Geoscience Reference
In-Depth Information
ment of jobs from rural farms to industrial and service-based cities is
one of the most important and universal features of the process of eco-
nomic development.
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If the trend continues, then shocks to agriculture from climate
change are likely to have a small and declining impact on economies in
many other regions—comparable to that of the United States today. The
declining vulnerability to agriculture shocks is a critical point. The de-
clining share indicates that the impacts of agricultural shocks on peo-
ple's incomes and spending will be reduced as the share declines. The
intuition is straightforward. Suppose you spend 20 percent of your in-
come on housing and 4 percent on food. Now assume that the cost of
each goes up by 25 percent (because of a shock to climate or other fac-
tors). To maintain the same housing consumption, you would have to
reduce your nonhousing consumption by 5 (= 0.25 × 20) percent, while
it would require only a 1 (
4) percent change in nonfood con-
sumption to maintain your food consumption. So as the share of a par-
ticular item in your budget goes down, the impact of price shocks on
real incomes will decline roughly proportionally.
We can take the actual share of farming in the U.S. economy to il-
lustrate this point. If we go back to the 1930s and 1940s, a 25 percent
shock to farm prices would have reduced consumer real incomes by
around 2 percent because farm products made up a large share of con-
sumer budgets. However, with the declining importance of farming in
economic activity, the same 25 percent shock to farm prices would
produce only a 0.3 percent reduction in consumer incomes in the 1990s
and 2000s. So while food is clearly critical to our health and well-being,
the economy can absorb a large shock to the farm sector without a ma-
jor loss of welfare.
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=
0.25
×
I have devoted an extensive discussion to agriculture not only be-
cause it is the most climate-sensitive industry but also because it illustrates
the tug-of-war between climatic impacts and adaptive behavior. Experts
are sharply divided on the impacts of climate change on farming because
it is clear that powerful forces are acting in different directions. Yes,
farming productivity is intrinsically highly localized and heterogeneous.
