Drought in the West – Trends, Agricultural Impacts, and Risk Mitigation

Agriculture professionals in the American West know firsthand the impacts of drought. Drought is a chronic physical risk, meaning its impacts generally occur over an extended period of time. From changing rainfall patterns to rising water prices, lenders and growers alike need to be able to be resilient in a different water environment in order to keep their operations viable in times of drought.

The ag industry has more resources available than ever to make smart decisions about drought, including access to data-driven intelligence.

Data-driven intelligence makes it possible to understand drought in greater detail and use those insights to mitigate the most extreme impacts on agriculture.

This article will take a close look at the progression of drought in the West, including lessons learned from previous droughts and how to prepare for this one.

The Current State of Drought in the West

In recent years, a lot of attention has been paid to the 5-year drought that hit California between 2012 and 2016. But that’s just one example. Oregon, Washington, Colorado, Arizona, Montana, Idaho, Utah, and other states are at risk of drought to varying degrees.

The Pacific Northwest is susceptible to “wet drought,” while farmers along the Colorado River may have to reduce water use by as much as 40% to avoid depleting reservoirs.

Water is local so its issues are local too. By understanding the specific characteristics of drought that are likely to impact their region — on a granular, parcel-by-parcel basis — lenders and investors will be better able to navigate the challenges ahead.

The Indicators of Drought

Although droughts are getting harder to predict because of climate change, several of the key indicators of drought have served as key warning signs before the most recent droughts in the West. These include rainfall and snowpack data, which can be used to inform drought mitigation strategies and other risk mitigation efforts in agriculture.

In many parts of the West, it’s not the total amount of rainfall that matters, but the fact that precipitation is occurring at the wrong times and in the wrong places. That’s why states like Oregon and Washington can still experience drought in the summer, even when year-round precipitation is higher than average. A low level of snowpack in the winter means less snowmelt in the spring and less surface water for irrigation.

Even higher-than-average snowfall in the spring may not be as efficient as snowfall in the winter because of evapotranspiration. Warmer spring temperatures may not give precipitation enough time to seep into the ground and can take away from snowpack.

In addition to relying on firsthand GIS data, ag professionals can look to the responses of state and federal agencies for further signs of impending drought. In March 2021, the California State Water Resources Control Board took the latest snowpack levels into account — 63% of average — and “mailed early warning notices to approximately 40,000 water right holders, urging them to plan for potential shortages.”

Shortly after, the Department of Water Resources reduced the allocations of the State Water Project to 5%, just as they did before the 2012-2016 drought. According to Water Market Insider, “If the SWP allocation is finalized at 5%, 2021 will be only the second time in the SWP’s 60-year history that allocations have been so low.”

Now, in California, Governor Newsom has declared drought in certain parts of the state and is taking a targeted, regional approach.

Duration of Drought

The Bureau of Reclamation — part of the U.S. Department of the Interior — released a quinquennial report in 2021 that uses historical data from the years 1473 to 2005 to project drought characteristics between 2006 and 2099. These included the duration of droughts, as well as the time between droughts, in each of the hydrological basins studied.

This report projects more severe droughts that are short in length (around 2 to 3 years for most areas) and longer droughts that are similar to past droughts in severity, but doubling in length to an average of 4 to 6 years, depending on the basin.

Ultimately, “most of the domain shows a mean drought duration between 3 to 4 years (compared to 1 to 2 years for the historical period)” and fewer wet spells.

Severity of Drought

The report also considered the severity of drought, with results that differ from basin to basin.

For example, in parts of California, “projected future droughts are generally of equal severity to observed historical or paleo events, but of greater length, or alternatively shorter in length and more severe.” In particular, northern parts of the state may see a “decrease in variability” and an “increase in mean drought severity,” which points toward “persistent drought conditions for the region.”

Droughts are projected to become more severe and, in “some regions of the domain, such as the Central Valley of California, portions of the Columbia River Basin, and in sections of Kansas, Oklahoma, and Texas,” have a higher standard deviation, signaling increased variability.

In other regions, such as the Boise River Basin and the Klamath River Basin, future droughts may not be as impactful as historical events. However, overall, “climate model projections indicate an increase in drought duration and an increase in the variability of drought duration for most of the Western United States in the future.”

In short, drought impacts various agricultural areas differently, so a localized, granular approach to risk mitigation is key for agriculture professionals.

How Drought Impacts Agriculture, Communities, And Economies

The impacts of drought don’t happen all at once, but an extended drought can have major effects on the regional economy over time. In California, the 2012-2016 drought resulted in a loss of $1.84 billion and over 10,000 jobs in the agricultural sector.

Other industries suffered too, including outdoor recreation, which depends on snowfall (for skiing), and high reservoir levels (for boating). Two cities — Santa Cruz and Santa Barbara — instituted water rationing to make up for projected shortfalls.

In many droughts, one of the first impacts is a reduction in water deliveries, which may not be enough to meet the needs of all users even in wet years. This leads water rights holders to seek out alternative water sources, including water markets, where prices might be higher than usual due to increased demand.

If alternative water sources aren’t available, some growers may have no choice but to let their fields go fallow or switch to less water-intensive crops. One 2021 report found that as much as “6% of statewide irrigated crop area” was fallowed during California’s 2012-2016 drought. Other farmers had to spend more on groundwater pumping as a result of lower groundwater levels in overdrafted basins.

How Ag Professionals Can Prepare for Drought in the West

While the prospect of another drought can be scary, it’s time for ag professionals to act and plan ahead. In particular, ag lenders should ensure that the borrowers in their portfolios are prepared for the length, severity, and variability of droughts to come.

First, the West as a whole needs to improve water management practices at the local, regional, and watershed levels. While some states have implemented new groundwater sustainability plans, too often the data that ag professionals need is siloed, isn’t digitized, or is otherwise inaccessible or impossible to act on in a timely manner.

The best way to get stakeholders at all levels on the same page is with greater access to un-siloed, up-to-date, real-time, granular data. Ag lenders can work directly with borrowers to improve drought resilience and reduce water risk across the farming operations in their portfolios.

Not only are drought mitigation practices key to reducing financial risk, but lenders and investors can also empower growers to shift to more sustainable water management practices that improve mutual financial resilience to external threats such as drought.

The agricultural industry is in the midst of a paradigm shift due to climate change, so by working toward these solutions now, ag professionals get ahead of the trends and reduce transition risk.

By using granular, un-siloed data to identify the specific, local, and material risks in their portfolios, ag lenders can strengthen relationships with borrowers, make better financial decisions, and lead the shift toward a more water-resilient economy.

The Bottom Line

Drought has always been a feature of agriculture in the West, with multi-year droughts alternating with wetter, more favorable conditions. Recent studies suggest that droughts may become more severe, less predictable, and longer in duration — increasing from an average of 1 to 2 years to as much as 3 or 4 years in some key watersheds. 

These effects vary between areas. Local approaches to water risk mitigation in agriculture are most effective.

AQUSOSO’s Water Security Platform provides ag professionals with a comprehensive, cloud-based platform for monitoring drought and other agricultural conditions including water rights, well reports, groundwater depth, water and irrigation districts, soils, crops, parcels, administrative basins, historical water delivery data, and more. Ag professionals can access parcel-specific, data-driven intelligence to make informed decisions about water risk and drought mitigation.

Contact the team directly for a free demo of the Water Security Platform, download the Drought white paper, or sign up to the newsletter to get the latest water security insights in your inbox.

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