Understanding Drought History Patterns for Ag Lender Resilience
Understanding drought risk in agriculture is enhanced with both a historical and forward-thinking perspective. Only by taking into account what has happened during previous droughts can ag professionals apply the latest tools and methods to mitigating climate risk and water scarcity.
It’s not enough to simply react to droughts when they happen. Future droughts may be different — longer or less predictable — than those in the past, but by learning from drought history, lenders can gain deeper insights into drought’s impacts and be better prepared for what’s to come.
This article will show how using data to understand the indicators and impacts of past droughts can help ag lenders prepare for the next one.
Lessons From a 5-Year Drought (California 2012-2016)
Few California residents can forget the 5-year drought that lasted from 2012 to 2016 — ag professionals most of all. One assessment published in 2015 found that the drought cost the state of California around $1.84 billion and over 10,000 agricultural jobs. And according to a 2021 report by the Department of Water Resources,
“For some areas in Southern California, this five-year period represented the driest or second-driest period … in a paleoclimate record dating to the 1400s.”
Throughout the drought, water and temperature predictions were a recurring challenge. In 2015, “overly optimistic temperature projections” resulted in water delivery issues as the U.S. Bureau of Reclamation scrambled to revise its models. According to the 2021 report, “This delay in reporting actual temperatures … resulted in greatly reduced deliveries to CVP service contractors during the peak summer season.”
The Journal of Water Resources Planning and Management notes that “some water contractors … received zero deliveries for the first time since the project began in the 1950s … forcing users to drill new wells or purchase water from others with a contract allocation.” This led to an increased reliance on groundwater resources, accelerating aquifer depletion and overdraft, and diminishing the health of ecosystem services.
Despite the focus on agriculture, though, the Journal makes the case that “perhaps the greatest impact of California’s drought was the death of 102 million forest trees,” while Chinook salmon populations also declined significantly. It is worth taking into account that healthy forests and headwaters are pivotal to a properly functioning water cycle, which agriculture benefits from.
Learning from Drought History
The drought history in California makes it possible to put the 2012-2016 drought into a historical perspective. A 2021 drought report found that “California’s most significant historical droughts share some common themes and lessons” and that “historically, there have been important gaps in information or tools uniquely associated with drought.”
These include gaps in seasonal forecasting, the monitoring of groundwater basins, and the availability of water rights data, which, as they explain, “is not within easy reach of the public; many records exist only on paper. Digitization of water rights data in an easy-to-use format would build understanding and transparency.”
While the 2012-2016 drought is just one example that ag professionals can learn from, it’s a clear warning that when businesses and communities don’t make decisions based on data (including historical data), they have no choice but to react, in ways that aren’t always best for their businesses, communities, ecosystems, economies, and long-term resiliency.
Developing Drought Resiliency
The impact of climate change on snowmelt and weather patterns will only increase the need for drought resiliency planning. Drought resiliency doesn’t mean that businesses are immune to drought, but that they’re able to recover from hardships more easily.
For ag lenders and investors, drought resiliency starts with gathering portfolio-specific data on water risk such as:
- Water rights
- Well reports
- Groundwater depth
- Water and irrigation districts
- Crop-specific water needs
- And more
Businesses can combine this information to develop on-the-ground risk mitigation strategies in partnership with borrowers. The more ag finance institutions can use data to support their decision-making, the better prepared they’ll be to be resilient during drought.
Learn from drought history – watch for drought indicators that are relevant to a specific region or parcel of land.
Drought Indicators are Repeating
Many of the indicators of the 2012-2016 drought are already happening again in parts of California, including record-low snowpack in the Sierra Nevada range. Entities that manage water are responding by reducing water allocations in some parts of the state to as little as 5% of requested amounts — just as they did in the lead-up to the last drought. Meanwhile, the Nasdaq Veles California Water Index and water futures have increased by 30%, suggesting that increased competition for water resources is on the horizon.
The most important data points for lenders, though, aren’t statewide trends, but granular, parcel-specific data. For example, ag professionals could look at water deliveries during the previous drought as a benchmark for what water supplies might be available in a dry year.
Likewise, assessing what happened in a local water district in 2015 could turn out to be crucial to making better decisions in 2021. Growers can proactively determine whether land should be fallowed to conserve water for more profitable crops, rather than being forced to shift gears in the middle of the growing season.
As the DWR points out, collecting accurate water data in a digital format has long been an obstacle to ag professionals who want to learn from drought history. Fortunately, GIS technology has come a long way in recent years, and it’s easier than ever to use GIS in agriculture to gather and analyze data related to California water districts.
AQUAOSO’s Water Security Platform was designed with ag professionals in mind and can provide the insights needed to be informed. The portfolio-specific, map-based format allows lenders and investors to perform water risk assessments on a parcel-by-parcel basis.
This allows for greater insights, and more flexible water risk assessments than lenders can obtain by analyzing macro weather patterns and generalized water risk data. With access to real-time, parcel-specific data, ag professionals will be better able to apply historical lessons to solve today’s — and tomorrow’s — agricultural problems.
For a list of insights and questions that ag lenders and investors can ask themselves to prepare for drought resilience, the AQUAOSO Drought White Paper is here to assist.
The Bottom Line
The American West’s climate is particularly susceptible to drought. With centuries of drought history to learn from, ag professionals are well-positioned to learn from past mistakes and increase drought resiliency. A lack of access to historical and real-time data, however, has inhibited long-term drought preparedness. With this gap being filled, opportunities for highly effective risk mitigation arise.
AQUAOSO’s Water Security Platform makes it possible to compare recent and historical datasets on a parcel-by-parcel basis.
By factoring in historical data, such as water delivery information, ag professionals can make an educated prediction about how much water is likely to be available to a grower in a pending drought, resulting in better financial outcomes for all stakeholders.
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