Adaptive Capacity to Climate Change: Insights from Coffee Farmers in Nicaragua

Coffee has long been known as a commodity product with a large “footprint” in poor, often mountainous countries in the tropics, and as a leading source of economic growth for many of them. On a global scale it is recognized as the second most traded commodity, after oil (Ponte, 2002). Today, the suitability of the coffee growing regions is compromised due to the impacts of climate change and exacerbated due to the intensification of agricultural practices, which is a result of higher global demand for coffee and increasingly competitive markets. In Latin America, coffee is the main source of income for more than 1 million farmers. Nicaragua alone has 48,000 farmers, 80% of which are small-scale coffee producers (Valkila, 2009). Additionally, Nicaragua is one of the countries in Mesoamerica that will be the hardest hit by the impacts of climate change, and all eyes are drawn to the Matagalpa coffee-growing region where the challenges facing coffee producers are known to be especially daunting (Laderach et al., 2011). How farmers there will respond to a potential 40-60% loss of agro-climatic suitability driven by a predicted 2.2ºC temperature increase and a 130mm decline in precipitation by 2050 (Ovalle-Rivera et al., 2015) is the focus of much consternation and debate among industry, policy and scientific circles (Ovalle-Rivera et al., 2015; Baca et al., 2014; Laderach et al., 2013) In light of the potentially devastating impacts of climate change in Nicaragua’s coffee sector, understanding the incentives of farmers to adopt new production and processing technologies that will help them build adaptive capacity to these impacts is crucial to their future sustainability. Institutions need this knowledge if they wish to allocate their resources efficiently while ensuring rapid uptake of the new technologies (Marshall et al., 1997). The purpose of this study, therefore, is to examine farmers’ preferences for different coffee production strategies and to explore the heterogeneity of these preferences using primary data from Matagalpa, Nicaragua. The results will be used to analyze how the coffee sector in Nicaragua can build adaptive capacity to climate change. We hypothesize that farmers who belong to cooperatives are likely to make significantly different coffee production decisions than those who do not. The empirical methodology of this study is based on experimental choice modeling methods to analyze farmers’ preferences for different coffee production strategies among a series of alternatives. Choice experiments require respondents to state their choice over set of alternatives. These alternatives are described by different attributes and responses are used to infer the value of each attribute. The theoretical background of choice experiments is based on random utility theory, and relies on the assumptions of economic rationality and Lancastrian utility maximization. In other words, by stating a preference, individuals are assumed to have chosen the alternative that will yield the highest utility to them. In our choice experiments, the alternatives that farmers were presented with comprised of varying levels of key attributes that were identified as important characteristics that influence a farmer’s decision to produce and invest in coffee. These attributes are: price of coffee cherry (4 price levels expressed in percentages), access to inputs through subsidies (no input subsidies, subsidies for pesticides only, subsidies for fertilizers only, and subsidies for both fertilizers and pesticides), access to extension services (yes/no), labor requirements (high/low), coffee variety richness (one variety, two varieties), and crop species richness (sole coffee, coffee plus 1 crop, coffee plus 2 crops, coffee plus 3 crops). Farmers had the option of opting out of the choices presented to them and produce in the same way as they usually produce. The data used in this study are derived from 237 household surveys conducted in the department of Matagalpa between June and July 2015. Households were selected using a two stage stratified random selection strategy. The stratification was based on level of vulnerability to climate change. Household and farm specific information was collected through these surveys and used in conjunction with the choice experiment data. These data included: demographic and socio-economic information, coffee production practices, cooperative membership information, and experiences with negative shocks, such as floods, droughts, and other climatic events. Preliminary results from a random parameters model show that coffee producers value subsidized access to fertilizers only and to fertilizers and pesticides together to an equivalent of 8.1% and 25.1% of their total income from coffee, respectively, and that they value access to on-farm extension services to an equivalent of 12.5% of their total income from coffee. These producers, however, would have to receive a premium equivalent to 16% of their total income from coffee in order to accept subsidized pesticides, this is likely a reflection of the recently devastating effect of the leaf rust disease in coffee in Central America, and the inadequate response that farmers received from institutions, in the form of pesticides, to combat the pest. Finally, farmers would have to receive a premium equivalent to 4.2% of their total income from coffee in order to diversify their coffee plantations with other crops (or equivalently, an average of 3,714.72 Nicaraguan Córdobas). The livelihoods of hundreds of thousands of coffee producers around the world are at risk due to the threat of climate change on the suitability of coffee producing regions. This study provides important insights on how coffee producers in Nicaragua value key attributes related to coffee production which enables us to make recommendations on possible policy paths that can help farmers transition to practices that will help them build adaptive capacity to these changes. References Baca, María, Peter Läderach, Jeremy Haggar, Götz Schroth, and Oriana Ovalle. "An integrated framework for assessing vulnerability to climate change and developing adaptation strategies for coffee growing families in Mesoamerica." PloS one 9, no. 2 (2014): e88463. Laderach, Peter, Mark Lundy, Andy Jarvis, Julian Ramirez, Emiliano Perez Portilla, Kathleen Schepp, and Anton Eitzinger. "Predicted impact of climate change on coffee supply chains." In The Economic, Social and Political Elements of Climate Change, pp. 703-723. Springer Berlin Heidelberg, 2011. Ovalle-Rivera, Oriana, Peter Läderach, Christian Bunn, Michael Obersteiner, and Götz Schroth. "Projected Shifts in Coffea arabica Suitability among Major Global Producing Regions Due to Climate Change." (2015): e0124155