Climate Volatility and Change in Central Asia : Economic Impacts and Adaptation

Central Asia is projected to experience a significant climate change, combined with increased weather volatility. Agriculture is a key economic sector and a major source of livelihoods for Central Asia’s predominantly rural population, especially for the poor. Agricultural production, being sensitive to weather shocks and climate volatility, may suffer from climate change if no adaptive actions are taken. Taking these into account, the present study seeks to estimate the potential economic impacts of climate change on Central Asia’s agriculture and rural livelihoods, as well as to identify factors catalyzing or constraining adaptation to climate change. Weather shocks could potentially affect the supply of agricultural commodities and their prices. In this thesis, the effects of weather shocks on agricultural commodity prices in Central Asia are studied at the provincial scale using monthly data for the period of 2000-2010. The study analyses the idiosyncratic components of the variables using feasible generalized least squares (FGLS) panel regression in the presence of cross-sectional dependence and serial autocorrelation. The analysis indicates that negative shocks, involving lower than usual temperatures and precipitation amounts, could lead to higher wheat prices in the region. Lower availability of irrigation water may encourage irrigation-dependent countries in the region to aggressively raise wheat stocks to face expected supply shortfalls, thus leading to higher regional wheat prices. This effect could be further aggravated by negative impacts of lower irrigation water availability on wheat yields. The estimates of the aggregate impacts of climate change on Central Asian agriculture range between +1.21% to -1.43% of net crop production revenues by 2040. The absolute monetary impact is not negligible, ranging from + 180 mln USD annually in the optimistic scenario, to – 210 mln USD annually in the pessimistic scenario relative to 2010 levels, where optimistic and pessimistic scenarios are defined to ...