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Climate Change Adaptation Support Program (CASP) Phase II
Henry Okodua
Department of Economics
Covenant University, Nigeria
henry.okodua@covenantuniversity.edu
.ng
Ismael Fofana
Director, Capacity & Deployment
AKADEMIYA2063
ifofana@akademiya2063.org
2023 AGRODEP Annual Conference
“Building Resilient African Food Systems amid Health, Conflict and Climate Disruptions”
Kigali, Rwanda| 21-23 March 2023
Modeling the Economic Impacts of Climate Change
and Adaptation Strategies in Nigeria

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Introduction
• Economic simulation models are practical tools to support
evidence-based planning and implementation of development
programs.
• They establish a relationship between program inputs and
expected outputs and outcomes and facilitate the prioritization
of public interventions and investments.
• The ex-ante analysis of climate change and adaptation
strategies is carried out using a mix of macro- and micro-
economic models.

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Introduction/…2
• The macro-economic model captures issues related to growth,
employment, and income generation.
• The micro-economic model addresses issues related to income
distribution, poverty, and food security and nutrition.
• The macro and micro models communicate in a top-down fashion
through a set of interrelated variables available in both models.
• The models are applied to the Nigerian economy using the most
recent macro and micro databases.

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Introduction/…3
• A stepwise implementation of the methodology is followed.
• First, the simulation scenarios are built through an exhaustive review
of existing literature to collect evidence on the impact of climate
change and adaptation options on agricultural productivity.
• Second, evidence on the productivity effects of climate shocks is fit
into the macro-model to assess economic growth, employment,
income changes by type of production factors and category of
household.
• Third, income changes from the macro model are fit into the micro-
model to evaluate the poverty and food security outcomes.

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Modeling the Macro-Economic Impact of Climate
Change
• In implementing the macro-model, we adopt a stochastic approach to a static CGE
model
• Many studies use a deterministic approach to assess the effects of climate change on
agriculture.
• However, deterministic shocks ignore the uncertainty associated with climate change
and its implications on yield as established in the extant literature
• The key intuition behind the use of a stochastic approach to CGE modeling is that it
considers the uncertainties in the evolution of the climate and its effects on
agricultural yields.
• The climate change shock is translated into variation in the productivity of agricultural
activities and, consequently, is propagated in the economy through the upstream and
downstream linkages of the agricultural sector with the rest of the economy.

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Modeling the Macro-Economic Impact of Climate
Change/…2
Expected output
• Economic growth
• Sectoral distribution
• Employment and factor rewards
Approach
• Social Accounting Matrix (SAM) updating
• Computable General Equilibrium (CGE) modeling
• Baseline scenario implementation
• Climate change scenario implementation
• Climate change and adaptation strategy implementation

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Modeling the Micro-Economic Impact of Climate
Change
Expected output
• Income inequality
• Poverty reduction
Approach
• Survey data handling
• Micro-Simulation (MS) modeling
• Baseline scenario implementation
• Climate change scenario implementation
• Climate change and adaptation strategy implementation

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Case Study of Nigeria
• Effects on the agricultural sector
• Effects on non-agricultural sectors
• Effects on the national economy
• Effects on employment and factor rewards
• Effects on inequality and poverty

9. Effects on the agricultural sector in Nigeria
Table 1: Changes in agricultural
value-added in Nigeria
• Some of the most severely affected
agricultural crops in terms of decline
in value-added due to climate change
shocks include
• Oilseeds, Forestry, Coffee, tea and
cocoa, Sugarcane, Maize, etc.
Business-as-Usual Climate change
Mean SD Mean SD
Agriculture 0.0 0.6 -9.6 0.8
Maize -0.4 0.2 -14.3 0.3
Rice -0.7 0.3 -12.1 0.8
Other cereals 0.0 1.0 -8.7 1.7
Pulses -1.0 0.5 -9.2 0.2
Oilseeds 0.4 0.1 -27.2 0.3
Roots -0.1 0.3 -11.6 0.4
Vegetables -0.2 0.6 -0.6 0.6
Sugarcane -0.6 0.1 -15.2 0.6
Cotton and fibers -1.7 1.0 -10.4 0.8
Fruits and nuts 0.2 0.1 -8.2 0.7
Coffee, tea and cocoa 5.0 1.5 -20.7 2.2
Other crops 0.7 0.5 -2.7 0.5
Cattle and raw milk 1.7 0.3 -13.6 0.5
Poultry and eggs 0.6 0.1 -12.3 0.5
Other livestock 0.4 0.2 -13.0 0.6
Forestry -0.1 0.0 -23.7 0.1
Fisheries 1.2 0.2 -13.8 0.7
Source: Compilation from simulation results (2023).

10. Effects on the non-agricultural sector in Nigeria
Figure 1: Changes in value-
added for industry and
services sectors in Nigeria,
CC against BaU scenarios
 The most negatively affected
sectors by climate change
shocks when compared to
the BaU scenario include:
 Wood and paper products
 Accommodation and food
services
 Public administration
-8.6
-6.0
-4.7
-3.8
-3.8
-3.2
-3.1
-3.1
-3.1
-2.5
-2.5
-2.3
-2.2
-2.1
-2.1
-2.0
-2.0
-1.7
-1.7
-0.9
-0.9
-0.7
-0.7
-0.2
0.6
2.6
Wood and paper products
Accommodation and food services
Public administration
Machinery, equipment and vehicles
Construction
Processed foods
Finance and insurance
Non-metal minerals
Beverage and tobacco
Industry sector
Chemicals and petroleum
Health and social work
Electricity, gas and steam
Mining
Education
Transportation and storage
Metals and metal products
Business services
Water supply and sewage
Services sector
Information and communication
Other services
Real estate activities
Textiles, clothing and footwear
Wholesale and retail trade
Other manufacturing
Source: Compilation from simulation results (2023).

11. Effects on the national economy
• Figure 2: Sector contribution to GDP
decline, under CC scenario
• Change in GDP Growth: -4.2 percent (under
climate change scenario)
 The shrinking agricultural sector is primarily
responsible for the GDP decline with a
contribution of 64%
 The industrial sector also exhibits a modest
contribution to GDP decline under the climate
change scenario (21%) to the GDP decline
 The contribution of the services sector to GDP
decline is the least at 15%.
Agriculture
64%
Industry
21%
Services
15%
Source: Compilation from simulation results (2023).

12. Effects on employment and factor rewards
Figure 3: Changes in employment volume by
category in Nigeria, CC compared to BaU scenarios
• Climate change shocks on agricultural yields
would hit medium-skilled laborers most severely
than low-skilled and high-skilled laborers in
terms of changes in employment numbers
• The model results indicate medium-skilled
employment loss of up to 2.5% due to climate
change shocks.
• High-skilled employment loss is expected to
stand at 1.9%
• Low-skilled employment loss will be 1.1%.
-1.1
-2.5
-1.9
Low skilled labor Medium skilled labor High skilled labor
Source: Compilation from simulation results (2023).

13. Effects on income inequality and poverty
• Figure 4: Share of Employment Earnings by
Labor Category and Economic Sector in
Nigeria
• In the long-run, agriculture sector will account
for 51% of all earnings of low-skilled workers
• The services sector accounts for 36% of
earnings by the same category of labor.
• The industry sector will be responsible for
only 13% of earnings of low-skilled workers.
51
13
36
19
34 47
9
25
66
Agriculture Industry Services
Low skilled labor Medium skilled labor High skilled labor
Source: Compilation from simulation results (2023).

14. Effects on income inequality and poverty
• Figure 5: Changes in Real Consumption Expenditures
by Household Category in Nigeria, CC against BaU
Scenarios
• Real consumption expenditures by the poorest
household quintile in Nigeria will decrease by 4.7% due
to climate change shocks
• Rural households will decline by 4.1%.
• Urban households are expected to experience a much
better outcome in terms of changes in real
consumption expenditures as this category will suffer a
decline of only 2.4%.
• Overall, the decrease in real consumption expenditure
for the entire country will be 3.3%.
-3.3
-4.1
-2.4
-4.7
All Rural Urban Quintile (poorest)
Source: Compilation from simulation results (2023).

15. Effects on income inequality and poverty/…2
• Table 2. Change in Poverty, CC against BaU
Scenarios
• Climate change shocks is also expected to
worsen the poverty situation in Nigeria.
• Using both the 2019 National poverty line of
137,430 Naira per person per year and the
2019 food poverty line of 81,767 Naira per
person per year,
• The results in Table indicate that rural and
urban poverty rates will be exacerbated by
climate change shocks.
All Areas Rural Urban
Poverty
Headcount,
National
poverty line
Percentage 2.1 2.9 0.7
Number of
Individuals
4,358,851 3,821,611 537,239
Poverty
Headcount,
Food
poverty line
Percentage 0.9 1.6 -0.4
Number of
Individuals
1,861,045 2,142,321 -281,275
Source: Compilation from simulation results (2023).

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The contribution of climate change
adaptation strategies
• Four adaptation options are tested. These are:
• (i) Soil and water conservation (reduced tillage, terracing,
ridging, bunds, and mulching),
• (ii) Use of improved varieties,
• (iii) Irrigation, and
• (iv) Use of organic and inorganic fertilizers.
• Empirical evidence on the impacts of these adaptation
strategies on crop yields has been obtained from existing
research results (peer-reviewed), and is presented next

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The contribution of climate change
adaptation strategies/…2
• Adaptation Scenarios
- Soil and water conservation [Crops 8-46%, Maize 14-50%]
o Reduced tillage increases crop yield between 8% for Cote d’Ivoire (World
Bank, 2019).
o Terracing, ridging, and bunds increase crop yield between 44% for Cote
d’Ivoire (World Bank, 2019).
o Mulching increases crop yield between 46% for Cote d’Ivoire (World Bank,
2019).
o Soil and water conservation increases maize yield between 14 and 50% in
Africa (Lebel et al., 2015).

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The contribution of climate change
adaptation strategies/…3
• Adaptation Scenarios
- Improved Varieties [Crops 25-36%, Maize 20-62.3%]
o Crop yield increase by at least 25% in Sub-Saharan Africa (Waha et al., 2013).
o Cote d'Ivoire, Improved crop varieties use increase crop yield by 36% (World Bank, 2019)
o Increase of maize yield between 20% and 50% in Western Africa (CGIAR, 2010).
o Cameroon (Maize from 32.1% to 62.3%; Sorghum by 38.3% to 155.7% in 2020 and by
o 5.7% to 79.9% in the 2080; Bambara groundnut (11% to 100%) (Tingem, M., & Rivington, M.,
2008)

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The contribution of climate change
adaptation strategies/…4
• Adaptation Scenarios
- Irrigation [agriculture 38-50%, rice 23%]
o Increasing agricultural production by 38 percent for sub-Saharan Africa (Mabhaudhi, 2018).
o Irrigation has the potential to boost agricultural productivity by ~50% (Shukri, 2013)
o Increase of rice yield by 23% in Ghana (Koide et al., 2021)
- Organic and Inorganic Fertilizer [crops 42-73%]
o Cote d'Ivoire, Inorganic fertilizer use increase crop yield by 68% (World Bank, 2019).
o Cote d'Ivoire, Organic fertilizer use increase crop yield by 73% (World Bank, 2019).
o Cote d'Ivoire, green manure use increase crop yield by 42% (World Bank, 2019).

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The contribution of climate change
adaptation strategies/…5
• Simulation Results
• The key question driving the climate adaptation simulation
scenarios is;
• What is the share of cultivated area that Nigeria must cover
under each adaption strategy to wipe out the economic (GDP)
loss caused by the climate change shock on agriculture yields?
• Figure 6 provides the answers based on the simulation results.

21. The contribution of climate change
adaptation strategies/…6
• Figure 6: Additional cultivated area to
cover under various adaptation options
(%)
• In order to recover the GDP loss that is due
to climate change shocks
• Soil and water conservation (reduced
tillage, terracing, ridging, bunds, and
mulching) in Nigeria must cover additional
59% of total crop area
• Additional 49% of total crop area using
improved varieties should be cultivated
• Although irrigation may be contentious as
an adaptation measure, our simulation
results show that irrigating additional 36%
of the total crop cultivation area of the
country will be helpful.
• Finally, the application of organic and
inorganic fertilizer to cover additional 27%
of Nigeria’s total crop area will also help.
59
49
36
27
Soil and Water
Conservation
Improved Varieties Irrigation Organic and Inorganic
Fertilizer
Source: Compilation from simulation results (2023).

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Summary and Conclusion
• The assessment of the economic impact of climate change has
clearly showed the urgency of implementing adaptation strategies.
• If the country continues on the path of business-as-usual without
embracing significant climate adaptation measures, climate change
will reduce Nigeria’s economic output (measured in terms of GDP)
by 4.2%.
• The agricultural sector is primarily responsible for the Gross
Domestic Product (GDP) decline with a contribution of 64 percent.
• Similarly, because of climate change, the number of the extremely
poor people will increase by 0.9 percent.
• This represents an additional 1,861,045 individuals unable to afford
the cost of the minimum food basket.

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Summary and Conclusion/…2
• However, the extensive promotion and implementation of soil and water
conservation, irrigation, improved crop verities, and organic and inorganic
fertilizers, will help to combat the adverse or damaging effects of climate
change.
• In order to fully insulate the country from these adverse effects of climate
change, cultivation areas under soil and water conservation, irrigation,
improved crop variety and fertilizers have to increase by 59, 49, 36, 27
percent respectively
 Mainstreaming adaptation practices in the agricultural sector will require
improved prediction capabilities and a better knowledge of climate
suitability for crops.
 The predictions will help to determine – with a certain level of certainty –
how the climate will change in the short-term and plan for cropping
activities.

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Summary and Conclusion/…3
 The crop climate suitability will, based on the predictions mentioned
above, indicate suitable places to grow specific crops based on climate.
 Both inputs would help in adapting to a changing climate rather than
relying only on traditional knowledge of the crop calendar.
 Finally, the study advocates for the promotion of climate smart practices
such as soil and water conservation practices, irrigations and improved
agricultural technologies to protect the productivity decline of the
agricultural sector and hence shield the economy from climate induced
crises.

25. Thank
You