The impacts of climate change in arid areas will be mostly driven by changes in water scarcity. While regional rainfall changes are uncertain, the increase in temperature is forecast with much more confidence; temperature change is a strong driving force behind forecast reductions in irrigation water supplies. Even with relatively unchanged average rainfall, changes in the timing of precipitation will cause supply shortages.

Climate change and agriculture

Take the case of California as an example of the likely effect of climate change on agriculture in an arid region with a postindustrial economy. California agriculture is heavily dependent on irrigation so it may offer lessons for adaptation to climate change that can be applied to irrigated agriculture in other arid regions. Climate change will have negative effects on California's irrigated agriculture in terms of increased water scarcity, more variation in water supply, and lower yields due to heat stress. Parallel changes in technology and markets will partially or totally offset the negative effects.

Technological advances such as fertilizers, disease resistant crops, and mechanical improvements have increased crop yields in California by an average of 1.4% per year (Brunke, Sumner, and Howitt, 2004). While increased yields will help dampen the negative effect of a warm-dry climate, continued growth of 1.4% per year is likely not sustainable and is expected to level off in the future (Alston and Pardey, 2009). Even so, technological change will offset climate related yield reductions for some California crops.

The market for select California crops is expected to grow significantly in response to growth in income, population, and domestic and foreign demands. Irrigated production of crops in temperate regions is dominated by “commodity crops” such as corn, alfalfa, cotton, and rice that have an elastic market demand, and a negligible or negative income elasticity of demand. In contrast, the revenue from irrigated agricultural production in California and other arid areas is dominated by “middle class crops” such as fruits, nuts, and vegetables which have inelastic price and income elasticities of demand that are positive and quite significant. These elasticity differences greatly alter projections of climate impacts. The strong income elasticities of California specialty crops combined with growth in incomes in the United States and many Pacific Rim economies translates into a growing demand for these crops. In addition, the inelastic price response provides a revenue buffer against any downside production effects.

Another adjustment mechanism is the role of water markets, including both inter-sector, between agriculture and urban users, and intra-sector transfers. Water markets allow regions with low agricultural scarcity value of water to trade water to regions with high agricultural water scarcity values, in essence allowing water to flow to its highest value use. Regional differences in climate change effects could be offset by developing water markets.

Visualizing California agriculture under climate change

In order to develop insights into the future of agricultural production in California we use a combined hydrologic-economic model of agricultural production in California (Howitt, Ward, and Msangi, 2001). To estimate water deliveries, and regional water constraints, under climate change, we use a larger hydrologic-economic model of the entire California water system (Draper, et al. 2003). Changes in water and crop yields due to climate change are explicitly included in the models in addition to technological change; we include an increasing urban footprint that reduces agricultural land area, population growth, and changing market conditions. Among the IPCC panel climate scenarios we consider the warm-dry scenario which yields a statewide-average 4.5°C temperature rise and an 18% reduction in precipitation by the end of the century (Cyan, et al. 2008).

We consider two future cases for California's Central Valley agriculture in the year 2050, under the IPCC warm-dry climate change scenario and under a scenario where climate remains unchanged. We contrast both of these cases with each other and a base year of 2005 and compare changes in agricultural production, water use, and revenues. To focus ideas we consider agriculture in the Central Valley of California, the main production region in the state. Agricultural commodities in California are collapsed into 12 representative crop groups: alfalfa, citrus, corn, cotton, field crops, grains, grapes, orchards, pasture, sugar beet, tomato, and truck crops.