Climate risk and food security in Guatemala

In this study, we used a Computable General Equilibrium model of the Guatemalan economy to conduct simulations for a) a reduction in productivity due to climate change; and b) the effects of drought in agriculture. The reduction in productivity due to climate change would mean an important drop in the value added of agriculture and animal production, as well as a slight drop in industrial food production and the service industry. Under this scenario we should expect a fall in real GDP of 1.2%. The reduction of productivity could mean a reduced fiscal space, and a reduction in government expenditure because of lower tax revenues. More importantly, due to higher prices and lower income of households, this scenario could mean that consumption of agricultural goods for each type of household would be reduced in a relevant manner with great impacts on the food security aspect of access. One of the findings in the effects of drought in agriculture is a decrease of the value added of 23%. As expected, this situation would negatively affect the wages paid to unskilled workers, but also urban non-poor households would see a reduction of their disposable income due to higher food prices. One of the most interesting results is that the demand for land would fall by 38%. This is because as water would become scarcer, there would be fewer incentives to engage in agricultural activities. However, due to the importance of agricultural production for ensuring food security, these results show that a proper water allocation system is needed.