Integrated Micro-Macro Structural Econometric Framework for Assessing Climate-Change Impacts on Agricultural Production and Food Markets

This paper combines a micro-level structural econometric model of farmland allocation and a market-level equilibrium supply-demand model in order to simulate the effects of climate changes on agricultural production, food prices and social welfare. The estimation accounts for corner solutions associated with disaggregated land-use data, whose usage enables treating prices as exogenous. We employ the model for assessing climate-change impacts in Israel, in which agriculture is protected by import tariffs. We find that projected climate changes are beneficial to farmers, particularly due to the positive impact of the forecasted temperature rise on field crops. Fruit production are projected to decline, and reduce consumer surpluses, but to a lower extent than the increase in total agricultural profits. Nearly 20% of the profit rise is attributed to farmers adaptation through land reallocation. Adaptation to the projected reduction in precipitation by increasing irrigation is found warranted from farmers perspective; however, it is not beneficial to society as a whole. Abolishing import tariffs effectively transfers surpluses from producers to consumers, but its impact on social welfare becomes positive only under large climate changes. Acknowledgement :