IMPACT OF CLIMATE CHANGE ON AGRICULTURE : QUANTIFYING THE PRICE BIAS IN ECONOMETRIC APPROACHES

Many econometric studies assess the impact of climate change on agriculture by assuming exogenous agricultural prices. If climate variables influence these prices, the result is a "price bias," which existence is recognized but which has never been quantified. We quantify this bias in the case of Burkina Faso, with a panel of 45 provinces and 14 years for the three most widely grown cereals: maize, millet and sorghum. Grain yields are sensitive to weather shocks. If these shocks reduce grain yield by 10%, the price of grain increases by 2-3%. The price bias is significant, since the welfare loss is 20% to 70% higher than that calculated by assuming exogenous prices. The magnitude of the bias depends on the magnitude of the weather shock, the econometric model used and the assumptions made about production costs.