In Canada, large tracts of land in the Boreal Plain Ecozone were cleared for agriculture early in this century. Much of this land clearing was in response to short term high prices of grain on the international markets, as well as agricultural land use and other policies of the government. However, the evidence on the volatility of grain prices and the soil characteristics of the land suggest that producing grain on these marginal lands is uneconomic and inefficient. In this paper we consider the integrated impact of global warming on land use policy. We test the hypothesis that through a policy of reforestation based on integrated ecological-economic considerations, the social gain from returning these lands to forest might exceed the private gain of the use of these lands in producing low yield grain and forage. This should especially be true given the role that forests plan in carbon sequestration.
We fit Auto-regressive Integrated Moving Average (ARIMA) models to both value-added in forestry and in grain farming and show that on the basis of second order stochastic dominance, the reforestation of the marginal lands in Saskatchewan would be socially preferred. The paper thus illustates how global change should be taken into account in decision-making about land use.