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APCBEE Procedia 10 (2014) 241 – 245

ICESD 2014: February 19-21, Singapore

Economic Impact of Climate Change on Agriculture Sector of

Coastal Odisha
Diptimayee Mishraa, and Naresh Chandra Sahub
a,b
School of Humanities, Social Sciences & Management (HSSM), IIT Bhubaneswar, Satya Nagar, Bhubaneswar-751007, Odisha, India

Abstract

The present study tries to explore the economic impact of climate change on agriculture of the coastal zone of Odisha
using Ricardian approach. The climate response function of the farm level net revenue has been estimated through pooled
cross-section and time series regression analysis. The results reveal that most of the climate variables and control variables
have significant influence on the net revenue per hectare of the region. Using the estimated trends of the various seasons
over 30 years, it is found that the rising temperature might adversely affect the coastal zone’s agriculture of Odisha.

© 2014
© 2014ThePublished by Elsevier
Authors. Published B.V. Selection
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Chemical, Biological & Environmental Engineering Society
Selection and peer review under responsibility of Asia-Pacific Chemical, Biological & Environmental Engineering Society
Keywords: Economic impact; Climate change; Ricardian Approach; Coastal zone of Odisha; India.

1. Introduction

The sensitivity of agriculture to climate change has become a dominant area of research in the present day
era. Climate change in Intergovernmental Panel on Climate Change (IPCC) usage refers to a change in the
state of the climate that can be identified (e.g. using statistical tests) by changes in the mean and/or the
variability of its properties and that persists for an extended period, typically decades or longer. It is likely to
have both positive and negative impact on agriculture [1] depending on the physiological characteristic of the
region and the crops being produced. Scientists who are engaged in projections of changing climatic impact
predict that rising temperatures will have a significant impact upon crop yields, most noticeably on the

Corresponding author. Fax: +91-674-230 1983,
E-mail address:[email protected], [email protected]

2212-6708 © 2014 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/3.0/).
Selection and peer review under responsibility of Asia-Pacific Chemical, Biological & Environmental Engineering Society
doi:10.1016/j.apcbee.2014.10.046
242 Diptimayee Mishra and Naresh Chandra Sahu / APCBEE Procedia 10 (2014) 241 – 245

poorest countries that are in the tropics and sub-tropics by 2100 [2]. In this connection, India which is located
in the south and comes under tropical zone is more vulnerable to climate change because it is an agrarian and
developing economy.
The present study is an attempt to examine the economic impact of climate change on agriculture of the
coastal zone of the state which comprises nine districts (comes under two agro-climatic zones of Odisha:
north eastern coastal plain and south eastern coastal plain). Odisha is one of the coastal states of India which
has the highest proportion of poor persons in its population, among all the Indian States and Union Territories.
About 80-85 percent of state’s population are living in rural areas. The state is primarily an agrarian economy
because the sector provides employment to more than 70% of total workforce directly or indirectly, making it
the largest employment sector of the state. According to the 64 th round of National Sample Survey
Organisation (NSSO), the monthly per capita consumer expenditure (MPCE) for rural and urban Odisha is
below the respective national averages. The Engel’s ratio(which measures the share of food expenditure in
total expenditure and has been widely used as a measure of standard of living) for Odisha is higher than the all
India level both in rural and urban areas. According to the latest India Human Development Report, the
ranking of Odisha is the second lowest among all the Indian states for a period 1990-91 to 2007-08. The share
of agriculture sector in NSDP is higher than that of the industrial sector in Odisha unlike at the all India level.
But the share of agriculture in NSDP shows a declining trend over the years that is 29.7 (2000-01 to 2004-05),
22.4 (2005-06 to 2009-10), 21.1(2009-10), 20.6 in 2010-11 [3]. As such, it is imperative to achieve higher
growth of agriculture on a sustainable manner to uplift the society from underdevelopment and poverty.
Coming to the status of climate of the state, the state is coming under tropical zone and is characterized by
high temperature, high humidity, medium to high rainfall and short and mild winters. The dependency
syndrome of agriculture on rainfall status is very high in the state and climatology has direct bearing on the
distorted growth rates of social and economic sectors of Odisha since long [4]. On this backdrop, it is very
important to assess the climate sensitivity of agriculture of Odisha. The coastal zone has been chosen for the
present study because the exploitation of cultivable land is comparatively more in this region in the state and
the major portion of food grain production of the state comes from this coastal zone. From the population
point of view, coastal Odisha has higher density of population i.e. 14.5 percent of area inhabits nearly 30% of
total population. Therefore, even a nominal persistent decrease in food production may lead to adverse
consequences.
Over the years, numbers of studies have been carried out to explore the economic impact of climate change
on agriculture. The models used for the economic impact assessment can be classified into two major types,
namely the economy-wide (general equilibrium) and partial equilibrium models. Economy-wide models are
the general equilibrium models that take the economy as a complete system of interdependent components.
On the other hand, Partial equilibrium models, are based on the analysis of part of the overall economy such
as a single market (single commodity) or subsets of markets or sectors [5-6]. Because of the sophistication
involved in its use, economy wide models are generally unsuitable for developing countries like India. Hence,
partial equilibrium models are normally used in those countries. The partial equilibrium models available in
the literature can be classified into crop suitability approach, agronomic-economic approach and Ricardian
approach. The crop suitability approach otherwise known as the agro-ecological zoning approach uses a
simulation of crop yields to assess the suitability of various lands and biophysical attributes for crop
production. The agronomic economic approach is based on controlled experiments in field or laboratory
settings. But both these approaches failed to take adaptations into account. Since, various adaptation
possibilities are available for farmers, the study which takes care of private adaptations would rather give a
better outcome. Whereas the first two approaches use simulation technique and controlled experimentation
respectively, the last one or the Ricardian approach is a cross section based analysis that takes adaptation into
account. It was Mendelsohn et al (1994) [7], who developed the Ricardian approach to climate change impact
 Diptimayee Mishra and Naresh Chandra Sahu / APCBEE Procedia 10 (2014) 241 – 245 243

study on US agriculture, by using economic data on the value of land. Instead of studying yields of specific
crops, the method examines how climate in different places affects the net rent or value of farm land. By
directly estimating the net farm revenues, the method account for the direct impacts of climate on yields of
different crops as well as the indirect substitution of different inputs and other potential adaptation to different
climates (which gets reflected in costs). Besides being applied to developed countries the method has also
been used recently in the developing countries to measure the economic impact of climate change on the
agriculture sector [8-11]. In case of India, Kumar and Parikh (2001) [12] have tried to measure the climate
sensitivity of Indian agriculture by adopting the Ricardian approach. Though the approach was first used in
US taking the land values into consideration, in case of developing countries farm level net revenue is being
used because of absence of organized land market. However, the outcomes of all these studies imply that
climate change would be slightly beneficial to US agriculture, but it is likely to be harmful to tropical and
semi tropical countries.

2. Methodology

In the present study the Ricardian approach has been used to measure how climate change affects net
revenue (per hectare) of the coastal zone of Odisha (for all the nine coastal districts). We have estimated a
functional relationship between farm level net-revenue and climate variables (temperature and rainfall) using
pooled cross sectional and time series regression, while controlling for various geographic and economic
variables. Secondly, the estimated trend of the 30 years average climate for the region is used to examine the
impact of climate change on agriculture of the region. The dependent variable and the control variables used
in the study except soil, are district level annual data from 1993-2009 for the nine coastal districts, whereas
the independent seasonal climate variables are the averages over 30 year climate (which is considered as
normal climate for the region). All prices and wages used in the study have been deflated using the
agricultural GDP deflator (1993-2009).
For this monthly temperature and rainfall data for over 30 years (1979-2009) has been collected from
Indian Meteorological Department for the coastal zone. Annual district level agricultural data (input and
output) and data on other control variables has been collected from various issues of the district statistical
handbooks and from the department of Agriculture and Statistics, Government of Odisha.
There are various ways one could represent the monthly climate data. For this study, three months average
seasons have been taken. Thus, the average of January, February and March is represented as January, April,
May and June is represented as April, July, August and September is represented as July, October, November
and December is represented as October. The functional relationship of the net revenue climate response
function is represented as below:
R E0  E1TS  E2TS 2  E3PS  E4 PS 2  E5TS PS  E6 PD  E7 ALTR  E8CLT  E9 BLCK  E10TRCTR
 E11PHYV  E12 PIRGN  H
Where, R is the district level net revenue per hectare, Ts and Ps are the normal temperature and
precipitation respectively, s represents season. PD and ALTR are the population density and adult literacy rate
respectively. CLT, BLCK, TRCTR are the number of cultivators (which accounts for household labour),
bullocks and tractors per hectare respectively. PHYV and PIRGN are proportion of area under high yielding
varieties seeds and proportion of area under irrigation respectively. ε denotes the error term. The dependent
variable in the study i.e. district level net revenue (R) is the difference of the value of crops produced and the
expenditure on inputs (fertilizer, agricultural labourer and seeds) weighted by the total area under crops. For
estimating the net revenue 13 major crops of the state has been taken. They are: paddy, wheat, maize, ragi,
greengram, blackgram, horsegram, til, groundnut, mustard, potato, jute and sugarcane. Since, the soil of the
coastal zone is deltaic alluvial (for almost all the nine districts), we have dropped the variable from the list.
244 Diptimayee Mishra and Naresh Chandra Sahu / APCBEE Procedia 10 (2014) 241 – 245

The quadratic term is used in the above equation to capture the non-linear relation of the net revenue
climate response function. Based on literature on agronomic studies it is expected that when the quadratic
function is positive, the net revenue function is U-shaped and when the quadratic term is negative, the
function is hill-shaped. However, the study of seasonal climate variables may result in a mixture of positive
and negative coefficients across seasons [11].

3. Results and Discussion

The agricultural crop year in Odisha is from July to June. The cropping season is classified into two main
seasons: Kharif season and Rabi season. The Kharif cropping season is from July-October during the south-
west monsoon. In the Kharif season the planting, growing and harvesting stages occur in April, July and
October respectively. The Rabi season starts with the onset of north-east monsoon in October. The planting,
growing and harvesting stages in Rabi season occur in October, January and April respectively [12]. The
Kharif crops include paddy, maize, ragi, groundnut (oilseeds), etc. The Rabi crops include wheat, greengram,
blackgram, horsegram, mustard, etc. The estimated results of the pooled regression analysis for the climate
coefficients and the control variables have been shown in the following table.
Table 1. Regression coefficients explaining farm level net revenue

Variable Coefficient Variable Coefficient

January temperature -26.42 October rainfall -0.15
January temperature square 3.67** October rainfall square -0.002*
April temperature -23.23* January temperature x January rainfall 0.173
April temperature square -2.20* April temperature x April rainfall -0.01
July temperature 837.104** July temperature x July rainfall -0.05*
July temperature square -14.37*** October temperature x October rainfall 0.04
October temperature 382.22* Population density 0.22*
October temperature square -16.87*** Adult literacy rate -4.09**
January rainfall 3.65* Cultivators per hectare 38.89*
January rainfall square -0.01 Tractors per hectare 512.96***
April rainfall 3.47* Bullocks per hectare -15.02
April rainfall square 0.002* Proportion of area under HYV 3.11*
July rainfall 0.82* Proportion of area under irrigation 32.55*
July rainfall square -0.001***
Constant -1302.43**
Prob>chi 2 0.0000

Note: * denotes 10% level of significance, ** denote 5% level of significance and *** denote 1% level of significance.

The findings of the study reveal that rainfall of seasons January and April have positive effect on the net
revenue. This is because January rain is beneficial for the Rabi crops which are generally heat sensitive and
requires soil moisture for their growth. April rain helps in seeding process of the Kharif crop and also helps
the seeds in their germination. But rise in temperature in this period is harmful because it reduces the soils
moisture retaining capacity. Thus, temperature rise in April has a negative effect on the net revenue. During
July monsoon rain helps the Kharif crops to grow. Both July rainfall and July temperature have positive effect
 Diptimayee Mishra and Naresh Chandra Sahu / APCBEE Procedia 10 (2014) 241 – 245 245

on net revenue. This may be because both temperature and rainfall are needed at this time for the Kharif crops
to grow. October season which is the harvesting period for Kharif crops and planting period for Rabi crops
requires less water. This could be a possible reason behind the negative coefficient for the season October
rainfall. During this time temperature has a positive effect on net revenue. This result might have come for the
possible reason that temperature rise during this period helps the Rabi crops like blackgram, greengram, etc
from the insect attacks and also helps the Kharif crops in the ripening process. Among the control variables
population density, number of cultivators per hectare, number of tractors per hectare, proportion of area under
irrigation are positively and significantly influence farm revenue per hectare. Adult literacy rate shares a
negative relationship with farm level net revenue because with increased education people prefer more non-
agricultural activities to farming. Finally, we relate the estimated 30 years average trend of climate variables
with this result. The trend for January rainfall is estimated to be negative (-0.31) and the trend for July rainfall
is revealed to be positive (2.02). The results for other two seasons (for rainfall) do not have a significant trend.
On the otherhand, the trend of temperature for all the seasons are showing increasing trend.
4. Conclusion
To conclude, the estimated regression coefficients of rainfall of January, April and july have positively
influenced the net revenue. It is also found from the study that the coefficients of the January temperature and
April temperature are negative whereas July temperature and October temperature share positive relation with
net revenue. The relation between the estimated 30 years trend of the seasonal climate variables and the
coefficients of regression analysis reveals that the negative trend of January rainfall for the region might
adversely affect farm level net revenue, which calls for a greater investment in irrigation in this period. July
rainfall is beneficial to farming activity in Odisha. On the otherhand, the increasing trends of temperature for
all the seasons might have adverse impact on the health of agriculture sector of coastal Odisha.

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