JOURNAL OF AFRICAN ECONOMIES, VOLUME 18, NUMBER 4, PP.

529–554
doi:10.1093/jae/ejp002 online date 15 March 2009

Economic Impact of Climate Change on Crop Production in

Ethiopia: Evidence from Cross-section Measures
Temesgen Tadesse Deressa* and Rashid M. Hassan
Department of Agricultural Economics and Rural
Development, Faculty of Natural and Agricultural Sciences,
Centre for Environmental Economics and Policy in Africa
(CEEPA), University of Pretoria, Pretoria 0002, Republic of
South Africa

This study used the Ricardian approach that captures farmer adaptations to
varying environmental factors to analyze the impact of climate change on
crop farming in Ethiopia. By collecting data from farm households in different
agro-ecological zones of the county, net crop revenue per hectare was regressed
on climate, household and soil variables. The results show that these variables
have a significant impact on the net crop revenue per hectare of farmers under
Ethiopian conditions. The seasonal marginal impact analysis indicates that
marginally increasing temperature during summer and winter would signifi-
cantly reduce crop net revenue per hectare whereas marginally increasing
precipitation during spring would significantly increase net crop revenue
per hectare. Moreover, the net crop revenue impact of predicted climate scen-
arios from three models (CGM2, HaDCM3 and PCM) for the years 2050 and
2100 indicated that there would be a reduction in crop net revenue per hectare
by the years 2050 and 2100. Moreover, the reduction in net revenue per hectare
by the year 2100 would be more than the reduction by the year 2050 indicating
the damage that climate change would pose increases with time unless this
negative impact is abated through adaptation. Additionally, results indicate
that the net revenue impact of climate change is not uniformly distributed
across the different agro-ecological zones of Ethiopia.

JEL classification: C53, Q25, Q54

* Corresponding author: Temesgen Tadesse Deressa, Department of Agricultural

Economics and Rural Development, Centre for Environmental Economics and
Policy in Africa (CEEPA), University of Pretoria, Room 2-4, Agric. Annexe,
Pretoria 0002, Republic of South Africa. Telephone: þ27 12 420 5767. Fax: þ27
12 420 4958. E-mail: ttderessa@[Link]

# The author 2009. Published by Oxford University Press on behalf of the

Centre for the Study of African Economies. All rights reserved.
For permissions, please email: [Link]@[Link]
530 Temesgen Tadesse Deressa and Rashid M. Hassan

1. Introduction
It is generally recognised that climate change has an impact on agri-
culture (IPCC, 1990). Many efforts have been made to estimate its
economic impact (Adams, 1989; Rosenzweig, 1989; Mendelsohn
et al., 1994; Kaiser et al., 1993). However, most of these studies
have focused on the USA and other developed countries.
As climate change is global, concerns about its impact on agricul-
ture in developing countries have been increasing (IPCC, 1996) and
some attempts have been made to estimate this impact (Winter
et al., 1996; Dinar et al., 1998; Kumar and Parikh, 1998;
Mendelsohn and Tiwari, 2000). Though this effort is growing, not
much research has been done in Ethiopia. Climate change could
be particularly damaging to countries in Africa, and Ethiopia,
being dependent on rain-fed agriculture and under heavy pressure
from food insecurity and often famine caused by natural disasters
such as drought, is likely to be affected (Mendelsohn and Tiwari,
2000).
So far there has not been any study to address the economic
impact of climate change on Ethiopian agriculture and farm-level
adaptations that farmers make to mitigate the potential impact of
climate change. Accordingly, little is known about how climate
change may affect the country’s agriculture. This seriously limits
policy formulation and decision-making in terms of adaptation
and mitigation strategies.
The objective of this study is to assess the economic impact of
climate change on Ethiopian farmers, using the Ricardian
approach, and to inform policy-makers on proper adaptation
options to counteract the harmful effects of such change.
This study is structured in the following way: Section 2 is an
overview of Ethiopian agriculture. Section 3 presents approaches
to measuring the economic impacts of climate change. Section 4
describes methodology and data. Section 5 discusses the results
and Section 6 concludes and suggests policy options.

2. Overview of Ethiopian Agriculture

Agriculture remains by far the most important sector in the
Ethiopian economy for the following reasons: (i) it directly supports
about 85% of the population in terms of employment and
 Economic Impact of Climate Change on Crop Production in Ethiopia 531

livelihood; (ii) it contributes about 50% of the country’s gross dom-

estic product (GDP); (iii) it generates about 88% of the export earn-
ings; and (iv) it supplies around 73% of the raw material
requirement of agro-based domestic industries (MEDaC, 1999). It
is also the major source of food for the population and hence the
prime contributing sector to food security. In addition, agriculture
is expected to play a key role in generating surplus capital to
speed up the country’s overall socio-economic development
(MEDaC, 1999).
Ethiopia has a total land area of about 112.3 million hectares. Of
this, about 16.4 million hectares are suitable for producing annual
and perennial crops. Of the estimated arable land, about 8 million
hectares are used annually for rain-fed crops. The country has a
population of about 70 million (National Bank of Ethiopia, 1999)
with a growth rate of about 3.3%. At the present growth rate, the
population is expected to increase to about 129.1 million by the
year 2030.
Small-scale farmers who are dependent on low-input and low-
output rain-fed mixed farming with traditional technologies dom-
inate the agricultural sector. The present government of Ethiopia
has given top priority to this sector and has taken steps to increase
its productivity. However, various problems are holding this back.
Some causes of poor crop production are declining farm size; sub-
sistence farming because of population growth; land degradation
due to inappropriate use of land, such as cultivation of steep
slopes; over cultivation and overgrazing; and inappropriate
polices. Other causes are tenure insecurity; weak agricultural
research and extension services; lack of agricultural marketing; an
inadequate transport network; low use of fertilizers, improved
seeds and pesticides; and the use of traditional farm implements.
However, the major causes of underproduction are drought,
which often causes famine, and floods. These climate-related disas-
ters make the nation dependent on food aid.
The trends of the contribution of agriculture to total GDP of the
country clearly explain the relationship between the performance of
agriculture, climate and the total economy. As can be seen in
Figure 1, years of drought and famine (1984/1985, 1994/1995,
2000/2001) are associated with very low contributions, whereas
years of good climate (1982/83, 1990/91) are associated with
better contributions.
532 Temesgen Tadesse Deressa and Rashid M. Hassan

Figure 1: Trend of Per cent Share of Agriculture’s GDP

3. Approaches to Measuring the Economic Impacts of Climate

Change
There are two main types of economic impact assessment models in
the literature, namely the economy-wide (general equilibrium) and
partial equilibrium models. Economy-wide models are analytical
models, which look at the economy as a complete system of inter-
dependent components (industries, factors of production, insti-
tutions and the rest of the world). Partial equilibrium models, on
the other hand, are based on the analysis of part of the overall
economy such as a single market (single commodity) or subsets
of markets or sectors (Sadoulet and De Janvry, 1995).
Computable general equilibrium (CGE) model is an economy-
wide model, which is suitable for environmental issues as it is
capable of capturing complex economy-wide effects of exogenous
changes while at the same time providing insights into micro-level
impacts on producers, consumers and institutions (Oladosu et al.,
1999; Mabugu, 2002). As climate change directly or indirectly
affects different sectors of the economy, economy-wide models,
which incorporate the complex interactions among different
sectors, are needed, and their use is growing in the areas of
climate change impact assessment studies (Winters et al., 1996).
 Economic Impact of Climate Change on Crop Production in Ethiopia 533

Although CGE models can analyse the economy-wide impacts of

climate change, there are some drawbacks in using them. Key limit-
ations include difficulties with model selection, parameter specifi-
cation and functional forms, data consistency or calibration
problems, the absence of statistical tests for the model specification,
the complexity of the CGE models and the high skills needed to
develop and use them (Gillig and McCarl, 2002).
The partial equilibrium models available in the literature can be
classified as crop suitability, production function and Ricardian
approaches. The crop suitability approach is also referred to as
the agro-ecological zoning (AEZ) approach, which is used to
assess the suitability of various land and biophysical attributes
for crop production. In this approach, crop characteristics, existing
technology and soil and climate factors, as determinants of suit-
ability for crop production, are included (FAO, 1996). By combining
these variables, the model enabled the identification and distri-
bution of potential crop-producing lands. As the model includes
climate as one determinant of the suitability of agricultural land
for crop production, it can be used to predict the impact of changing
climatic variables on potential agricultural outputs and cropping
patterns (Du Toit et al., 2001; Xiao et al., 2002).
Adaptation to changing climatic conditions can be addressed
within this model by generating comparative static scenarios with
changes in technological parameters (Mendelsohn and Tiwari,
2000). The disadvantage of the AEZ methodology is that it is not
possible to predict final outcomes without explicitly modelling all
the relevant components, and thus the omission of one major
factor would substantially affect the model’s predictions
(Mendelsohn and Tiwari, 2000).
The production function approach is based on an empirical or
experimental production function that measures the relationship
between agricultural production and climate change (Mendelsohn
et al., 1994). In this approach, a production function, which includes
environmental variables such as temperature, rainfall and carbon
dioxide as inputs into production, is estimated. Based on this esti-
mated production function, changes in yield induced by changes
in environmental variables are measured and analysed at testing
sites (Adams, 1989; Kaiser et al., 1993; Lal et al., 1999; Alexandrov
and Hoogenboom, 2000; Olsen et al., 2000; Southworth et al.,
2000). The estimated changes in yield caused by changes in
534 Temesgen Tadesse Deressa and Rashid M. Hassan

environmental variables are aggregated to reflect the overall

national impact (Olson et al., 2000) or incorporated into an econ-
omic model to simulate the welfare impacts of yield changes
under various climate change scenarios (Adams, 1989; Kumar
and Parikh, 1998; Chang, 2002).
One advantage of this model is that it more dependably predicts
the way climate affects yield because the impact of climate change
on crop yields is determined through controlled experiments.
However, one problem with this model is that its estimates do
not control for adaptation (Mendelsohn et al., 1994). In order to
properly apply the production function approach, farmers’ adap-
tations should be included in the model (Dinar et al., 1998).
Moreover, simulations should be run with a variety of farm
methods such as varying planting dates and crop varieties, dates
of harvesting and tilling and irrigation methods. This makes it poss-
ible to identify the activities that maximise profit under changing
climatic conditions (Kaiser et al., 1993). In addition to the failure
to consider farmers’ adaptations, each crop considered under this
model in general required extensive experimentation (involving
high costs). The use of this methodology has therefore been
restricted to the most important crops and a few test locations
and hence has limited value for generalising the results.
The Ricardian model analyses a cross section of farms under
different climatic conditions and examines the relationship
between the value of land or net revenue and agro-climatic factors
(Mendelsohn et al., 1994; Sanghi et al., 1998; Kumar and Parikh,
1998; Polsky and Esterling, 2001). The most important advantage
of the Ricardian model is its ability to incorporate private adap-
tations. Farmers adapt to climate change to maximise profit by chan-
ging the crop mix, planting and harvesting dates, and following a
host of agronomic practices. The farmers’ response involves costs,
causing economic damages that are reflected in net revenue. Thus,
to fully account for the cost or benefit of adaptation, the relevant
dependent variable should be net revenue or land value (capitalised
net revenues), and not yield. Accordingly, the Ricardian approach
takes adaptation into account by measuring economic damages as
reductions in net revenue or land value induced by climatic
factors. The other advantage of the model is that it is cost effective,
since secondary data on cross-sectional sites can be relatively easy
to collect on climatic, production and socio-economic factors.
 Economic Impact of Climate Change on Crop Production in Ethiopia 535

The weaknesses of the Ricardian approach are: it is not based on

controlled experiments across farms; and it does not include price
effects and carbon fertilisation effects (Cline, 1996).

4. Methodology
The Ricardian method used in this study is an empirical approach
developed by Mendelsohn et al. (1994) to measure the value of
climate in US agriculture. The technique has been named the
Ricardian method because it is based on the observation made by
David Ricardo (1817) that land values would reflect land pro-
ductivity at a site under perfect competition. This model makes it
possible to account for the direct impact of climate on crop yields
as well as the indirect substitution among different inputs includ-
ing the introduction of various activities, and other potential adap-
tations to a variety of climates by directly measuring farm prices or
revenues.
The value of land reflects the sum of discounted future profits,
which may be derived from its use. Any factor that influences the
productivity of land will be reflected in land values or net
revenue. Therefore, the value of land or net revenue contains infor-
mation about the value of climate as one attribute of land pro-
ductivity. By regressing land values or net revenue on a set of
environmental inputs, the Ricardian approach makes it possible
to measure the marginal contribution of each input to farm
income as capitalised in land value.
Following Mendelsohn et al. (1994, 1996), the Ricardian approach
involves specifying a net revenue function of the form:
X X
R¼ Pi Qi ðX; F; G; ZÞ  PX X ð1Þ

where R is net revenue per hectare, Pi is the market price of crop i,

Qi is output of crop i, X is a vector of purchased inputs, F is a vector
of climate variables, G is a set of economic variables such as live-
stock ownership, Z is a set of soil variables and PX is a vector of
input prices.
The Ricardian method assumes that each farmer will seek to
maximise net farm revenues by choosing inputs (X) subject to
climate, soils and economic factors. The standard Ricardian
536 Temesgen Tadesse Deressa and Rashid M. Hassan

model relies on a quadratic formulation of climatic variables:

R ¼ b0 þ b1 F þ b2 F2 þ b3 G þ b4 Z þ u; ð2Þ

where u is the error term. To capture the nonlinear relationship

between the net revenues and climate variables, the estimation
includes both the linear and quadratic terms for climate variables,
F (temperature and precipitation).

4.1 Data description

The household data for this study were based on a sample of 1,000
farmers randomly selected from different agro-ecological settings
of the country, who were believed to be representatives of the
whole nation (Table 1). A total of 50 districts (20 farmers from
every district) were purposely selected, starting from the extreme
highlands of the south-eastern regions of the Oromia Regional
State to the lowlands of the Afar Regional States. Yale University
and the University of Pretoria provided the questionnaire for this
study, which asks about a variety of household attributes. The inter-
views with the farmers took place during the 2003/2004 production
seasons. Almost all were small-scale farmers with rain-fed farms, as
more than 95% of Ethiopian farmers are of this type.
The temperature data for this study were derived from the satel-
lite data provided by the US Department of Defense and the precipi-
tation data from the African Rainfall and Temperature Evaluation
System (ARTES). The soil data for this study were obtained from
the Food and Agricultural Organization (FAO). The FAO provides
information about the major and minor soils in each location, includ-
ing the slope and texture. The hydrological data (flow and run-off)
were obtained from the University of Colorado (IWMI/ University
of Colorado, 2003). The hydrology team calculated flow and
run-off for each district using the hydrological model for Africa.

5. Results and Discussion

5.1 Regression results
The Ricardian approach estimates the importance of climate and
other variables on the capitalised value of farmland. Net revenues
were regressed on climatic and other control variables. A nonlinear
 Economic Impact of Climate Change on Crop Production in Ethiopia 537
Table 1: Districts Surveyed in the Sample AEZs

Number Agro-ecology Districts

1 Hot to warm sub-moist lowlands Metema, Kefta Humera, Mi Tsebri, Tanqua Aberegele, Adama; Lume,
Mieso, Dangur, Wembera Sherkole
2 Tepid to cool sub-moist mid-highlands Estie, Achefer, Bahirdar, Hawzen, Jijiga Zuria, Gursum
3 Tepid to cool pre-humid mid-highlands Enarj Enawga, Gozemen, Sude, Chiro, Hagere Mariam, Dega, Kedida
Gamela, Soddo Zuria, Beleso Sorie
4 Tepid to cool humid midlands Ejere, Muka Turi
5 Hot to warm sub-humid lowlands Galena Abeya, Oddo Shakiso, Pawe, Dibati, Bambesi, Assosa Zuria
6 Tepid to cool moist mid-highlands Aleta Wendo, Chena, Robe, Sinana, Genesebo, Gera, Seka Chekorsa
7 Cold to very cold moist Afro-alpine Adaba
8 Hot to warm humid lowlands Konso, Sheko
9 Hot to warm arid lowland plains Shinile, Gode, Gewane, Amibara, Dubti
10 Hot to warm pre-humid lowlands Wenageo
11 Tepid to cool sub-moist highlands Bako
538 Temesgen Tadesse Deressa and Rashid M. Hassan

Table 2: Temperature (oC) (Sample Mean) of AEZs

Agro-ecological zones Winter Spring Summer Fall

Tepid to cool humid midlands 21.13 21.75 20.74 20.09

Cold to very cold moist Afro-alpine 17.17 17.92 14.93 14.75
Tepid to cool pre-humid mid-highlands 19.89 21.38 18.58 18.04
Tepid to cool moist mid-highlands 18.30 19.06 16.96 16.37
Tepid to cool sub-moist mid-highlands 17.25 18.65 15.42 15.16
Tepid to cool sub-moist highlands 20.69 22.53 19.86 19.43
Hot to warm humid lowlands 18.47 18.39 16.10 16.10
Hot to warm sub-moist lowlands 19.01 21.21 18.27 17.54
Hot to warm pre-humid lowlands 17.66 18.00 15.67 15.50
Hot to warm arid lowland plains 22.48 25.46 26.05 23.75
Hot to warm sub-humid lowlands 20.35 22.62 18.38 17.73
Total 19.3 20.63 18.27 18.00

(quadratic) model was chosen, as it is easy to interpret

(Mendelsohn et al., 1994).
In the initial runs, different net revenues calculated per hectare
were tried, where five measures of net revenue have been calcu-
lated (gross revenue – total variable costs – cost of machinery –
total cost of household labour on crop activities in US$) as the
dependent variable that fitted the model best and was therefore
chosen. The independent variables include the linear and quadratic
temperature and precipitation terms for the four seasons: winter
(the average for December, January and February), summer (the
average for June, July and August), spring (the average for
March, April and May) and the fall (the average for September,
October and November). Tables 2 –4 show the averages of tempera-
ture, rainfall and net revenue per hectare for the sample districts.
The independent variables also include household attributes and
soil types. The household variables in the model include livestock
ownership, level of education of the head of the household, dis-
tance to input markets and household size. The soil types include
nitosols and lithosols.
In this regression, temperature, household size and distance to
input markets were expected to have a negative impact on the net
revenue per hectare. Precipitation, level of education of the head
 Economic Impact of Climate Change on Crop Production in Ethiopia 539

Table 3: Precipitation (mm) (Sample Mean) of AEZs

Agro-ecological zones Winter Spring Summer Fall

Tepid to cool humid midlands 22.30 74.33 42.76 55.34

Cold to very cold moist Afro-alpine 32.26 100.24 156.43 97.25
Tepid to cool pre-humid mid-highlands 22.22 77.18 146.63 81.38
Tepid to cool moist mid-highlands 26.29 78.59 109.87 70.58
Tepid to cool sub-moist mid-highlands 24.94 73.70 141.26 71.58
Tepid to cool sub-moist highlands 12.66 54.66 137.45 69.27
Hot to warm humid lowlands 26.14 80.12 92.00 66.50
Hot to warm sub-moist lowlands 18.89 66.32 153.44 74.18
Hot to warm pre-humid lowlands 27.35 86.53 42.74 61.44
Hot to warm arid lowland plains 17.92 45.45 83.21 43.92
Hot to warm sub-humid lowlands 23.50 97.63 224.18 114.71
Total 23.13364 75.89 120.90 73.29

Table 4: Average Net Revenue per Hectare (US$) of The Sample AEZs

Agro-ecological zones Net revenue per hectare

Tepid to cool humid midlands 1270.7

Cold to very cold moist Afro-alpine 896.92
Tepid to cool pre-humid mid-highlands 998.04
Tepid to cool moist mid-highlands 1832.97
Tepid to cool sub-moist highlands 927.75
Tepid to cool sub-moist mid-highlands 655.36
Hot to warm humid lowlands 522.6
Hot to warm sub-moist lowlands 963.17
Hot to warm pre-humid lowlands 192.55
Hot to warm arid lowland plains 2918.6
Hot to warm sub-humid lowlands 1168.92
Total 1213.56

of the household, livestock ownership and soil types were expected

to have a positive impact on the net revenue per hectare.
The regression results indicate that most of the climatic, house-
hold and soil variables have significant impacts on the net revenue
540 Temesgen Tadesse Deressa and Rashid M. Hassan

Table 5: Regression Coefficients of Climatic and Control Variable over Net Revenue per
Hectare

Variable Coefficient

Winter temperature 384.48

Winter temperature squared 235.00
Spring temperature 21740.69*
Spring temperature squared 49.40**
Summer temperature 24495.21**
Summer temperature squared 84.85*
Fall temperature 6743.39***
Fall temperature squared 2133.40**
Winter precipitation 21148.63***
Winter precipitation squared 16.11***
Spring precipitation 656.62***
Spring precipitation squared 22.98***
Summer precipitation 112.30***
Summer precipitation squared 20.48***
Fall precipitation 2525.18***
Fall precipitation squared 3.06***
Livestock ownership 139.30
Level of education of household head 4.32
Distance of input markets 21.15
Size of household 2109.42***
Nitosols 659.04
Lithosols 7619.68*
Constant 2384.70
N 550.00
R2 0.30
F 10.38

*significant at 10%; **significant at 5%; ***significant at 1%.

per hectare (Table 5). The table shows that while the coefficients of
the spring and summer temperature are both negative, those of
winter and fall are positive. The coefficients of the winter and fall
precipitation are negative, whereas for spring and summer they
are positive. The interpretations of the signs and magnitudes of
impacts are further explained under the marginal analysis.
As expected, the education level of the head of the household
and the livestock ownership are positively related to the net
 Economic Impact of Climate Change on Crop Production in Ethiopia 541

revenue per hectare. The distance to input market place is negative,

as farmers incur more cost in terms of money and time as the
market place is located farther from their farm plots. The household
size is negatively related to the net revenue per hectare because
there are many dependent and unproductive people in rural
Ethiopia (such as children and the elderly and sick).

5.2 Marginal impact analysis

The marginal impact analysis was undertaken to observe the effect
of an infinitesimal change in temperature and rainfall on Ethiopian
farming. Following Kurukulasuriya et al. (2006), the marginal
impact of climate variable (fi) on the net revenue evaluated at the
mean of that variable is given as:
 
dR  
E ¼ b1;i þ 2  b2;i  E fi ð3Þ
dfi

Table 6 shows the marginal impacts of temperature and precipi-

tation. Increasing temperature during the winter and summer
seasons significantly reduces the net revenue per hectare. Increase
in the temperature marginally during the winter and summer
seasons reduces the net revenue per hectare by US$997.85 and
US$1277.6, respectively. Increase in the temperature marginally
during the spring and fall seasons increases the net revenue per
hectare by US$375.83 and US$1877.7, respectively. During spring,
a slightly higher temperature with the available level of precipi-
tation enhances germination, as this is the planting season.
During the fall, a higher temperature is beneficial for harvesting.

Table 6: Marginal Impacts of Climate on Net Revenue per Hectare (US$)

Seasons Winter Spring Summer Fall Annual

Temperature 2997.85*** 375.83 21277.28** 1877.69*** 221.61

Precipitation 2464.76*** 225.08*** 218.88 264.19 2322.75***

**significant at 5%; ***significant at 1%.

542 Temesgen Tadesse Deressa and Rashid M. Hassan

It is important that crops have finished their growth processes by

fall, and a higher temperature quickly dries up the crops and facili-
tates harvesting. Marginally increasing annual temperature reduces
the net revenue per hectare by US$ 21.61, although the level of
reduction is not significant.
Increasing precipitation during the spring season increases net
revenue per hectare by US$225.08. As explained earlier, with
slightly higher temperature and available precipitation (soil moist-
ure level), crop germination is enhanced. Increasing precipitation
levels during the winter significantly reduces the net revenue per
hectare by US$464.76. Winter is a dry season, so increasing precipi-
tation slightly with the already dry season may encourage diseases
and pests. Marginally, increasing precipitation during summer and
the fall also reduces the net revenue per hectare, by US$18.88 and
US$64.19, respectively, even though the level of reduction is not sig-
nificant. The reduction in the net revenue per hectare during
summer is due to the already high level of rainfall in the country
during this season, as increasing precipitation any further results
in flooding and damage to field crops. The reduction in the net
revenue per hectare with increasing precipitation during the fall
is due to the crops’ reduced water requirement during the harvest-
ing season. More precipitation damages crops and may re-initiate
growth during this season. Increasing annual precipitation margin-
ally reduces net revenue per hectare by US$322.75. The reduction in
the net revenue per hectare with increasing annual precipitation is
due to the fact that the reduction caused by increasing precipitation
in some seasons outweighs the benefits gained in the other season.
This reduction in the net revenue hectare due to marginal incre-
ment in annual precipitation shows that there is already high inten-
sity of rainfall in some of the seasons in which further increment is
destructive to crop growth. Rainfall intensity is already high in
some seasons overshadowing the need of an optimal seasonal dis-
tribution that is required to coincide with crop growth.
Additionally, the marginal impact analysis has been undertaken
to observe the distribution of impacts across the different zones.
The marginal effects of change in temperature and rainfall for
each zone are calculated by using the parameter estimates from
the net revenue regression at mean values of temperature and rain-
fall of each zone (Seo et al., 2008). As expected, the results indicate
that marginal impacts are not uniformly distributed across each
 Economic Impact of Climate Change on Crop Production in Ethiopia 543

Table 7: Marginal Impacts of Temperature across AEZs

Agro-ecological zones Winter Spring Summer Fall

Tepid to cool humid midlands 21094.93 408.4072 2975.476 1383.373

Cold to very cold moist 2817.663 29.96512 21961.49 2808.088
Afro-alpine
Tepid to cool pre-humid 21008.11 371.8475 21342.05 1930.314
mid-highlands
Tepid to cool moist 2896.783 142.6085 21616.98 2375.871
mid-highlands
Tepid to cool sub-moist 2823.265 102.0964 21878.33 2698.7
mid-highlands
Tepid to cool sub-moist 21064.12 485.4789 21124.82 1559.461
highlands
Hot to warm humid lowlands 2908.686 76.4058 21762.93 2447.907
Hot to warm sub-moist 2946.495 355.0498 21394.66 2063.714
lowlands
Hot to warm pre-humid 2851.972 37.86992 21835.91 2607.988
lowlands
Hot to warm arid lowland 21189.45 774.9921 274.3166 406.8828
plains
Hot to warm sub-humid 21040.32 494.3718 21375.99 2013.022
lowlands

AEZ. Increasing winter temperature damages the hot to warm arid

low-land plains the most and the cold to very cold moist
Afro-alpine zones the least. The hot to warm arid lowland plains
are already hot and arid places with very high moisture stress
and thus, increasing temperature marginally highly reduces the
net revenue per hectare. The cold to very cold moist Afro-alpine
zones have relatively cooler temperature and thus, the reduction
in the net revenue per hectare induced by marginally increasing
temperature during the winter season is the smallest. The benefits
from increasing the fall temperature are also not equally distributed
among the different zones. For instance, increasing the fall tempera-
ture benefits the cold to very cold moist Afro-alpine zone the most
and the hot to warm arid lowland plains the least (Table 7).
Increasing winter precipitation damages the tepid to cool sub-moist
544 Temesgen Tadesse Deressa and Rashid M. Hassan

Table 8: Marginal Impact of Precipitation across AEZs

Agro-ecological zones Winter Spring Summer Fall

Tepid to cool humid midlands 2430.243 213.5219 71.14928 2186.482

Cold to very cold moist 2109.395 59.07165 238.1864 70.00727
Afro-alpine
Tepid to cool pre-humid 2432.82 196.533 228.7601 227.1173
mid-highlands
Tepid to cool moist 2301.711 188.1279 6.598253 293.2135
mid-highlands
Tepid to cool sub-moist 2345.199 217.2773 223.5948 287.0934
mid-highlands
Tepid to cool sub-moist 2740.783 330.7753 219.9301 2101.231
highlands
Hot to warm humid lowlands 2306.543 179.0075 23.78685 2118.183
Hot to warm sub-moist 2540.092 261.2697 235.3104 271.1814
lowlands
Hot to warm pre-humid 2267.564 140.7973 71.16852 2149.15
lowlands
Hot to warm arid lowland 2571.339 385.6764 32.24168 2256.373
plains
Hot to warm sub-humid 2391.587 74.62994 2103.353 176.8627
lowlands

highlands the most and the cold to very cold moist Afro-alpine
zone the least (Table 8). This difference could be associated with
the difference in humid conditions, which make higher rainfall
more harmful to some of the zones than the others (Seo et al., 2008).

5.3 The impacts of forecasted climate scenarios

The impact of climate change on the net revenue per hectare was
analysed using the climate scenarios from the Special Report on
Emission Scenarios (SRES). The SRES was a report prepared on
future emission scenarios to be used for driving climate change
models in developing climate change scenarios (IPCC, 2001).
Future climate change scenarios from climate change models are
commonly used to analyse the likely impact of climate change on
 Economic Impact of Climate Change on Crop Production in Ethiopia 545

economic or biophysical systems (Du Toit et al., 2001; Xiao et al.,

2002; Kurukulasuriya et al., 2006).
Predicted values of temperature and rainfall from three climate
change models (CGM2, HaDCM3 and PCM) were applied to help
understand the likely impact of climate change on Ethiopian agri-
culture. The predicted values for the scenario analysis were taken
from the hydrological component of the project from Colorado
University.
By using parameters from the fitted net revenue model, the
impact of changing climatic variables on the net revenue per
hectare is analysed as:
Dy ¼ y0  y ð4Þ
Xn
Dy
NRh ¼ ; ð5Þ
1
n

where y0 is the predicted net revenue per hectare from the estimated
net revenue model under the new1 (future) climate scenario, y is the
predicted value of the net revenue per hectare from the estimation
model under the current climate scenario, Dy is the difference
between the predicted value of the net revenue per hectare under
the new climate scenarios and the current climate scenario, NRh
is the average of the change in the net revenue per hectare and n
is the number of observations.
Table 9 shows the predicted values of temperature and precipi-
tation from the three models for the years 2050 and 2100. As can
be observed from this table, all the models forecasted increasing
temperature levels for the years 2050 and 2100. With respect to pre-
cipitation, while the CGM2 predicted decreasing precipitation for
the years 2050 and 2100, both HaDCM3 and PCM predicted
increasing precipitation over these years.
The results of the predicted impacts from the SRES models are
presented in Table 10. The table shows that all the predicted
values used from every SRES model result in the reduction of the
net revenue per hectare by both 2050 and 2100. For the CGM2 scen-
ario, the reduction is 9.71% for the year 2050 and 130.04% for the
year 2100. In the case of the HADCM3 scenario, the net revenue
1
New climate scenario equals the current climate scenario plus the projected
change in climatic variables (temperature or rainfall) from the three climate pre-
diction models.
546 Temesgen Tadesse Deressa and Rashid M. Hassan

Table 9: Climate Predictions of SRES Models for 2050 and 2100

Model Temperature Precipitation

Current 2050 2100 Current 2050 2100

CGM2 21.25 24.51 29.26 76.77 64.75 50.27

HADCM3 21.25 25.07 30.66 76.77 83.53 93.46
PCM 21.25 23.50 26.69 76.77 80.83 85.67

Table 10: Forecasted Average Net Revenue per Hectare Impacts from SRES Climate
Scenario (US$)

Impacts CGM2 HADCM3 PCM

2050 2100 2050 2100 2050 2100

Change in net 2182.60 21830.61 2728.80 23601.17 309.77 21323.91

revenue per (9.71%) (130.04%) (303.27%) (418.01%) (15.40%) (103.39%)
hectare (US$)

reduction amounts to 303.27% for the year 2050 and 418.01% for the
year 2100. The reduction in the net revenue per hectare in the case
of the PCM scenario amounts to 15.40% for the year 2050 and
103.39% for the year 2100. As can be observed, although the net
revenue reduction is common for all models and both years, it is
greater in the year 2100 than in 2050. This indicates that the level
of damage due to climate change continues to increase in the
future unless adaptation is undertaken to reduce this negative
impact of climate change. This result is also in line with the fact
that future climate change is damaging to African agriculture
(Hassan and Nhemachena, 2008; Kurukulasuriya and
Mendelsohn, 2008).
Moreover, net revenue impacts from the predicted SRES models
are estimated for each of the AEZs by using the parameters from the
net revenue regression to compare the distribution of impacts.
Table 11: Forecasted Average Net Revenue per Hectare Impacts from SRES Climate Scenario across Different Agro Ecological Settings
(US$)

Economic Impact of Climate Change on Crop Production in Ethiopia 547

Agro ecological zones CGM2 HADCM3 PCM

2050 2100 2050 2100 2050 2100

Hot to warm sub-moist lowlands 285.97 21076.59 2921.53 23471.59 2600.39 21403.77
(8.93%) (111.78%) (95.68%) (360.43%) (62.33%) (145.74%)
Tepid to cool sub-moist mid-highlands 2910.65 22731.45 21898.49 25490.08 21286.35 22679.23
(98.16%) (294.42%) (204.63%) (591.76%) (138.65%) (288.79%)
Tepid to cool pre-humid mid-highlands 2546.28 22592.00 2813.10 23746.72 2371.27 21442.22
(54.74%) (259.71%) (81.47%) (375.41%) (37.20%) (144.51%)
Tepid to cool humid midlands 21341.62 24368.45 21792.08 25959.84 21005.75 22774.48
(105.58%) (343.78%) (141.03%) (469.02%) (79.15%) (218.34%)
Hot to warm sub-humid lowlands 178.22 2747.09 2706.18 23230.05 2396.89 21174.20
(15.52%) (63.91%) (60.41%) (276.33%) (33.95%) (100.45%)
Tepid to cool moist mid-highlands 2118.91 22016.49 10.69 22286.69 282.19 2454.97
(6.49%) (110.01%) (0.58%) (124.75%) (15.40%) (24.82%)
Cold to very cold moist Afro-alpine 467.79 21322.78 931.49 2848.37 1064.79 598.04
(52.15%) (147.48%) (103.85%) (94.59%) (118.72%) (66.68%)
Hot to warm humid lowlands 21071.85 23334.71 21611.51 25117.40 21011.67 22395.80
(205.10%) (638.10%) (308.36%) (979.22%) (193.58%) (458.44%)
Hot to warm arid lowland plains 1470.53 2433.08 986.22 22106.85 1475.00 315.91
(50.38%) (14.84%) (33.79%) (72.19%) (50.54%) (10.82%)
Hot to warm per humid lowlands 244.93 21866.29 2443.63 23317.83 219.91 21049.06
(23.34%) (969.25%) (230.40%) (1723.1%) (10.34%) (544.82%)
Tepid to cool sub-moist highlands 2416.67 21455.82 2900.99 23078.89 2675.44 21296.21
(63.58%) (222.14%) (137.48%) (469.80%) (103.06%) (197.79%)

Source: Central Statistics Authority (2005).

548 Temesgen Tadesse Deressa and Rashid M. Hassan

Following Seo et al. (2008), impact estimates for each AEZ are calcu-
lated at the mean of a climate variable at that AEZ. As expected, the
results indicated that the different AEZs are not uniformly affected
by future changes in climate (Table 11). This result is in line with the
findings by Seo et al. (2008), which revealed that different AEZs in
Africa are not equally affected by future climate change.
For the CGM2 scenario, the hot to warm sub-humid lowlands,
cold to very cold moist Afro-alpine zone and hot to warm arid
lowland plains will benefit from climate change, whereas the
remaining zones will experience a reduction in net revenue by
2050. Under the HADCM3 scenario, the tepid to cool moist mid-
highlands and hot to warm arid lowland plains will benefit by
the year 2050, whereas the remaining zones will lose. By the year
2100, all of the zones will experience a reduction in the net
revenue per hectare both for the CGM2 and HADCM3 scenarios.
The tepid to cool moist mid-highlands, cold to very cold moist
Afro-alpine zone and hot to warm arid lowland plains will
benefit from climate change by 2050 under the PCM scenario,
whereas the remaining zones will experience a reduction. By the
year 2100, the cold to very cold moist Afro-alpine zone and the
hot to warm arid lowland plains will benefit from climate change
under the PCM scenario, whereas the others will lose. As these
results indicate, although a few of the AEZs benefit from climate
change under the different scenarios, the majority of the zones
will lose both by the years 2050 and 2100 with higher levels of
loss by the year 2100. Moreover, the estimated future losses are so
high that agriculture has to adapt in order to avoid the likely
failure of the sector.

6. Conclusions and Policy Implications

This study is based on the Ricardian approach that captures
farmers’ adaptations to varying environmental factors to analyse
the impact of climate change on Ethiopian agriculture. A total of
1,000 households from 50 districts across the country were con-
sidered for this study.
Net revenues were regressed on climatic and other control vari-
ables. The independent variables include the linear and quadratic
temperature and precipitation terms for the four seasons (winter,
spring, summer and the fall), household variables and soil types
 Economic Impact of Climate Change on Crop Production in Ethiopia 549

collected from different sources. The regression results indicated

that the climatic, household and soil variables have a significant
impact on the net revenue per hectare for Ethiopian farmers.
The marginal impact analysis showed that increasing tempera-
ture marginally during winter and summer reduces the net
revenue per hectare by US$997.85 and US$1277.28, respectively,
whereas increasing temperature marginally during spring and the
fall increases it by US$375.83 and US$1877.69, respectively.
Increasing the annual temperature reduces the net revenue per
hectare by US$ 21.61. Increasing precipitation during spring
increases the net revenue per hectare by US$225.08, whereas
increasing precipitation during winter significantly reduces the
net revenue by US$464.76. Marginally increasing precipitation
during summer and the fall also reduces the net revenue per
hectare by US$18.88 and US$64.19, respectively, even though the
level of reduction is not significant. Increasing the annual precipi-
tation marginally reduces the net revenue per hectare. This is
mainly due to the high intensity of precipitation in some of the
seasons, which is more than that of crop requirement, damaging
crop growth by overweighting the benefits from marginal incre-
ments in precipitation in some of the seasons. Moreover, the mar-
ginal impact analyses undertaken for each of the AEZs indicate
that the impacts are not uniformly distributed across the different
zones.
Forecasts from three different climate models (CGM2, HaDCM3
and PCM) were also considered in this study to see the effects of
climate change on Ethiopian farmers’ net revenue per hectare in
the years 2050 and 2100. The results indicated that climate change
reduces the net revenue per hectare both by 2050 and 2100 under
all scenarios from the SRES models. The reduction in the net
revenue per hectare is more in the year 2100 than 2050 under all
scenarios. Furthermore, the net revenue impacts from the predicted
SRES models are estimated for each AEZ to compare the distri-
bution of the impacts. Results indicate that the different AEZs are
not uniformly affected by future changes in climate. These indicate
that the damages that climate change causes to the welfare of
Ethiopian farmers continue to increase over years, affecting the
different AEZs differently. Moreover, the calculated future
damages are so severe that the survival of the Ethiopian agricul-
tural sector itself will be at stake unless adaptation is practiced.
550 Temesgen Tadesse Deressa and Rashid M. Hassan

The above analysis shows the magnitude and direction of impact

of climate change on Ethiopian agriculture. Most of the results
show that climate change, especially increasing temperature, is
damaging. The damage is also not uniformly distributed across
different AEZs. This has a policy implication worth thinking
about and planning before further damage occurs. The Ethiopian
government must consider designing and implementing adap-
tation policies to counteract the harmful impacts of climate
change. The adaptation policies should target different
agro-ecologies based on the constraints and potentials of each
agro-ecology instead of recommending uniform interventions.
Adaptation options, which could be appropriate for different
agro-ecologies, include investment in technologies such as irriga-
tion, planting drought-tolerant and early-maturing crop varieties,
strengthening institutional set-ups working in research, educating
farmers and encouraging ownership of livestock, as owning live-
stock may buffer the effects of crop failure or low yields during
harsh climatic conditions.

Funding
The GEF and World Bank sponsored this study.

Acknowledgements
This is part of an Africa-wide study on the economic impact of
climate change on agriculture co-ordinated by the Center for
Environmental Economics and Policy in Africa (CEEPA),
University of Pretoria and Yale University. The authors would
like to thank Prof. Rashid Hassan, Dr James Benhin, Dr Pradeep
Kurukulasuria, Prof. Robert Mendelson, Prof. Arial Dinar,
Dr Kidane Georgis and Ato Abebe Tadege. The views expressed
are the authors’ alone.

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