Ginbo Gatiso, Tsegaye
- Department of Economics, Swedish University of Agricultural Sciences
Abstract
Climate change and emerging pests and diseases may negatively affect coffee yields and revenues in Ethiopian regions at low altitudes. Hence, the relocation of coffee farms to regions at higher altitudes has been suggested in order to assure sustainability and resilience for Ethiopian coffee production. In this paper, we study how sunk establishment costs, uncertain net returns and policy-induced incentives may affect the timing and value of a coffee farm relocation. This is done by developing a real-options model taking into account the relevant drivers of the farmer's decision to relocate. We then present an empirical analysis examining a hypothetical relocation. We show that relocation is a rather attractive opportunity even though the presence of volatile net returns and relatively high establishment costs may induce its postponement. Thus, we determine the optimal amount of subsidy needed in order to foster the relocation process.
Keywords
Real-options; coffee farms; climate adaptation; relocation
Published in
Climate Change Economics
2021, volume: 12, number: 3, article number: 2150011
Publisher: WORLD SCIENTIFIC PUBL CO PTE LTD
SLU Authors
Global goals (SDG)
UKÄ Subject classification
Economics
Publication identifier
- DOI: https://doi.org/10.1142/S2010007821500111
Permanent link to this page (URI)
https://res.slu.se/id/publ/114054