changes on net revenue from Nepalese agriculture under various climate scenarios. To identify adaptive measures adopted by farmers to safeguard from climate change. To suggest policy options that can reduce the negative impacts of climate change and help improve food security in the face of anticipated climate change.

BROAD OUTLINE OF THE WORK TENTATIVE CHAPTERIZATION: The research will contain following chapters: 1) 2) 3) Introduction and Research Methodology Nepalese Climate, Farming System, and Agricultural Production Review of Literature on Measuring Economic Impact of Climate Change on Agriculture 4) 5) 6) 7) Measuring the Economic Impact of Climate Change on Nepalese Agriculture Climate Change Adaptation by Nepalese Farmers Socio-economic Consequences of Climate Change Conclusion and Policy Recommendations.

HYPOTHESES TO BE TESTED 1) Increases in warming and changes in precipitation patterns are expected to have adverse impact on net revenue from Nepalese agriculture, controlling for the effects of other factors. 2) The increases in warming and changes in precipitation pattern cause changes in crop choice and cropping patterns. 3) Impacts of changes in climate are expected to be higher in rain fed agriculture system than for irrigated farming. 4) Improved access of farmers in resources, information etc enhances farm level use of adaptation measures.

METHODOLOGY Ricardian method developed by Mendelsohn et al. (1994) will be used to measure climate change impact on agriculture. The method makes use of cross-sectional data to capture the influence of climate as well as economic and other factors on land values (or farm incomes). The method examines how land values shift with climate and other control variables change. The assumption of the cross sectional Ricardian approach is that if climate conditions in region A become more like current climate conditions in region B, then farmers in region A will adapt and become more like farmers in region B.

Instead of farmland value which is not available in Nepal, net revenue per hectare will be used as the dependent variable. The research assumes that net revenue per hectare (Vi) depends on climate and a host of exogenous determinants. Agronomic research and casual observation reveal that many crops have preferred temperature zones (Sanghi and Mendelsohn). Temperatures and precipitations either below or above this optimum reduce productivity. There is consequently evidence to suggest that the relationship between net revenue and annual temperature and precipitation should be concave. Of course, the shape of a seasonal

variable may not follow this pattern. The research will attempt to capture non linear shapes using a quadratic functional form: Vi=a+ ( bsTs+ csT2 +dsPs+ fsP2+gsTsPs)+ hcZc+e where Vi is net revenue per hectare ; Ts and Ps (s=1,..,4) represent temperature and precipitation variables in each season; Zc represents the soil, economic, and climate control variables; e represents an error term ;and a , bs, cs, ds, fs, gs, hc are parameters to be estimated. The independent climate variables include a linear and a quadratic temperature and precipitation term for winter, spring, summer and fall. In addition to the linear and quadratic terms for a rainfall and temperature interaction term will be used in each season. A multinomial ligit model will be used to explore how farmers adapt to climate change by changing crops. The model measures the probability of each crop being selected under different climatic conditions.

SOURCES OF DATA The study will be based is secondary data. The information about the area of Planted/harvested under different crops, Production of each crop, price of major crops, number of harvested fruit tree and production, livestock population, soil quality, socioeconomic variables and historical climate data from 1980-2009 will be taken from concerned institutions of government of Nepal. Climate projection simulated by various general circulation model climate model from 2030, 2050 and 2100 will be collected from reliable institution.

LIMITATIONS Due to the limitation of time and resource the research will not take into account of carbon fertilization effect and many things which will change over the century such as population, technologies, and institutional conditions.

REFERENCE AND BIBLIOGRAPHY: Adams, R.M., Hurd, B.H., Lenhart, S.,Learu, M.: 1998, Effects of Global Climate Change on Agriculture: An Interpretative review, Climate Research 11, 19-30

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Agrawala, S.,Raksakulthai, V., Aalst, M., Larsen, P., Smith, J., Reynolds, J. : 2003, Development and Climate Change In Nepal: Focus On Water Resources and Hydropower. Paris, France. Organisation for Economic Co-operation and Development (OECD) Challinor, A., Wheeler, T., Garforth, C., Craufurd, R., Kassam, A.: 2007, Assessing the Vulnerability of Food Crop System in Africa to Climate Change, Climatic Change 83, 381-399 Chang C. C.: 2002, The Potential Impact of Climate Change on Taiwans Agriculture, Agricultural Economics 27, 51-64 Fischer, G., Shah, M., Tubiello, F.N., Velhuizen, H.V.: 2005, Socio-economic and Climate Change impacts on Agriculture an Integrated Assessment, 1990-2080, Phil. Trans. R. Soc. B. 360, 2067-2083.

Kumar, K. Parikh, J.: 2001, Indian agriculture and climate sensitivity, Global Environmental Change 11, 147-154. Kurukulasuriya, P., Ajwad, M.I.: 2007, Application of the Ricardian Technique to estimate the impact of climate change on smallholder farming in Sri Lanka, Climatic Change 81, 39-59. Mall, R.K., Singh, R., Gupta, A., Srinivasan, G., Rathore, L.S.: 2006, Impact of Climate Change on Indian Agriculture: A Review, Climatic Change 78, 445-478 Mendelsohn, R., Nordhaus, W., Shaw, D.: 1994, The Impact of Global Warming on Agriculture: A Ricardian Analysis, American Economic Review 84,753-771 Mestre-Sanchis, F., Feijoo-Bello, M.L.: 2009, Climate Change and its Marginalizing Effect on Agriculture, Ecological Economics 68, 896-904 Sanghi, A., Mendelsohn, R.: 2008, the impact of global warming on farmers in Brazil and India, Global Environmental Change 18, 655-665. Seo, S.N.,Mendelsohn, R.: 2008, An analysis of crop choice: Adapting to climate change in South American farms, Ecological Economics 67, 109-116. Stern Nicholas: 2006, Economics of Climate Change. The Stern Review Cambridge University Press, Cambridge and New York United Nations Development Programme. 2007, Human Development Report 2007/2008 Country Fact Sheets Nepal. New York: United Nations Development Programme. Xiang, W., Lin, E., Ju, J., Xu, U.: 2007, Climate Change and Critical Thresholds in Chinas Food Security, Climatic Change 81, 205-221

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