Potential impacts of climate change and adaptation in agriculture on poverty: the case of Nepal

The main theme of this paper is to investigate the socio-economic impacts of climate change and adaptation; by comparing the losses with and without land reallocation for major staple foods as a key strategy of climate change adaptation in the farming system. In doing so, a computable general equilibrium (CGE) model for Nepal has been developed, incorporating the allocation of land for several agricultural crops, including the major staple foods, with specification of a nested set of constant elasticity of transformation (CET) functional forms. The set of land transformation elasticities facilitates switching from one crop to another; based on their agronomic characteristics and degree of climate change impacts. Using Global Trade Analysis Project (GTAP) data and Living Standard Survey (LSS) data, a social accounting matrix (SAM) for Nepal is developed and used to simulate three scenarios of climate change and land reallocation. The simulation results in the long run depict farmers as more likely to use land for crops that are comparatively less impacted by climate change, such as paddy. The results further show that land reallocation reduces the income inequality and poverty among rural and urban households by significantly controlling the income losses of marginal farmers.