Impact of climate change on agricultural land prices

Climate change affects agricultural land productivity. This risk is more pronounced in agrarian economies, where land constitutes farmers' primary asset. Existing research has largely focused on the effects of climate change on crop yields or income, and with limited attention to how climate change is capitalized into parcel-level land prices in emerging markets. This study addresses the gap by estimating price discounts associated with RCP4.5/8.5 climate scenarios for individual land parcels, controlling for parcel-level micro-location attributes. A sample of land price data (2019–2024) from the coastal state of India, Andhra Pradesh, reveals that markets incorporate climate risks into land prices. Specifically, each 1% increase in rainfall is associated with 3% increase in land price, but a 1°C increase in projected temperature corresponds to about 47% decline in price. The net effect diverges across segments: rural parcels benefit under extreme climate change scenarios, whereas median and urbanizing segments experience 20–35% price declines. The study also finds that micro-location factors explain up to 60% of price variation, exceeding the explanatory power of district fixed effects. Parcel size shows diminishing returns: a 1% increase raises price by only 0.66–0.72%. Proximity to highways generates 12–15% price premiums, while proximity to expressways is associated with premiums exceeding 130%.