WPS4601 Policy ReseaRch WoRking PaPeR 4601 Differential Adaptation Strategies by Agro-Ecological Zones in African Livestock Management S. Niggol Seo Robert Mendelsohn Ariel Dinar Pradeep Kurukulasuriya The World Bank Development Research Group Sustainable Rural and Urban Development Team April 2008 Policy ReseaRch WoRking PaPeR 4601 Abstract This paper examines how farmers have adapted their agro-ecological zones. Dairy cattle will decrease in semi- livestock operation to the current climate in each agro- arid regions, sheep will increase in the lowlands, and ecological zone in Africa. The authors examine how chickens will increase at high elevations. With a mild climate has affected the farmer's choice to raise livestock and wet scenario, however, livestock adoption will fall or not and the choice of animal species. To measure dramatically in lowland and high latitude moist agro- adaptation, the analysis regresses the farmer's choice on ecological zones. Beef cattle will increase and sheep will climate, soil, water flow, and socio-economic variables. fall in dry zones, dairy cattle will fall precipitously and The findings show that climate does in fact affect the goats will rise in moist zones, and chickens will increase farmer's decision about whether to raise livestock and the at high elevations but fall at mid elevations. Livestock species. The paper also simulates how future climates may adaptations depend on the climate scenario and will vary alter these decisions using forecasts from climate models across the landscape. Agro-ecological zones are a useful and the estimated model. With a hot dry scenario, way to capture how these changes differ from place to livestock ownership will increase slightly across all of place. Africa, but especially in West Africa and high elevation This paper--a product of the Sustainable Rural and Urban DevelopmentTeam, Development Research Group--is part of a larger effort in the department to mainstream research on climate change. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors may be contacted at Niggol.seo@yale.edu, Robert.mendelsohn@ yale.edu, Adinar@worldbank.org, and Pradeep.kurukulasuriya@undp.org. The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Produced by the Research Support Team Differential Adaptation Strategies by Agro-Ecological Zones in African Livestock Management1 S. Niggol Seo2, Robert Mendelsohn3, Ariel Dinar4, and Pradeep Kurukulasuriya5. 1This paper is one of the product of a study "Measuring the Impact of and Adaptation to Climate Change Using Agroecological Zones in Africa" funded by the KCP Trust Fund and conducted in DECRG at the World Bank.. We benefited from comments by Christopher Delgado on an earlier draft. The views expressed in this paper are the authors' alone. 2School of Forestry and Environmental Studies, Yale University; 230 Prospect St., New Haven, CT 06511, USA; and a Consultant to the World Bank, email- Niggol.seo@yale.edu 3School of Forestry and Environmental Studies, Yale University; 230 Prospect St., New haven, CT 06511, USA, and a Consultant to the World Bank, email- Robert.mendelsohn@yale.edu 4Development Research Group, World Bank, 1818 H St. NW, Washington DC 20433; phone 202-473- 0434; email adinar@worldbank.org . 5 Energy and Environment Group, Bureau of Development Policy, United Nations Development Programme, New York; phone 212-217 2512; email: pradeep.kurukulasuriya@undp.org 1. Introduction Past studies in developing countries on climate change impacts on agriculture revealed that crops and especially grains are highly vulnerable to climate change (Rosenzweig and Parry 1994, McCarthy et al. 2001). The main reasons for such high vulnerabilities are that farmers in developing countries tend to be already located in a hot climate zone and that these farmers may have less capacity to cope with climate risks. Researchers have argued that farms in these areas should take adaptive measures in the coming decades to reduce potential climate change impacts (Burton 1997, Smith 1997, Leary 1999, Mendelsohn 2000; Smit et al. 2000, Smit and Pilifosova 2001). Empirical work has revealed that farmers can make several changes with relative ease to avoid large crop losses including switching crop types and irrigation (Kurukulasuriya and Mendelsohn 2007; 2008a, Seo and Mendelsohn 2008a). These adaptations are known to reduce but not eliminate the damages from climate change (Kurukulasuriya et al. 2006; Kurukulasuriya and Mendelsohn 2008b; Seo and Mendelsohn 2008b). Further, there are additional measures that would require public (government) coordination such as the development of irrigation potential and new breeds and varieties to cope with high temperatures. These adaptations describe long-run behavior and do not capture some of the potential problems associated with short-term adoption rates (Mendelsohn 2000; Kelly et al. 2005). This paper examines long-term adaptations that farmers might make in their livestock choices in response to climate. We specifically examine whether adaptations vary across Agro-Ecological Zones (AEZs). Livestock is an important topic since livestock makes up over half of the total value of agricultural gross output in industrial countries, and about a third of the total in developing countries, and this latter share is rising rapidly (Nin, Ehui, and Benin 2007). Examining impacts across AEZs is important because there is strong evidence to suggest that adaptations vary across the landscape. Of course, climate is not the only variable that affects livestock choice. Farmers may invest in livestock as part of a tribal custom or tradition. They may use livestock as an investment device (wealth storage) in the absence of access to banking (Fafchamps et al. 1998). Nonetheless, there is reason to believe that climate does affect livestock decisions. First, just looking at the distribution of livestock across the planet, different species are more 2 suited for different climates. Second, livestock may be used as a form of insurance against crop loss in poor weather. Third, there is empirical evidence that climate affects livestock decisions in Latin America and Africa (Seo and Mendelsohn 2007; 2008c, 2008d). Warmer temperatures increase the probability farmers will own livestock. In addition, farmers change their portfolio of livestock species to match climate in their location. However, past livestock research did not consider different adaptation possibilities across AEZs. Including information about AEZs helps in understanding the wide range of conditions that farmers are currently facing and why each farmer may wish to adapt in a different manner. The link between farm behavior and AEZs can also help extrapolate the results from a limited sample area to all of Africa. We make use of the existing classification of Agro-Ecological Zones in Africa by the Food and Agriculture Organization (FAO) and quantify adaptation strategies by AEZ. Of course, AEZs were not developed to measure livestock zones but rather crop zones. Although attempts to develop suitable classification zones for livestock have been undertaken, there is no final method that has yet been developed. We consequently rely on the AEZ classification system in this paper. This paper examines two important farm decisions by livestock owners in an effort to adapt to climate change; livestock adoption and livestock species choice (Seo and Mendelsohn 2007; 2008c, 2008d). We run binomial and multinomial choice models to measure climate sensitivities of these choices and predict future choices based on the estimated parameters. We then examine the link between these adaptive behaviors and AEZs. We use this link to extrapolate behavior across Africa. The paper proceeds as follows. The next section provides an economic theory of farm decisions of livestock adoption and livestock species choice. The third section is devoted to a detailed discussion of the data used in this study. Sections 4 and 5 present empirical results of the models and predictions for the future, respectively. The paper concludes with policy discussions and remaining issues. 2. Economic Theory Although economic studies on climate change impacts on agriculture have focused on crops, most farmers in Africa manage livestock in addition to crops. Some farmers 3 manage only crops, but other farmers add livestock to their portfolio for various reasons (Delgado 1999; Nin, Ehui, and Benin 2007). The first choice we examine is whether a farmer adopts livestock because of different climate conditions. First of all, we assume that farmers raise livestock if it is profitable to do so6. The second decision we examine is which livestock species to own. In Africa, there were five major animals raised as livestock: beef cattle, milk cattle, goats, sheep, and chickens. In our analysis, we will consider only these five alternative livestock species. We specifically examine the primary animal each farmer chooses, the animal that earns the greatest net revenue on each farm. In practice, farmers can actually choose more than one species at a time. For example, they can have beef cattle and chickens together. This paper assumes that the farmer chooses only one species, the one that is most profitable (Train 2003). We consequently focus only on the primary animal. In Africa, this seems reasonable, as about 90% of total net revenue from livestock management is from the primary animal. However, we have also explored examining all combinations of species and the results were quite similar, although not completely the same (Seo and Mendelsohn 2008c). With the species choice, we also assume that farmers choose the species that is most profitable. We hypothesize that the profitability and therefore livestock choices depend on the AEZ in which the farm is located. Let the profit associated with livestock farming in a specific AEZ (w) be written in the following form: 1 =V1(Zw)+1 wherew =1,...,W. w w 0 =V0(Zw)+0 (1) w w where Z is a vector of exogenous characteristics of the farm and characteristics of the farmer. The subscript 1 refers to the ownership of livestock and 0 to no livestock. The subscript w refers to the AEZs. The farmer will choose to raise livestock if: 6 The theory of profit maximization can be contested especially in Africa due to a fragile market system. Some also argued that livestock in Africa are kept for the store of wealth (Singh et al. 1986; De Janvry et al. 1991; Bardhan and Urdy 1999; Moll 2005). We made the following two adjustments to address the issues arising from special situations of African markets. First, we assume that if a farmer consumes his own product, it is valued at market price. Second, most farms depend on their own labor. Although it might be reasonable to value own labor by market wages, empirical examinations did not support any specific wage. 4 1 >0 * * or if 0 - 1 < V1(Zw) -V0(Zw) (2) Assuming that the cumulative distribution of error term is a logistic function, the choice of whether or not to raise livestock can be estimated with a standard logit model. The choice of which species to select is slightly more difficult because there are more choices. Let the profit from raising a specific livestock species (j) for a farm located in a specific AEZ (w) be written in the following form: =V (Zjw)+ where j=1,...,Jand w =1,...,W. (3) jw jw The vector Z could include climate, soils, water availability, access variables, electricity provision, and education of the farmer. The subscript (j) refers to livestock species and (w) refers to the AEZ where the farm is located. Note that the farmer chooses animal (j) from the multiple alternatives, but he does not choose the AEZ (w). The profit function in equation 1 is composed of two components: the observable component V and an error term . The error term captures various errors such as measurement error, mis- specification of the model, or lack of appropriately available data. The decision of a farmer who is located in AEZ (w) is to choose the one species that gives him the highest profit. Suppressing subscript w for convenience, the farmer will choose species (j) over all other farm types if: >k fork j. [orif k -