There now exists a consensus as to therelationship between concentrations of greenhouse gases and climate change, although we still lack knowledge about the channels of transmission and the magnitude of these effects on the well-being of households. The Economic Commission for Latin America and the Caribbean (ECLAC) undertook a study within the context of the EUROCLIMA programme to help better understand the impact that climate change could have on household income, and hence on poverty and inequality in the region.
The evidence reveals that agriculture and cattle husbandry are particularly climate-sensitive activities, and thus represent a clear channel for transmission between climate change and household income. In other words, changes in climate have an impact on agricultural productivity, and as a result on the income of farmers. This is particularly significant in Latin America given that much of the poverty in the region is geographically located in rural areas.
The relationship between agricultural productivity and climate, and between climate and net income per hectare or land value, has been extensively established (Mendelsohn et al., 1994, 1996, 2001) and there is also evidence suggesting that the overall income of rural households is affected by climate, with the mechanism of transmission being specifically agricultural income (Mendelsohn et al., 2007).
As a result, on the basis of a survey and microdata at the household level, an estimate was produced in the case of Mexico for the contemporaneous correlation between climate variables and agricultural income in a manner similar to the well-known Ricardian method (Mendelsohn et al., 1994, 2007 & 2010).
The results obtained for Mexico indicate that:
a). the annual total mean income for agricultural households is slightly more than 13,000 pesos, and the poverty and indigence line in the rural sector in Mexico stood at 928 and 530 pesos per month per person, respectively, in 2002 (reference period for the survey employed).
b). agricultural income is sensitive to climate variables, based on the supposition that household behaviour remains unchanged (Bourguignon and Spadaro, 2006).
c). an increase of one degree in temperature in the spring months will reduce the per capita agricultural income of agricultural households by almost 2,500 Mexican pesos, with all other factors affecting household income remaining constant.
d). for each millimetre reduction in monthly precipitation during Winter there would be an increase per capita in annual agricultural income of slightly more than 200 pesos.
e). the same reduction in the Spring would lead to a downturn in agricultural income of almost 130 pesos.
These results illustrate that there is a significant non-linear behaviour linking climate variables to agricultural income. It is meanwhile noted that expenditure on fertilisers and pesticides is associated with increased net agricultural income. This to some extent reflects the importance of processes of adaptation (IPCC, 2007; Agrawala & Fankhau 2008; World Bank, 2010a & 2010b; OECD, 2012).
These results take on greater significance because, according to the data from the survey employed, in the year 2002 38% of rural households were below the food poverty line, and income distribution inequality was high (Gini coefficient of 0.6).
The point estimators of poverty and inequality for three climate models reveal that both poverty and inequality increase as a result of changes in climate variables. The simulations of the HADLEY climate models (Hadley Centre for Climate Prediction and Research) and MIMR (Center for Climate System Research) produce similar results, with the HADLEY model revealing the greatest increases, with a 49% incidence of poverty in the rural population, and a Gini index of 0.74. The most moderate increases occur with the PCM (Parallel Climate Model); incidence rises to 40%, while the Gini index reaches 0.62.