Climate Change Impact on Drought, Floods, and Agriculture

Dealing with changing weather patterns is a big part of agriculture. Wet and dry periods have historically followed predictable patterns. The first Golden Age of agriculture in the U.S. lasted from 1909 to 1914, when conditions were stable, prices were high, and productivity was increasing.

Now, agriculture is seeing climate change impact the American West in unfamiliar ways. The swings between wet and dry seasons are projected to be more erratic, bringing droughts, floods, and other adverse impacts to the agricultural sector. Farms near coastal waterways are especially at risk of sea-level rise, soil erosion, and land subsidence.

Ag lenders and investors should be vigilant about addressing climate change impacts on drought and flood risk in order to mitigate the overall risk to their portfolios.

Changing weather patterns can have an impact on their borrowers, their bottom lines, and ultimately the longevity and sustainability of their financial investments. This post will take a look at how access to better water and climate data can help to mitigate those risks.

Climate Change’s Impact on Water – Droughts and Floods

Climate change is expected to impact farming communities in many ways, with major effects on crops, livestock, and farmworkers. It is projected that not only will more radical weather lead to more dangerous working conditions, but changes to the regional climate may bring in weeds and pests that were previously not prevalent in the area.

One of the biggest projected impacts will be on water, specifically drought and flood patterns. As the EPA points out, variability between wet and dry conditions is normal, and has been occurring for as long as farmers have been keeping records:

“The 1930s and 1950s saw the most widespread droughts, while the last 50 years have generally been wetter than average…. [But] over the period from 2000 through 2015, roughly 20 to 70 percent of the U.S. land area experienced conditions that were at least abnormally dry…. In several states, 2012 was among the driest years on record.”

The latter half of the 1900s could be viewed as an exceptionally favorable period for agriculture, coinciding with technological advances that made farming more productive and profitable. Now, studies show that climate change has introduced a wild card that may very well make it harder for ag professionals to identify water risk and prepare for adverse weather conditions.

Ag finance institutions — as key leaders and influencers in the agricultural sector — have an opportunity to learn from drought history and guide borrowers toward greater water resilience and sustainability in the face of climate change.

Quantifying Climate Change in Agriculture

In order to plan and prepare for extreme conditions like a megadrought, it’s important to rely on hard data, not just anecdotal evidence.

As the EPA explains, “drought can …. be thought of as an extended imbalance between precipitation and evaporation.” Rain may still fall in some places, but rising temperatures increase the rate of evaporation, depleting soil moisture and drying out farmland.

One study focuses on the impact of climate change on drought risk in Brazil, Australia, the U.S., Spain, and Portugal:

Although shorter droughts are expected to grow in duration rather than magnitude, all of these regions are “particularly vulnerable to multi-year drought events, with the potential for drought magnitude to exceed historical experience.”

Climate Change Impacts on Freshwater

NASA has also been at the forefront of climate research, particularly in monitoring rainfall and freshwater resources. Using data from tree rings and satellite imagery, NASA scientists have plotted out changes in precipitation amounts across the U.S. between 1958 and 2016.

Although heavy rainfall increased most prominently in the eastern states, the West also experienced “increases in heavy rain events that can overwhelm the local watershed’s capacity to absorb excessive water.”

NASA also used paleoclimate data to look as far back as 1100 and compare current rainfall patterns with previous records.

“According to these climate forecasts,” they found, “the future of fresh water will be full of extremes: Droughts will pose serious challenges … in some regions, and floods will do the same in others.”

A Flood of Uncertainty

In many ways, it’s the uncertainty that climate change brings to the equation that’s most challenging for agricultural professionals. After all, even floods have agricultural value in certain instances. As the University of Nevada points out, farming in floodplains helps with groundwater recharge, soil formation, and the protection of urban areas from floodwaters.

But if, as a result of climate change, too much water is lost during extreme flooding events, it could lead to increased runoff and soil depletion. Farmers in the Colorado River Basin are especially vulnerable to more extreme variation in hydroclimate activity. The Los Alamos National Laboratory makes the case that, in this basin,

“Climate change is driving extreme, interconnected events among earth-system elements such as weather and water. These events are becoming both more frequent and more intense and are best studied together, rather than in isolation.”

Ag professionals can prepare for these swings in wet and dry conditions by building better runoff collection infrastructure and expanding groundwater recharge. In their 2021 hydrology assessment, the Bureau of Reclamation found that warmer winters and colder springs will actually improve prospects for aquifer recharge because early snowmelt has time to sink into the ground before the heat of the summer arrives, driving increased evaporation.

However, if spring temperatures are too warm, then snowmelt evaporates too quickly, diminishing drought and heat resilience opportunities for the agriculture community.

Ag lenders should be especially aware of how swings in temperature and rainfall patterns can impact growers and increase physical and material risks in their portfolios.

Implications for Agriculture

Whether or not the impacts of climate change on flood and drought risk in agriculture are understood has real-world impacts on agricultural lending portfolios. These include the number of water risks that will be present in a portfolio, the long-term viability of farmland parcels, the health of a lender’s relationships with borrowers, the public image of agricultural banks and businesses, and more.

Ag lenders can prepare to navigate a probable market shift by proactively learning about transition risks. These include risks associated with increased reporting requirements driven by government regulations. At the federal level, lawmakers have proposed the Addressing Climate Financial Risk Act, which would create guidelines for banks and credit unions to disclose climate risk. In California, a similar bill has been introduced in the state Senate.

These kinds of regulations will increase the pressure on agricultural banks and lending institutions to factor climate and water risk into their portfolios. But ultimately, it simply makes good business sense to begin tracking the relevant data now.

By assessing the impact of climate change on drought and flood risk now, lenders can work with their borrowers to put appropriate mitigation strategies in place and create a more sustainable and resilient agricultural system.

The Bottom Line

Droughts and floods are a material risk in nearly any agricultural region. According to research by NASA, the EPA, and other major institutions, climate change is likely to increase the duration, magnitude, and uncertainty of extreme weather events in many parts of the world, including key agricultural regions in the American West.

Ag lenders, investors, and other professionals can mitigate these risks by using data-driven intelligence to inform their decisions.

AQUAOSO’s Water Security Platform is purpose-built for the agricultural sector, with a map-based tool that makes it easy to monitor water risk on a parcel-by-parcel basis.

Contact our team today to schedule a demo of the Water Security Platform, download the Drought white paper, or visit the Resources page to learn more about drought risk in agriculture.

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