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Edited by Ariel Dinar and Robert Mendelsohn
Chapter 11: The Role of Growth and Trade in Agricultural Adaptation to Environmental Change
John Reilly INTRODUCTION International trade is important for agriculture, and agriculture is changing rapidly to meet the demands of a growing and likely wealthier world population even as potentially new demands are placed on agricultural resources. The interventions of governments in their domestic agriculture sectors distort trade in significant ways; however, these interventions generally fail to insulate countries and regions from world market forces. For many problems, the importance of trade would generally support the use of partial equilibrium analysis where a ‘small-country’ assumption would mean that prices were set in global markets and changes within the country would have little effect on them. However, the phenomenon of human-induced climate change and the broad forces of economic growth are necessarily global, and so agricultural markets in all regions are affected simultaneously. As a result, if environmental effects on agriculture are negative in many places, agricultural prices will rise and farmers whose yields are affected negatively may at least look to the positive side of higher prices for their product. Conversely, if climate change has generally positive effects on yields in many regions, the result will be lower prices for agricultural commodities that, while good for food consumers, will reduce revenue for farmers. Similarly, what adaptation measures make economic sense to undertake in a region will depend on changes in global agricultural markets – if prices rise, it may justify more expensive adaptation measures such as adding irrigation in regions that have become more drought-prone. On the other hand, if prices fall,...
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