Climate volatility deepens poverty vulnerability in developing countries



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Climate volatility deepens poverty vulnerability in developing countries

Syud A. Ahmed1, Noah S. Diffenbaugh2,3 and Thomas W. Hertel4,5


1Development Research Group, The World Bank, Washington, DC, USA

2Purdue Climate Change Research Center, Purdue University, Indiana, USA

3Department of Earth and Atmospheric Sciences, Purdue University, Indiana, USA

4Center for Global Trade Analysis, Purdue University, Indiana, USA

5Department of Agricultural Economics, Purdue University, Indiana, USA

Email: sahmed20@worldbank.org



Abstract

Extreme climate events could influence poverty by affecting agricultural productivity and raising prices of staple foods that are important to poor households in developing countries. With the frequency and intensity of extreme climate events predicted to change in the future, informed policy design and analysis requires an understanding of which countries and groups are going to be most vulnerable to increasing poverty. Using a novel economic-climate analysis framework, we assess the poverty impacts of climate volatility for seven socio-economic groups in 16 developing countries. We find that extremes under present climate volatility increase poverty across our developing country sample – particularly in Bangladesh, Mexico, Indonesia, and Africa – with urban wage-earners the most vulnerable group. We also find that global warming exacerbates poverty vulnerability in many nations.



Keywords: climate extremes, volatility, poverty vulnerability, food prices



  1. Introduction

Staple grains such as rice represent a significant source of expenditure, calories and earnings for many of the poor in developing countries (Cranfield et al, 2003; Thurlow and Wobst, 2003; Ulimwengu et al, 2009). This dependence has raised concern about how recent increases in food prices might affect poverty (IFPRI, 2008). While the impacts of high food prices vary across different socio-economic groups in developing countries, analyses of survey data indicate that the short-run effect of the 2005-2007 staple food price increase was to worsen poverty for the majority of the poor (Ivanic and Martin, 2008). In addition, estimates from the Food and Agriculture Organization (FAO) indicate that rising prices were responsible for an increase in the proportion of hungry people in the developing world by a full percentage point, from 16 percent in 2003-2005 to 17 percent (or about 75 million people) in 2007 (FAO, 2008).


The vulnerability of the poor to rising food prices motivates a need for better understanding of the drivers of commodity price volatility and their linkages to poverty. One important source of volatility is adverse climate events, including extreme heat, droughts and floods. Although it is known that these events can detrimentally affect agricultural systems and food security (White et al, 2006; Funk et al, 2008; Lobell et al, 2008; Battisti and Naylor, 2009), the impact of climate volatility on national-scale poverty has not yet been quantified, nor has the effect on the poor in different socio-economic strata. In addition, climate studies consistently show that further increases in GHG concentrations are likely to cause increases in hot, wet and dry extremes (e.g., Diffenbaugh et al, 2005, 2007; IPCC 2007), and there is evidence that such changes to climate volatility are already occurring (Easterling et al, 2000; IPCC 2007). As the frequency and intensity of climate extremes increase, crop production damages from such events will change (Schmidhuber and Tubiello, 2007; Naylor et al, 2007). Sharp reductions in crop supply put upward pressure on food prices, thereby having a significant poverty impact. Therefore, in order to create informed policy responses to the threat of increased poverty vulnerability as well as better quantify potential damages associated with varying greenhouse targets, it is imperative to understand the linkages between developing country poverty and climate extremes.
However, analyses combining both rigorous climate science and economic theory have been notably lacking to date. This paper provides an integrated analytical framework with empirical and theoretical foundations that can be used to study the social dimensions of extreme events, future volatility, and other potential climate effects. Using this framework, we then examine which socio-economic groups and countries are most vulnerable to climate extremes, providing a basis for climate mitigation, adaptation, and poverty reduction strategies in the developing world.
Section 2 details the source data and methodology and section 3 describes the poverty impacts of current climate volatility. Section 4 discusses future climate volatility and its implications for poverty. Concluding remarks are made in section 5.


  1. Data and Methods

We first seek to quantify the vulnerability of the poor to current climate volatility, focusing on the response to once-in-30-year climate events. For the staple grains sector, climate outcomes for a given country in a given year can be interpreted as exogenous supply-side shocks to sector productivity. Controlling for trends, climate outcomes affecting grains production can thus be considered draws from a probability distribution of interannual grains productivity changes. We generate such productivity change distributions for a representative sample of 16 developing countries by implementing zero-mean normal distributions characterized by standard deviations of interannual staple grains productivity changes estimated from historical data. These estimates are taken from the literature (Valenzuela, 2009) or are based on time series analysis of grains production data from the FAO (FAO, 2009). For each country in our sample of 16 “focus” countries, the productivity change that corresponds to a once-in-30-year climate extreme is found to be the interannual productivity change that occurs 3.33 percent of the time, in the left hand tails of the productivity distributions.


We examine the poverty impacts of the current climate’s once-in-30-year productivity shocks using a modified version of the comparative static computable general equilibrium (CGE) simulation model GTAP (Hertel, 1997). The model uses the empirically robust assumptions of constant returns to scale and perfect competition, and is modified to better delineate the distributional consequences of any simulation. Specifically, we introduce factor market segmentation which is important in countries where the rural sector remains a dominant source of poverty (Keeney and Hertel, 2005), and disaggregate land endowments by Agro-Ecological Zone (Hertel et al, 2009). The modified model also utilizes micro-simulation to determine changes in poverty headcount by socio-economic stratum based on changes in real income (Hertel et al, forthcoming). The model is supported by Version 6 of the GTAP Database (Dimaranan, 2006) and the GTAP Land Use Database (Lee et al, 2009; Monfreda et al, 2009). The combined database represents the 2001 global economy, and the current climate extreme simulations are thus differences from this benchmark.
Within the CGE framework, there are two mechanisms which drive the poverty headcount changes: changes in incomes at the poverty line and changes in the real cost of living. The ratio of these two determines the real income change. A negative output shock invariably increases the prices of grains, and indirectly puts upward pressure on the prices of industries that use it as an input. As prices of certain goods rise, the incomes of factors of production employed in those industries tend to rise. At the same time, if there are increases in the prices of goods, like grains, then it will become more expensive for a household to maintain the same level of utility (i.e. real consumption) as before the productivity shock. There is thus an increase in the cost of living. If incomes do not rise as well then some households will fall below empirically estimated thresholds (Hertel et al, 2004; Hertel et al, forthcoming), associated with the $1/day poverty line (Chen and Ravallion, 2001)6. The responsiveness of the stratum poverty headcount to a given real income shock is determined by the density of the stratum population in the neighborhood of the poverty line and is also estimated from the household survey data. When combined with information about the distribution of national poverty across socio-economic strata, we are able to estimate the change in national poverty headcount.
The poverty headcount data by socio-economic stratum and country are based on household surveys conducted in the sixteen focus countries and processed for use in CGE analyses7. The poverty vulnerability of the countries in our sample can be considered in terms of absolute numbers of poor as well as the poverty headcount ratio (number of poor, relative to the national population). Poverty is broken down into socio-economic strata based on primary source of income (95 percent or more of income from the following sources): Agricultural self-employed (farm income), Non-Agricultural (non-agricultural self-employment earnings), Urban Labor (urban household, wage labor income), Rural Labor (rural household, wage labor income), Transfer payment dependent, Urban Diverse, and Rural Diverse (Hertel et al, 2004).

Figure 1 reports the proportions of focus countries’ total 2001 populations that are impoverished, grouping them into the seven strata that reflect the pattern of household earnings specialization. The darker shaded areas in each bar correspond to the agriculture and rural households in our sample. It can be seen that these dominate the poverty picture in nearly every country. Bangladesh, Mozambique, Malawi, Tanzania, Uganda, and Zambia stand out as already experiencing particularly high incidences of poverty. However, given that Bangladesh’s total population is more than that of the combined population of all five African countries, the absolute number of Bangladeshi poor is greater. Like Bangladesh, Brazil, Indonesia, and Mexico also have large numbers of poor.




Figure 1. Poverty in sample countries in 2001 and change in poverty due to extreme climate, as shares of 2001 populations


  1. Poverty Changes due to Current Climate Extremes

Using the simulation model and database just described, we simulate once-in-30 year climate extremes one country at a time, and are able to generate economic changes that are attributable only to the extreme climate impacts in that country. We are thereby able to mitigate the effects of international price transmission that may have arisen due to agricultural productivity volatility in other countries (Valenzuela et al, 2007). We can thus be confident that the resulting poverty changes are attributable to grains price and supply effects arising due to extreme climate outcomes in those countries alone. These poverty changes are indicated by the cross-hatched areas in our sample countries shown in Figure 1.



The countries with the highest shares of populations entering poverty in the wake of these extreme events include Bangladesh, Mexico, Mozambique, Malawi, Tanzania, and Zambia (Figure 1). In Malawi and Zambia, simulated grains productivity declines of about 75 percent cause the poverty headcount in those countries to increase by about seven percentage points relative to their total populations. The magnitudes of the declines in grains productivity – while large – are not unrealistic, and are reflected in the historically observed interannual changes in grains production. Grains productivity in Malawi and Zambia declined by between 50 and 59 percent in the period 1991-1992, respectively. During that time, southern Africa experienced a severe ENSO-related drought (Glantz et al, 1997). Calculations based on FAO consumption data show that cereal consumption – measured as daily calories consumed per person from cereal – declined by 8.8 percent in Malawi and by 1.3 percent in Zambia between 1991 and 1992 (FAO, 2009).
Bangladesh stands out in the sample as a country that has high poverty vulnerability in terms of both absolute and relative numbers of poor. According to our estimates, a once-in-30-year climate extreme, reducing grains productivity by 13.3 percent, would push an additional 7.35 percent of the population (9.7 million people) into poverty. To put this productivity decline in historical context, grains production declined by 11 percent between 1970 and 1971. This decline was largely due to the cyclone that struck the coast of Bangladesh (then East Pakistan) in November 1970, causing over 224,000 fatalities and an estimated loss in crops of US$ 63 million, the equivalent of US$ 344.9 million in 2008 (Frank and Husain, 1971; Sommer and Mosley, 1972).
A closer look at the poverty impacts by stratum in each country from Figure 1 can foreshadow where the impacts of an extreme climate year will be felt most sharply. Table 1 reports the percentage changes in poverty due to climate extremes by socio-economic stratum and country. These results indicate tremendous heterogeneity in the poverty vulnerability to climate extremes across different segments of the population – when differentiated by primary income source (stratum). The bottom row in Table 1 reports the simple average of percentage changes across countries, for a given stratum. From this, we can see that the most vulnerable group is the urban, wage-labor-dependent stratum. While this group contributes modestly to total poverty in this sample of countries (Figure 1), it appears to be highly vulnerable to extreme climate events. Indeed, the poverty rate for this group doubles in Malawi under the once-in-30 year-climate event (Table 1). Zambia and Mexico also show strong vulnerability among this group. The source of the vulnerability of the urban poor is their extreme exposure to food price increases. Since food is a major expenditure, this group’s overall consumption falls with rising prices, pushing them below the poverty threshold of consumption.
Agricultural households, on the other hand, are much less exposed (9.2 percent average poverty change under extreme events – Table 1). This group is generally hurt by the adverse productivity shock from a food consumption perspective. However, they are partially insulated from the effects of the higher prices since they also benefit (on the income side) as producers of food. The other groups tend to fall in between these two extremes. Rural (and, to a lesser extent, urban) diversified households tend to earn a significant portion of their income in agriculture, and therefore benefit from higher prices. Non-agricultural self-employed households are somewhat insulated from the adverse productivity shocks in agriculture8.


Table 1. Percent change in poverty due to once-in-30 year climate extreme by stratum and country




Socio-Economic Strata




Agricultural

Non-

Agricultural



Urban

Labor


Rural

Labor


Transfer

Urban

Diverse


Rural

Diverse


Bangladesh

32.1

37.8

30.7

11.1

0.8

29.5

17.2

Brazil

0.1

4.1

5.5

6.2

1.0

9.6

7.0

Chile

7.7

13.8

12.7

9.5

14.7

12.6

14.9

Colombia

0.1

0.4

1.0

1.0

0.6

0.6

0.5

Indonesia

29.5

12.1

19.2

23.9

5.9

17.9

19.0

Mexico

52.2

36.7

95.4

52.1

61.8

37.4

43.2

Mozambique

4.3

15.3

16.2

12.4

7.2

26.6

16.0

Malawi

15.8

9.0

110.5

91.0

11.1

30.8

23.0

Peru

2.4

1.9

3.6

2.6

0.5

1.5

1.4

Philippines

-17.7

10.2

32.3

25.9

8.5

6.0

3.8

Thailand

4.9

5.8

7.1

5.8

6.4

5.6

5.8

Tanzania

7.2

11.0

14.9

5.3

6.6

21.3

11.9

Uganda

-0.1

1.6

16.4

2.9

0.1

1.0

0.6

Venezuela

4.0

5.1

12.1

10.1

0.0

7.2

6.6

Vietnam

5.1

7.0

0.0

0.0

3.9

6.3

6.4

Zambia

0.0

17.7

102.0

32.5

10.9

41.1

10.6

Average

9.2

11.8

30.0

18.3

8.8

16.0

11.7



  1. Climate Extremes and Poverty in the Future A2 Scenario

We also seek to quantify the vulnerability of the poor to potential changes in climate volatility, with emphasis on the frequency and magnitude of annual-scale hot, dry, and wet extremes. We draw on the unprecedented global climate model database that has been assembled as part of the “CMIP3” project and heavily used in the IPCC Fourth Assessment Report (IPCC, 2007). We consider three distinct agricultural productivity stressors. These annual-scale extreme climate indices from Frich et al (2002) are available in the CMIP3 multi-model archive: (1) the percent of annual total precipitation due to events exceeding the 1961-1990 95th percentile; (2) the maximum number of consecutive dry days; and (3) the heat wave duration index (the maximum period greater than 5 days with the daily maximum temperature greater than the 1961-1990 normal). We thus quantify the response of the 30-year-maximum values of wet, dry, and hot extremes.


We analyze 30-year periods from 1971 to 2000 in the 20th Century simulations and 2071 to 2100 in the simulations under the IPCC’s A2 scenario, examining output from “run 1” of the seven models that have archived the extreme climate indices9. Within each time period and scenario, and at the 108 Agro-Ecological Zone (AEZ) level of spatial disaggregation, we calculate: (1) the 30-year-maximum value in the 20th Century period; (2) the 30-year-maximum value in the 21th Century period; and (3) the number of years in the 21st Century period that exceeded the 30-year-maximum value of the 20th Century period. For each variable, we interpolate the data from each GCM to a common 1-degree geographical grid, and calculate the maximum annual value of the variable in the 1971-2000 and 2071-2100 time-series of each GCM at each grid point. We then determine the number of years whose value exceeded that maximum annual value in each of the time-series at each grid point: 1971-2000 and 2071-2100 in the A2 scenario. We compute the mean value at each grid point across the seven GCMs, as well as the inter-model standard deviation of the 21st Century minus 20th Century fractional difference.
We next interpolate these GCM occurrence data from the common 1-degree grid to the 0.5-degree geographical grid used for the AEZ data, select the grid points corresponding to each of the focus countries, and compute the area-weighted mean occurrence in each time-period/scenario for each AEZ in a given country and for the country as a whole. Finally, we calculate the area-weighted mean of the values of the respective grid points falling within the borders of each country of the globe, yielding the country mean for each of the climate variables.
The CMIP3 ensemble exhibits substantial changes in extreme climate in the late-21st century of the A2 scenario (Figure 2). The occurrence of what is now the 30-year-maximum extreme wet event increases (A2 minus present) throughout the world, with maximum increases of greater than 900 percent occurring over Southeast Asia. The absolute magnitude of the 30-year-maximum event is also greater throughout the world in the A2 scenario than at present, with peak increases of greater than 40 percent also in Southeast Asia. All countries exhibit substantial increases in the occurrence and magnitude of extreme hot events, with the occurrence of the present 30-year-maximum event increasing more than 2700 percent in parts of the northern Mediterranean, and the magnitude of the 30-year-maximum event increasing 1000 percent to more than 2250 percent in much of central Africa. Most countries also display increases in the occurrence and magnitude of extreme dry events, with peak changes of greater than 800 percent and 60 percent (respectively) occurring over Mediterranean Europe. A handful of countries display decreases in occurrence, magnitude, or both of extreme dry events. Countries where the intensity and frequency of extreme consecutive dry days decline include Columbia and Uganda, while Tanzania, Indonesia, and the Philippines experience less intense but more frequent years of such extreme climate. The seven global climate models generally agree on the magnitude of fractional change in the A2 scenario, with areas of larger projected change showing larger inter-model spread (with the exception of extreme hot occurrence), as shown in Figure 310.


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