Potential impacts of climate change on agriculture: A case of study of coffee production in Veracruz, Mexico

This paper explores the relation between coffee production and climatic and economic variables in Veracruz in order to estimate the potential impacts of climate change. For this purpose, an econometric model is developed in terms of those variables. The model is validated by means of statistical analysis, and then used to project coffee production under different climatic conditions. Climate change scenarios are produced considering that the observed trends of climate variables will continue to prevail until the year 2020. An approach for constructing simple probability scenarios for future climate variability is presented and used to assess possible impacts of climate change beyond what is expected from changes in mean values. The model shows that temperature is the most relevant climatic factor for coffee production, since production responds significantly to seasonal temperature patterns. The results for the projected climate change conditions for year 2020 indicate that coffee production might not be economically viable for producers, since the model indicates a reduction of 34% of the current production. Although different economic variables (the state and international coffee prices, a producer price index for raw materials for coffee benefit, the national and the USA coffee stocks) were considered as potentially relevant, our model suggests that the state real minimum wage could be regarded as the most important economic variable. Real minimum wage is interpreted here as a proxy for the price of labor employed for coffee production. This activity in Mexico is very labor intensive representing up to 80% of coffee production costs. As expected, increments in the price of such an important production factor increase production costs and have strong negative effects on production. Different assumptions on how real minimum wage could evolve for the year 2020 are considered for developing future production scenarios.