Spotlight on Economics: Agri-food Trade and Climate Change

Dragan Miljkovic
Guest Columnist

Climate change is a phenomenon affecting many regions of the world, causing global warming and changes in precipitations patterns.

As argued by the Intergovernmental Panel on Climate Change (IPCC), climate change has strong impacts on incomes and economic activities, although heterogeneous across countries. Among economic activities, agriculture is one of the most negatively affected by climate change but also a main driver of changes in climate.

In a recent journal article, my co-authors and I address this very important issue of the role of international agricultural and food trade (agri-food trade for short) in helping to alleviate the issues arising due to climate change.

Changes in climate, both short-run shocks (i.e., weather variations) and long-run changes, have the potential to impact economic activities. Climate changes alter productivity, thus production costs, as well as resource availability and market prices, with consequences on welfare, poverty and food security.

Changes in climate and agriculture are tied up together. While the agricultural sector is one of the most hit by changes in climate, it is responsible for great environmental impacts. Agricultural activities (e.g., intensive livestock, fertilization, land use and management) are important contributors of greenhouse gas emissions with related consequences in terms of climate changes.

On the demand side, a growing population and changes in diet are causing an increase in demand for food and livestock feed. Consequently, emissions from agriculture are expected to increase. The Food and Agriculture Organization of the United Nations (FAO) states that the challenge for the agricultural sector is to achieve an equilibrium between adaptation to climate changes and sustainable intensification of agriculture.

On the supply side, climate changes may have substantial impacts on world production growth. Climate is an input for agricultural production. Thus, changes in climate may affect prices and supply of agricultural outputs.

Changes in climate have both direct and indirect impacts on crop yields. Increases in temperature tend to be detrimental for crop yields, with low-latitude countries being the most negatively affected. Indeed, low latitude countries may have less potential to adapt; for instance, they are generally characterized by warmer climate and may have difficulties in producing crops that perform better in climates still warmer.

The indirect effects of changes in climate on crop yields are mainly related to increases in the cost of inputs and of factor productivity, but effects due to land use changes should not be neglected.

Climate changes also affect the livestock sector: impacts are evident, for instance, on milk production, disease and parasites, feed intake and feed supplies.

Overall, the impacts of climate changes on the demand-supply balances in the agricultural sector are related both to direct losses (e.g., crop failures) and several indirect effects triggered by market reactions to events occurring in other producing regions of the world.

Climate changes are a central issue for agriculture. Some effects, already observed, are likely to intensify in the future, contributing to declines in agricultural production, fluctuations in world market prices and growing levels of food insecurity. These effects also are likely to be detrimental in some countries and positive in others with potential impacts on their economic development.

According to the FAO, agriculture in low latitude countries suffering from poverty and food insecurity could be negatively affected. High latitude countries, often developed economies, characterized by temperate climates, could observe positive effects on agriculture with warmer weather. Uneven impacts of climate changes across countries and consequent changes in food availability and access, as well as in comparative advantages, are likely to affect international trade patterns.

By allowing the reallocation of food from surplus to deficit regions, agricultural trade has the potential to lower inequalities between regions with different levels of economic development, helping countries adapt to climate change. It is of utmost importance to find adaptation and mitigation solutions to climate change in agriculture and food systems to face and combat food insecurity.

These solutions may involve actions to reduce net emissions from agriculture and food production, for instance by modifying management practices (e.g., manure management, use of fossil fuel and nitrogen fertilizer), increasing carbon sequestration (e.g., avoiding deforestation or land conversion) or producing substitutes for emission-intensive products (e.g., bioenergy, wood).

For these reasons, in recent years, the relationships between agriculture, trade, global value chains and climate change have been at the forefront in trade and development policy agendas of different agreements. In fact, supporting developing countries to promote sustainable development and the provision of agri-food produce is one of the 17 Sustainable Development Goals (SDGs) of the 2030 Framework Convention on Climate Change and an aim of the Paris Agreement of the United Nations. The return of the United States in the Paris Agreement should strengthen the global cooperation towards the achievement of these goals to intensify climate change adaptation and mitigation efforts.  

Future research should be devoted to a better understanding of the effects of climate change on the global agri-food sector. In fact, as weather and climate conditions change, firms, communities and countries need to develop new adaptation strategies to the climate regimes. Understanding the relationships between trade and climate change is one of the efforts towards the promotion of sustainable development.