The role of market adaptation during massive levels of catastrophe like climate change should not be underestimated as they can play a big role. For example a study by International Food Policy Research Institute (IFRPI) issued on October 2020 indicates that the food price in Addis Ababa remained steady despite COVID-19 outbreak.
Though the exact reason related to the value chain system still should be examined, the result of the study tells a good point in the role of market adaptability. Similar role should be sought for in addressing the impact of climate change on agriculture through ensuring market adaptability and production trends.
The mainstay for majority of the people in developing countries is agriculture. It contributes for about 80 percent or more of the means of income and subsistence in the countries. On top of that the sector is hard hit due to both climate change as well as the outbreak of the global pandemic COVID-19.
According to sciencedirect.com, climate change will widely impact agriculture, but this impact may be very different between countries.
These differential changes in crop productivity correspond to changes in comparative advantages both within and between countries, which could induce large relative price changes and subsequent adjustments in production and trade patterns. Therefore, one could expect a large role of market-mediated adjustments in mitigating the negative effects of climate change, the magazine indicates.
Similarly, another study by Food and Agriculture Organization (FAO) indicates that Trade and global trade opening could contribute to or mitigate climate change.
Evidence tends to be mixed, but some studies find that general (not just agricultural) trade openness of a country may lead to increased GHG emissions, mainly through increased production, consumption and transport (WTO-UNEP, 2009).
Recently, Cristea et al. (2013) found that transportation is responsible for 33 percent of worldwide traderelated emissions. This is equivalent to 3.5 percent of total emissions (OECD/ITF, 2010).
Considering the production aspect of international trade, there are three noted effects as introduced by Grossman and Krueger (1993): the scale effect, by which increased economic activity results in greater emissions, the composition effect, by which increased trade may affect the sectoral composition of an economy through changes in relative prices, and the technique effect, or the effect on environmental quality of technology spillovers resulting from increased trade.
The scale effect states that free trade necessarily creates additional output and if the nature of the activity remained unchanged, resource depletion and pollution will increase proportionally along with output, and thus negatively affect climate change.
The impact of trade through the composition effect depends on whether the country has a comparative advantage in emission-intensive sectors and whether these sectors are contracting or expanding. The sources of comparative advantages could be different: capital endowments, natural resource endowments and regulation.
Market mechanisms can reverse the direction of the welfare effects indicated by the first-order productivity effects.
Even if most countries lose from reduced crop productivity, some are more than compensated by terms-of-trade gains. Because total food demand is inelastic, an average decrease in crop productivity will increase food prices substantially.
So, some net-food-exporting regions such as Latin America and Oceania may benefit, and the burden of adjustment to climate change may fall to net-food-importing regions, namely Asia, Europe, and the Middle East and North Africa.
And, crop choice and trade adjustment have important roles in climate change adaptation. To assess the welfare effects of market adaptation, we simulate the climate change shock while alternatively holding acreage shares and bilateral import shares constant to their baseline values.
These adaptation mechanisms play a large role, reducing global losses by 37 percent and 23 percent, respectively. So, change in crop choice appears to be the most important source of adaptation, but trade adjustments also play a key role.
Two-third of the contribution of changes in crop choice is explained by the possibility of planting crops that could not grow under the current climate on existing fields, the rest being contributed by adjusting areas of crops that could be grown under the current climate.
The question of the role of market-mediated adaptation to climate change was recently addressed in CDS. CDS make several key methodological contributions, including the development of a new modeling approach of land allocation and the demonstration of how to harness the rich spatial data produced by crop scientists for estimations and simulations.
Using counterfactual simulations, they show that restricting the fields planted with a crop under climate change conditions to be the same as the current fields would severely aggravate the impacts of climate change on welfare, tripling losses, while forcing the exported share of crops under climate change conditions to be the same as the current share would affect welfare only marginally.