Abstract

This paper examines the effects of climate change on different agricultural systems in South America using a microeconometric approach. This approach is different from earlier studies in three ways. First, it models adaptation choices explicitly. Second, it offers a way to measure differential effects of climate change on different agricultural systems. Thirdly, it provides quantitative measures of climate change impacts with and without adaptations. We examine three essential agricultural systems in South America: specialized crop system, specialized livestock system, and mixed crop-livestock system. The results indicate farmers choose specialized farms in a temperate climate zone while they choose mixed farms in a hot climate or a wet climate zone. The impact of climate change will vary by farm system. Under CCC scenario, land values of all three systems fall by 2060, but the decrease is smaller in the mixed system. Specialized crop farm profit falls by 20%, specialized livestock farm profit by 34%, but mixed farm profit falls only by 13%. This causes more farmers to switch away from specialized systems to the mixed system. With the current agricultural system, farmers are predicted to lose 16% of the land value under the CCC scenario. If farmers were to adapt by switching to a best agricultural system under a new climate, they will be able to reduce the damage.