Carbon emissions, climate risk, price dynamics, and agricultural performance in South Africa: econometric analysis of short and long -run impacts.

Abstract

Agriculture is one of the cornerstone sectors of the South African economy, providing a significant contribution to gross domestic product (GDP), employment, rural livelihoods, and food security. However, it is an industry exposed to increasing risks of carbon emissions, climate variations, and price fluctuations, combining all these together puts productivity, market stability, and longevity at risk. South Africa is the continent's highest emitter of CO₂, yet its agriculture is also among the most vulnerable to climate change. However, robust data on the combined influence of emissions, climate risks, and price dynamics on agricultural performance in the short and long term have been elusive. To bridge this knowledge gap, this dissertation examines the relationships between carbon emissions, climate variability, price risk, and agricultural productivity through an empirical analysis of these variables in South Africa for the period 1992–2021. This work consists of four empirical parts, each addressing a different element of the emissions–climate–price–agriculture nexus. The first investigates the effects of CO2 on food consumption patterns and prices of important farm goods. Employing the Vector Error Correction Model (VECM) methodology, along with Johansen cointegration techniques, unitroot tests, impulse response analysis, and variance decomposition, the study proposes long-run equilibria between emissions, consumer price inflation, purchasing power, and consumption trends. Results show that CO₂ emissions lead to increased food prices in the long run through production variability, which in turn affects consumption among the poorest consumers. In the short term, the effects of shocks related to emissions spread through price inflation channels, which decrease dietary diversity and increase the vulnerability of food-insecure households. Secondly, the research explores the couplings between agricultural growth and carbon emissions in South Africa, and whether the agricultural sector in South Africa has undergone a decoupling process. Using the Autoregressive Distributed Lag (ARDL) modeling, Fully Modified Ordinary Least Squares (FMOLS), and Dynamic OLS (DOLS), the results reveal that CO₂ emissions have a strong long-run relationship with agricultural value-added, trade openness, and renewable energy. Results provide evidence for partial but insufficient decoupling: productivity gains from technological efficiency improvements have been offset by increasing emissions resulting from high demand for mechanization, fertilizer use, and landuse changes to sustain agricultural growth. It concludes that renewable energy adoption has not yet transpired at the level needed to counterbalance the emissions burdens, indicating an imperative for policy to facilitate energy diversification and support low-carbon farming innovations. The third part studies the combined effects of climate variability and price risk for agricultural production. The study also includes external trade Variables, domestic price volatility indicators, temperature, and rainfall anomalies using ARDL, cointegration analysis, and Granger causality. Results show that rainfall variability has a highly significant long-run impact on agricultural production, not surprising given South Africa’s dependence on rain-fed agricultural systems. The short-term effects of temperature increases, especially heatwaves, are detrimental to productivity, while sustained exposure results in long-term soil deterioration and a reduction in output. Driven by climate-related shocks to agricultural production, international market dynamics, and exchange rate volatility, this is compounded by the volatility in production, which constrains farm investment decisions and leads to lower output in the long run. The bidirectional causality between climate variables and prices indicates that climate disturbances not only affect markets but also reinforce these disturbances through the structures of markets and trade conditions. In the final empirical section, the joint impacts of CO₂ emission risk and price volatility on agricultural output are examined within a risk-adjusted Vector Error Correction (VEC) framework. The study reveals robust long-run linkages; i.e., emission risks significantly hinder agricultural productivity by exacerbating environmental degradation, reducing input-use efficiency, and increasing yield variability. These losses are compounded by price risk, which raises costs for inputs and disincentivizes longer-term investments in technology and adaptation. Emission risk and price volatility have a joint negative effect that is more detrimental than the sum of the negative effects of emission risk and price volatility taken independently, which signals the need for integrated risk management. The econometric evidence is consistent across all components, revealing that the South African agricultural sector is substantially vulnerable to environmental and market shocks, with significant short- and long-term effects on productivity, prices, and food security. The results highlight the critical importance of enhancing climate-smart agriculture, expanding renewable energy options, increasing capacity to stabilize markets, and providing targeted investment in adaptation strategies for both commercial and smallholder farmers. To this end, policies such as carbon credit systems, strategic grain reserves, enhanced access to advanced early-warning climate information, and subsidies for low-carbon technologies emerge as essential points of intervention. This dissertation makes several contributions. Conceptually, it advances a unified framework of emissions, climate, price, and agricultural production, which is theoretically presented as separate parcels in South African literature. Methodologically, complementary econometric methods can identify both short-run dynamics and long-run equilibrium relationships, providing a more detailed insight into the sector’s fragilities. In practical terms, the results provide concrete guidelines for policymakers, agribusinesses, and rural development actors seeking to design sustainable and resilient agricultural pathways. More broadly, results confirm that sustainable agricultural development pathways in South Africa will only be achieved through integrated interventions that address the environmental, economic, and technological components of emissions mitigation, market stabilization, and adaptive capacity simultaneously. By quantifying the soil, climate variability, and price risk impacts on crop production, the research enables an empirical basis for integrated policies compatible with national productivity growth, food security, and sustainable climate change adaptation over the long term.