Impact of climate change on Agriculture & How it Concerns the Modern Business In India

The last few seasons have witnessed a problem of plenty: farm revenues declining for a number of crops despite increasing production and market prices falling below the Minimum Support Price (MSP). But in the medium to long term, the ghost of Malthus looms over Indian agriculture. Productivity will have to be increased, and price and income volatility reduced, against the backdrop of increasing resource constraints.Shortages of water and land, deterioration in soil quality, and of course climate change-induced temperature increases and rainfall variability, are all going to impact agriculture. It is therefore opportune to analyze the effects of climate on Indian agriculture.

Agriculture also matters for economic reasons because it still accounts for a substantial part of GDP (16 percent) and employment(49 percent). Poor agricultural performance can lead to inflation, farmer distress and unrest, and larger political and social disaffection—all of which can hold back the economy.The Nobel Prize winner, Sir Arthur Lewis (among others), argued that economic development is always and everywhere about getting people out of agriculture and of agriculture becoming over time a less important part of the economy (not in absolute terms but as a share of GDP and employment). The reason why agriculture cannot be the dominant, permanent source of livelihood is its productivity level, and hence the living standards it sustains, can never approach—and have historically never approached—those in manufacturing and services. That, of course, means that industrialization and urbanization must provide those higher productivity alternatives to agriculture. But this must happen along with, and in the context of, rapid productivity growth in agriculture, to produce greater food supplies for the people, provide rising farm incomes, and permit the accumulation of human capital.So the irony is that the concern about farmers and agriculture today is to ensure that tomorrow there are fewer farmers and farms but more productive ones. In other words, all good and successful economic and social development is about facilitating this transition in the context of a prosperous agriculture and of rising productivity in agriculture because that will also facilitate good urbanization and rising productivity in other sectors of the economy.

Estimating the impact of temperature and climate on agriculture has become an increasing focus of economic research. Many of the concerns relate to developing countries because climate impacts seem to be either present only or disproportionately, in hotter and less rich parts of the world. Dis aggregated data at the district level—on temperature, weather, and crop production, yields, and prices  are used to answer a number of important questions. The analysis is conducted for the cropping seasons of kharif and rabi separately. The impact of temperature and rainfall is highly non-linear and felt almost only when temperature increases and rainfall shortfalls are extreme. These extreme shocks have highly divergent effects between unirrigated and irrigated areas (and consequently between crops that are dependent on rainfall), almost twice as high in the former compared with the latter. A large literature focuses on the impact of a one-unit increase in temperature and a one unit decrease in rainfall on agricultural yields (e.g Dell, Jones and Olken 2012). The analysis suggests that in the Indian context, such marginal changes in weather have little or no impact, and that the adverse effects of weather are concentrated in the extremes. These findings have important implications for the impact of climate change on agriculture, since most climate change models predict an increase in extreme weather events. Another key finding that these shocks have a much greater effect on unirrigated areas
compared to irrigated areas.Using the insights gained from figures 9 and 10, the quantitative impact of extreme shocks on yields and revenues is estimated. Extreme temperature shocks, when
a district is significantly hotter than usual (in the top 20 percentiles of the district-specific temperature distribution), results in a 4 percent decline in agricultural yields during the kharif
season and a 4.7 percent decline in rabi yields.Similarly, extreme rainfall shocks – when it rains significantly less than usual (bottom 20 percentiles of the district-specific rainfall distribution). The result is a 12.8 percent decline in kharif yields, and a smaller, but not insignificant decline of 6.7 percent in rabi yields.

Unirrigated areas – defined as districts where less than 50 percent of cropped area is irrigated — bear the brunt of the vagaries of weather. For example, an extreme temperature shock in unirrigated areas reduces yields by 7 percent for kharif and 7.6 percent for rabi. Similarly, the effects of extreme rainfall shocks are 14.7 percent and 8.6 percent (for kharif and rabi, respectively) in unirrigated areas, much larger than the effects these shocks have in irrigated districts Finally, the literature suggests that several factors over and above the level of rainfall matter for agricultural yields. In particular, it matters when it rains. The data put together for this chapter makes it possible to explicitly test for these alternative channels. The results indicate that even after controlling for the level of rainfall, the number of dry days (defined as days during the monsoon with rainfall less than 0.1 millimetres) exerts a significant negative influence on productivity: holding the amount of rainfall constant, each additional dry day during the monsoon reduces yields by 0.2 percent on average and by 0.3 percent in unirrigated areas.

What do these numbers imply in terms of losses to farmers in the short and long run?

Extreme temperature shocks reduce farmer incomes by 4.3 percent and 4.1 percent during kharif and rabi respectively, whereas extreme rainfall shocks reduce incomes by 13.7 percent and 5.5 percent. Once again, these average effects mask significant heterogeneity, with the largest adverse effects of weather shocks being felt in unirrigated areas. Ex-ante it is not clear which direction farm revenues should move in – on the one hand, these shocks reduce yields, but on the other, the lower supply should increase local prices. The results here clearly indicate that the “supply shock” dominates – reductions in yields lead to reduced revenues.In a year where temperatures are 1 degree Celsius higher farmer incomes would fall by 6.2 percent during the kharif season and 6 percent during rabi in unirrigated districts. Similarly, in a year when rainfall levels were 100 millimetres less than average, farmer incomes would fall by 15 percent during kharif and by 7 percent during the rabi season.How do these estimates compare with those in the literature? Existing studies for India typically analyse the impact of weather shocks on the productivity of individual crops. For example, Swaminathan et. al. (2010) show that a 1 degree Celsius increase in temperature reduces wheat production by 4 to 5 percent, similar to the effects found here. Turning attention to international studies, Kurukulasuriya & Mendelsohn, (2008) find similar effects for 11 African countries – a one degree increase in temperature reduces revenues by 6 percent on average. A study by the IMF, (2017) finds that for emerging market economies a 1 degree Celsius increase in temperature would reduce agricultural growth by 1.7 percent, and a 100 millimetres reduction in rain would reduce growth by 0.35 percent. Since these are results on growth, they are not strictly comparable with the calculations in this chapter. Climate change models, such as the ones developed by the Inter-governmental Panel on Climate Change (IPCC), predict that temperatures in India are likely to rise by 3-4 degree Celsius by the end of the 21st century (Pathak, Aggarwal and Singh, 2012). These predictions combined with our regression estimates imply that in the absence of any adaptation by farmers and any changes in policy (such as irrigation), farm incomes will be lower by around 12 percent on an average in the coming years. Unirrigated areas will be the most severely affected, with potential losses amounting to 18 percent of annual revenue.

Climate change models do not have unambiguous predictions on precipitation patterns, Rajeevan (2013). But if the observed decline in precipitation over the last three decades (of over 86 millimetres) is applied to the estimates, it is found that in unirrigated areas, farm incomes will decline by 12 percent for kharif crops, and 5.4 percent for rabi crops. Finally, models of climate change also predict an increase in the variability of rainfall in the long-run, with a simultaneous increase in both the number of dry-days as well as days of very high rainfall. If the observed increase in the number of dry days over the past 4 decades are applied to the short-run estimates, this channel alone would imply a decrease in farm incomes by 1.2 percent.

What does it mean for modern business in India?

We all know that India is still an agrarian society, the money still comes from the farms and gets circulated every where else. With more and more farmers moving to urban area for modern jobs, the  picture for agriculture is looking bleak. Another issue is that these people who are moving from farms to cities do not have adequate skills to be really be productive for the economy. We already know that India  anyways suffering from skills gap. This is further escalating the issue and we would not be globally competitive until-unless a policy change comes in to play.

 


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