Climate change response: Input adjustment in agriculture

How do farmers respond to climate change? Using data from hundreds of thousands of farms and analyzing medium-term fluctuations in temperature and precipitation in Chile, this study examines factor adjustment as a mechanism to mitigate the effects of climate change. The findings indicate that extreme heat leads to land reallocation from fruit production to cereal and forestry varieties. While this adaptation strategy helps sustain agricultural output, it also leads to job losses and a decline in physical capital within the agricultural sector. This result arises because the fruit sector is the most labor-intensive within agriculture, and as a result, displaced workers struggle to find reemployment within the sector. Additionally, I document a strong relationship between wildfires and extreme heat, particularly in municipalities specializing in forestry.