Economic Impacts of Climate Change on Vegetative Agriculture Markets in Israel

Abstract

We integrate the combined agricultural production effects of forecasted changes in CO2, temperature and precipitation into a multi-regional, country-wide partial equilibrium positive mathematical programming model. By conducting a meta-analysis of 2103 experimental observations from 259 agronomic studies we estimate production functions relating yields to CO2 concentration and temperature for 55 crops. We apply the model to simulate climate change in Israel based on 15 agricultural production regions. Downscaled projections for CO2 concentration, temperature and precipitation were derived from three general circulation models and four representative concentration pathways, showing temperature increase and precipitation decline throughout most of the county during the future periods 2041–2060 and 2061–2080. Given the constrained regional freshwater and non-freshwater quotas, farmers will adapt by partial abandonment of agriculture lands, increasing focus on crops grown in controlled environments at the expense of open-field and rain-fed crops. Both agricultural production and prices decline, leading to reduced agricultural revenues; nevertheless, production costs reduce at a larger extent such that farming profits increase. As total consumer surplus also augments, overall social welfare rises. We find that this outcome is reversed if the positive fertilization effects of increased CO2 concentrations are overlooked.