Research Article

Impact of Climate Change on Wheat Growers’ Net Return in Khyber Pakhtunkhwa: A Cross-Sectional Ricardian Approach

Hassan Hashim Ghalib, Syed Attaullah Shah*, Abbas Ullan Jan and Ghaffar Ali

Department of Agricultural and Applied Economics, Faculty of Rural Social Sciences, The University of Agriculture, Peshawar, Pakistan

Received | May 16, 2017; Accepted | September 20, 2017; Published | October 29, 2017

*Correspondence | Syed Attaullah Shah, The University of Agriculture, Peshawar, Pakistan; Email: syedshah313@gmail.com

Citation | Ghalib, H.H., S.A. Shah, A.U. Jan and G. Ali. 2017. Impact of climate change onwheat growers’ net return in Khyber Pakhtunkhwa: A Cross-Sectional Ricardian Approach. Sarhad Journal of Agriculture, 33(4): 591-597.

DOI | http://dx.doi.org/10.17582/journal.sja/2017/33.4.591.597

Keywords | Climatic change, Wheat crop, Net return, Khyber Pakhtunkhwa, Cross-sectional Ricardian Approach

Introduction

Climate change is a long-term change in the earth’s climate, specifically a change due to increase in the average atmospheric temperature. This change is more apparent during the last five decades and attributed largely to the increased level of greenhouse gases (GHG) produced by the use of fossil flues. The release and accumulation of GHG, such as carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O) and water vapor (H2O), have resulted increase in global atmospheric temperature. Recent studies found that the global atmospheric temperature has increased by 0.13°C during the last 50 years, and for 2100, the projected increase is 5.8 °C. This rise in atmospheric temperature has increased evaporation from water bodies and has indirectly changed the intensities and frequencies of rainfalls in different regions. Storm, drought and floods, induced by climate change, are potential threats to humans and other living organisms (Abou-Shleel and El-Shirbeny, 2014).

Climate change has threatened agricultural production in most parts of the world. High atmospheric temperature adversely affects crops, animals and farmers. It causes aridity and land degradation by reducing water supply. Modified rainfall patterns result water scarcity and droughts which creates stress for crops and livestock. Generally, the consequences of climate change for agriculture will be more severe for countries having higher present temperature, greater climatic variation, and low level of development. The IPCC Report (2007) predicted that the arid and semi-arid regions of the world will be severally affected. Countries located in these regions are mostly developing and have agricultural based economies.

Pakistan is highly vulnerable to climate variability and extremes. Vulnerability in general is a consequence of over exploitation of natural resources and economic poverty of the people. These two factors enhance each other and make people and ecosystems extremely vulnerable to climate variability and extremes. Change in climate is closely linked to food security and poverty alleviation, which are main challenges for the agricultural sector of the country.

Agriculture is second largest sector in Pakistan that contributes around 20 percent to GDP and absorbs 44 percent of the workforce (GoP, 2013-14). Though there is evidence of increase in agricultural production, the nation is not self-sufficient yet. In this scenario, the investigation of the impact of climate change on agricultural production and policies recommendation for improving farmers’ mitigation and adaptive capacity to climate change are important research questions. It is documented in final report of Task Force, Planning Commission on climate change that there is a dire need to quantify the impact of climate change on different sectors of the economy for planning and policy making. That’s why this research work is designed to investigate the impact of climate change on wheat production and growers’ returns.

Wheat is Pakistan’s main staple food and accounts for 42 percent of total daily caloric consumption per person. Beside as the main food crop, wheat is also a main income source for farming communities in rural areas. It is grown by 80 percent of the farmers and occupies 40 percent of the country’s cropped area. The share of wheat in total value-added in agriculture is over 12 percent. Pakistan’s yield for wheat is significantly lower than other wheat producing countries, such as United Kingdom, Germany, France and China. This yield gap might be due to low adoption of high yielding varieties, under utilization of recommended inputs or unfavourable climatic conditions. A number of studies have investigated the effect of improved varieties and important inputs on wheat yield; however, only few studies have focused on climatic conditions and climate change (Siddiqui et al., 2012; Shakoor et al., 2011). This study is conducted with the objective to quantify the impact of climate change on wheat growers’ net return in KP province of Pakistan and forward recommendations for improving farmers’ adaptive capacity to climate.

Methodology

Study area

KP province is located in the Northwest of Pakistan. Based on climatic conditions, Environmental Protection department of KP has divided the whole province into Northern, Central and Southern zones. The Northern zone starts from Hindu Kush and Western Himalayas ranges in North and extends to Peshawar valley in South. This zone receives little monsoon rains in summer, while in winter, heavy snowfall occurs from mid-December to late March. Agriculture is the major domain of people activities, and major crops grown are wheat, maize, onion and potato. The Central zone, also called Peshawar valley, is the most fertile zone of the KP province. This zone remains cold in winter and hot in summer, heavy rainfall occurs during summer monsoon. Main crops are tobacco, sugarcane, sugar beet, wheat and maize. Most of the agricultural fields are irrigated through canal water from Indus, Kabul and Swat Rivers. The Southern zone extends from Peshawar valley in North to D. I. Khan in South. This zone is arid with hot summers and relatively cold winters and scanty rainfall. Substantial increase in agricultural production occurred after Chasma Right Band Canal and Gomal Zam Dam water supply projects. Increase in agricultural production was recorded in rice, sugarcane, wheat, cotton, maize, pulses and orchard.

Sampling and data collection

A multistage sampling technique is used to select a sample of 255 farmers. In the first stage, KP is divided into Northern, Central and Southern climatic zones. From these zones, districts having metrological stations, are purposively selected (Table 1 provides more details). From each selected district, one village is randomly selected. As within district, climatic conditions remain same, and for Cross-sectional Ricardian model variation in climatic conditions are required over spatial scale, thus the number of villages is limited to one per district. In the final stage, at least 35 wheat growers are selected randomly from each village. Thus in total a sample of 255 wheat growers are selected from all the three climatic zones. Financial and time factors constrained the selection of more villages and large sample size of wheat growers.

Table 1: Wheat growers selected from different climatic zones

This equation is the theoretical base for Ricardian model and it shows farmer’s net-return from a crop as function of inputs and climatic conditions. The Ricardian model has been used to measure climate impacts using cross-sectional evidence (Mendelsohn et al., 1994, 1996; Mendelsohn and Dinar, 2003; Schlenker et al., 2005). It is a comparative static analysis. It reflects all the adjustments that farmers and ecosystems make in response to climate change. It is a measure of the long-term consequences of climate change. As it is not a dynamic analysis, so it does not measure the transition costs of moving from one climate to another (Mendelsohn, 2008).

Functional form

The standard Ricardian model relies on a quadratic formulation of climate variables and use cross sectional data instead of time series. Variation in climate variables comes in data collection from different agro-climatic zones.

The following quadratic model is used to estimate the effect of atmospheric temperature and rainfall on farmer’s net-return per acre from wheat crop. Other control variables, such as fertilizers, pesticides, number of irrigations and labor days, are used to capture and control their effects on net-returns.

Where Ri is ith farmer’s net return per acre from wheat; T and P are atmospheric temperature and rainfall, respectively; I is a vector of important production inputs; and βs and δs are coefficients. By studying the quadratic terms of atmospheric temperature and rainfall, the relationship between the net-return and climate is calculated. The relation is non-linear in nature due to the variation in net-return and crop’s yield, as it may inflates or reduces. Nonlinear relationships portray a very clear picture of the effects of climate change on net return.

Results and Discussion

Climatic conditions during wheat season

Table 2 shows average atmospheric temperature and rainfall during different growth stages of wheat crop. In KP, the average atmospheric temperature during sowing stage of wheat crop is 23.6°C. The sowing of wheat crop starts in November, except in the Northern zones, where due to snow fall, sowing starts in early October. During flowering stage, average atmospheric temperature remains 22°C. In the Central and Southern zones, wheat flowering starts in March, while in Northern zones it starts late because of low atmospheric temperature. The average atmospheric temperature during harvesting stage in KP reaches 37.7oC. Harvest of wheat crop starts in late April and May in Southern and Central Climate zones, while in Northern Zone, it starts in June.

The same table also presents average rainfall during different growth stages of wheat. Most of the rainfall occurs during flowering and harvest stages, and sowing stage is mostly dry. The table shows that in KP average rainfall during sowing, flowering and harvest stages are 33.5mm, 95.6mm and 62.1mm, respectively. In the Central and Northern zones, high rainfall occurs during flowering and harvest stages. Harvest stage rainfall results loss in wheat yield and quality of grains.

Net returns from wheat crop

Table 3 shows that average wheat yield in KP is 20 maunds per acre, and highest yield are reported in Charsadda (25 maunds), Mansehra (24 maunds) and Peshawar (22 maunds) districts. Total revenue per acre is calculated by adding value of grain product (at Rs.1500/ maund) and value of by product. The table demonstrates that average total revenue per acre from wheat crop is Rs.43012. Total revenues per acre at district level are also reported in the same table. Total production cost for this study is derived by adding fixed cost and variable costs per acre. The total cost per acre of wheat crop is on average Rs.38069. Total production cost per acre of crop is highest in Central zone (see Table 3 for more details).

From total revenue figures the respective production costs per acre are subtracted to get net-return. The last row of the table shows that in KP net-return per acre from wheat crop is on average Rs.4770. Maximum net-returns are found for Charsadda (Rs.12952) and Mansehra (Rs.11562). Net-return is negative for Abbottabad because of rain-fed ecology and low yield.

Estimated Cross-sectional Ricardian Model

The cross-sectional Ricardian model is estimated using Ordinary Least Square (OLS) estimation method. In quadratic regression model, the problem of multicollinearity is likely in the independent variables X and X2. As the square of temperature and rainfall are used to test for non-linear relationships between net-return per acr.e and climatic factors, we ignored this problem.

Table 2: Average temperature and rainfall in KP’s climatic zones (2011-2016).

Table 3: Total and net-return from wheat production

Table 4: Estimated Quadratic Model for wheat grower’s net-return

The coefficients for the linear and squared temperature terms are statistically significant. The significance of the coefficient for the squared temperature term indicates that relationship between growers’ net-return from wheat crop and atmospheric temperature is non-linear. The coefficient of the liner term is positive and negative for the squared term. These estimated coefficients indicate that initially, net-return per acre from wheat crop increases with increase in atmospheric temperature, and after reaching a critical (optimal) temperature level further increase results decrease in net-return. Differentiating the estimated model w.r.t. atmospheric temperature gives a marginal revenue change of 36734.09 – 1446.38T. Equating this first derivative to zero and solving for T, gives optimal atmospheric temperature level which maximizes KP wheat growers’ net-return per acre. The optimal temperature level for net-return maximizing wheat growers of KP is 25oC (see Figure 1).

Average monthly rainfall in wheat season

The coefficients for the linear and squared monthly rainfall are also statistically significant. The significance of the coefficient for the squared rainfall term indicates that relationship between wheat growers’ net-return and average monthly rainfall in wheat season is non-linear. The coefficient of the liner term is negative and positive for the squared term. These estimated coefficients indicate that relationship between net-return from wheat crop and monthly rainfall is U shaped (see Figure 2). Putting the first derivative of the estimated net-return with respect to rainfall equal to zero and solving for P, gives minimum net return level of rainfall (89mm).

The following Table 5 lists the expected impact of changing temperature and rainfall on wheat growers’ future net-return per acre. For KP, on average wheat growers’ net-return per acre will be significantly affected by temperature increase. A 2oC raise in temperature will produce a loss of Rs.1738.38 (36.95 % loss) to wheat growers’ net-return per acre. This loss is very low as compared to forecasted change in net-return per acre by Shakoor et al. (2011). Different climatic conditions and availability of water for irrigation could be the possible reasons for this comparatively low impact of climate change on KP wheat growers’ net-return per acre. In the Northern and Central Climate zones of KP, where average monthly temperature in wheat season is below 25oC, increase in temperature will result increase in wheat growers’ net-return per acre. In the Southern and Central zones, where average monthly temperature in wheat season is above 25oC, increase in temperature will result decrease in wheat growers’ net return per acre.

In KP, increase in rainfall by 10 percent will increase average net return per acre to wheat growers by 9.04 rupees.

Table 5: Forecasts of wheat grower’s net return according climate change scenarios

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