Economic-Environmental Linkages in the Global Food System

Transcription

1 Economic-Environmental Linkages in the Global Food System Thomas W. Hertel Purdue University With assistance from Uris Baldos Presentation to the NAS Workshop on Environmental Effects of the Food System Washington,.C. Sept. 16, 2013

2 Outline A framework for long run economic analysis of agriculture and the environment: Implications of ignoring economic margins of response Implications of focusing just on the last commodity crisis Implications of focusing on a single country/region Future drivers of US/world food prices The importance of international agricultural trade: International spillover effects implications of US price changes for land use in the rest of the world Take away messages

3 Exploring the Agriculture-Environment-Land Nexus Global Food, Fiber & Fuel Production Farm land Non Land Inputs

4 emand growth is fueled exogenously by population, income and bioenergy growth A Population, income & energy prices emand Growth A Global Food, Fiber & Fuel Production Food & Energy Security Farm land Non Land Inputs

5 Farm productivity is driven by exogenous technological progress and climate change impacts L Population, income & energy prices A emand Growth Global Food, Fiber & Fuel Production Investments in Ag. R& Productivity Trends L Farm land Non Land Inputs Food & Energy Security Climate: Temp, Precip and CO 2

6 Farm land expansion leads to GHG emissions, while ecosystem services alter cropland availability S L Population, income & energy prices A emand Growth Global Food, Fiber & Fuel Production Investments in Ag. R& Productivity Trends L Farm land Non Land Inputs Food & Energy Security S L Climate: Temp, Precip and CO 2 Competing land uses Ecosystem Services GHG Emissions

7 Price change moderated by economic responses to scarcity Population, income & energy prices Investments in Ag. R& Productivity Trends emand response to price (emand margin) L A emand Growth η A Farm land Input Substitution (Intensive margin ) Global Food, Fiber & Fuel Production SI, η A Non Land Inputs Food & Energy Security S L Cropland Expansion (Extensive margin) SE, η A Climate: Temp, Precip and CO 2 Competing land uses Ecosystem Services GHG Emissions

8 Price change moderated by economic responses to scarcity Population, income & energy prices Investments in Ag. R& Productivity Trends emand response to price (emand margin) L A emand Growth η A Farm land Input Substitution (Intensive margin ) Global Food, Fiber & Fuel Production SI, η A Non Land Inputs Food & Energy Security S L Cropland Expansion (Extensive margin) SE, η A Climate: Temp, Precip and CO 2 Competing land uses Ecosystem Services GHG Emissions Source: Hertel, 2011

9 Land use also moderated by economic responses to scarcity Population, income & energy prices Investments in Ag. R& Productivity Trends emand response to price (emand margin) L A emand Growth η A Farm land Input Substitution (Intensive margin ) Global Food, Fiber & Fuel Production SI, η A Non Land Inputs Food & Energy Security S L Cropland Expansion (Extensive margin) SE, η A Climate: Temp, Precip and CO 2 Competing land uses Ecosystem Services GHG Emissions Source: Hertel, 2011

10 Long Run Equilibrium Land Use Change Land use depends on relative, not absolute, size of intensive and extensive margins: large intensive response will not limit land use change if extensive margin is also large Larger demand- and intensive-supply elasticities work to diminish demands on biophysical system Hertel, T. W. (2011). The Global Supply and emand for Land in 2050: Source: A Perfect Storm Hertel, in the Making? 2011

11 Long Run Equilibrium Land Use Change Larger demand- and intensive-supply elasticities work to diminish demands on biophysical system In the special case where the intensive supply and demand elasticities are zero, the long run land use change simplifies to: Simply deflate demand by yield growth: This has been the FAO approach historically Also used by many biophysical scientists: exaggerates predicted change in land use Hertel, T. W. (2011). The Global Supply and emand for Land in 2050: Source: A Perfect Storm Hertel, in the Making? 2011

12 But is this economic approach helpful in explaining history? Focus on most important development in the agriculture-environment nexus over the past 50 years: Global crop output tripled, yet only a small fraction of this came from area expansion. 85% of the expansion has come from intensification. If the world can reproduce this experience over the next 50 years, then we are in luck. If we must rely on expanded area to feed 2 billion more people and significantly upgrade diets for several billion additional individuals, then the environment is in jeopardy. We don t know whether this can be repeated, but it is clear, if we are using models which cannot reproduce this historical outcome, then the models need to be altered. To explore this issue developed SIMPLE = a Simplified International Model of agricultural Prices, Land use and the Environment

13 SIMPLE: A model of global agriculture Global partial equilibrium model o o o o Food sectors include crop, livestock, processed foods 7 Geographic regions (crop supply and cropland use) Both Land and Non-land inputs are less than perfectly elastic in supply 5 Income regions (derived demands for crops, livestock and processed foods) Global market clearing condition for crops o o Single world crop price Regional market clearing conditions for livestock and processed foods Tracks changes in the following: o o o Cropland use and GHG emissions from cropland change (two types of conversion: cropland to other lands & other lands to cropland) Agricultural investments in research & development facilitate adaptation to higher temperatures, changing precipitation istribution of nutritional attainment by demand region

14 Validation: Can we predict historical changes in output, price & the mix of extensive & intensive contributions? Actual ata Baseline in % change Crop land Crop Yields Crop Production Crop Price Historical validation over a 45-year period ( ) Exogenous drivers are pop, income & estimated total factor productivity growth by region and sector Source: Baldos and Hertel, Environmental Research Letters 2013

15 SIMPLE can also be used as a laboratory to explore limitations of existing models Revisit historical validation with the restricted model: Purely biophysical approach (omit economic responses) Short run economic analysis (economists tend to focus on the last commodity crisis; fails to capture long run responses)

16 Implications of omitting the Intensive Margin Without the intensive margin, crop yields will be dictated by our exogenous productivity growth Error signature: This leads to the underestimation of crop yield change and overestimation of cropland use % cumulative change: Actual ata Scen Crop Production Crop Yields Crop land Crop Price Source: Baldos and Hertel, Environmental Research Letters 2013

17 What if predicted yield changes correctly, but ignore economic components of demand and supply? % cumulative change: Actual ata Scen Crop Production Crop Yields Crop land Crop Price Fixed per capita consumption + No Intensive Margin + Targeted Historical Crop Yield Growth Simply targeting yields is not adequate: Cropland use is now too low Source: Baldos and Hertel, Environmental Research Letters 2013

18 Implications of short run economic approach % cumulative change: Actual ata "Economic" Model SR Economic Model emand response do not evolve with income growth Short-run supply response for land and non-land inputs Error Signatures: Crop land use too low -50 Crop Production Crop Yields Cropland Crop Price Fail to capture changes in Crop price Source: Baldos and Hertel, Environmental Research Letters 2013

19 Using SIMPLE to understand future drivers of future changes in agriculture and the environment Unlike the past, in the coming decades Population growth RATE will be slowing across the globe Income is now growing fastest in low to middle income economies translates into rapid growth per capita food demand and promotes dietary transition Global total factor productivity (TFP) growth will likely grow but at a slower pace, in part due to rising temperatures There will be new drivers of global agriculture Expansion of biofuel use Land-based climate mitigation policies

20 Naïve projections of the future based on past trends If drivers follow historical trends then land use change is very similar Population is the main driver of land use, followed by TFP Baldos and Hertel (2013)

21 When we impose future population, incomes and TFP growth rates Projected global cropland use falls slightly relative to historical trend Unlike the past, the relative contribution of population decreases greatly! Income is now the main driver of land use Baldos and Hertel (2013)

22 If we add biofuel and climate change impacts in the projections Increased biofuel use and adverse climate change impacts from temp. & precip. place more pressure to expand land use But CO 2 fertilization might be large enough to completely offset these pressures Baldos and Hertel (2013)

23 But projections on climate change impacts are quite uncertain Crop land expansion might be flat if T&P impacts are small and CO 2 fertilization effect is significantly large draw from Lobell and Gourdji (2012) for uncertainties. Baldos and Hertel (2013)

24 But projections on climate change impacts are quite uncertain Or, crop land expansion might exceed historical trends if T&P impacts are large and CO 2 fertilization effect is significantly small -- draw from Lobell and Gourdji (2012) for uncertainties Baldos and Hertel (2013)

25 Why not simply apply this framework to a single region i.e., USA? What would be missed? epends on the relative size of USA in global market epends on the problem at hand: Consider the case of innovation to permit successful adaptation to climate change What are the land use and emissions impacts of such improvements in technology? Hertel, T. W., 2011, AJAE. The Global Supply and emand for Land in 2050: A Perfect Storm in the Making?

26 Global land use impacts of favorable adaptation to climate in region A Region A World Market Rest Of World (RoW) QSA QS*A QW QSRoW PA PW QSW QS*W PRoW P*A P*W P*RoW QA Q*A QW Q*W Q*RoW QRoW Improvement in agricultural technology in USA, relative to baseline, represents an outward shift in the global supply of crops, relative to no adaptation, so world price will be lower, relative to baseline Faced by a lower world price, but unchanged technology, producers in the non-adapting rest of the world (RoW) contract production and cropland

27 Illustrative Calculations: As Region A gets larger, RoW impacts more significant Percentage change in cropland Using 15 year supply elasticities Adapting region: smaller to larger Based on FAO data and estimates of long run supply responses Implications of a 1% productivity improvement for land use, by developing region, and their respective RoW regions

28 There is a unique geography to world trade: Bilateral trade patterns are sticky (Armington models capture this) Which countries does the US corn market influence most strongly? Consider historical experiment posed by 1993 US production shortfall Figure reports 95% confidence intervals for regional changes in harvested areas: IWM vs. Armington model Also applies to iluc-biofuels debate (see Villoria and Hertel, 2011) Armington Integrated World Market Source: Villoria and Hertel, AJAE, 2011

29 Take-away messages Economic margins of response are key to understanding and predicting long run changes in global food system However, most economic models are focused on the near term: explaining the last commodity crisis Ignoring economic response will lead to an overstatement of crop price impacts, and likely also the global resource requirements rivers of global food system are changing, but productivity growth remains key US impacts on global markets are large, have a unique geographical imprint, and can be important from an environmental point of view Hertel, T. W., 2011, AJAE. The Global Supply and emand for Land in 2050: A Perfect Storm in the Making?

30 References