Suppose that, initially, crop A is the most profitable crop that can be grown on a particular farm, yielding an average annual profit of \$X, profit being measured after deduction of all costs (including a normal return to the farmer) other than the cost of the property (ie the land). In a competitive property market, the capital value of the property might be expected to approximate to the discounted present value of a stream of \$X per year.
Now suppose that, due to climate change, the relative profitability of different crops changes, and that crop B becomes the most profitable crop, yielding an average annual profit of \$Y. This could represent either an increase or a decrease in profitability. The former is possible for a farm in a cool climate, where perhaps crop B was previously too unreliable, but with a higher average temperature becomes more profitable than crop A. The latter is possible for a farm in the tropics, where perhaps both crops used to be reliable but now crop A suffers from heat stress. In either case the capital value of the property might be expected to change to the discounted present value of a stream of \$Y per year.
So in principle your colleague's suggestion is correct. However, there are many reasons why it might be hard to identify such an effect in practice:
- Some changes in crop in response to climate change might result in the new profitability being similar to the old.
- Average annual profitability may be hard to estimate given random fluctuations in weather conditions.
- Profitability depends on market prices for crops and for inputs such as seeds, labour, fuel and fertilisers which may change.
- The relevant discount rate for converting annual profit to a capital sum may also vary with market conditions.