Water Risk Analysis from the Macro to the Micro View – Part 1

Water security is a global problem. The World Bank estimates an increase in massive population requiring a 70 percent increase in agricultural production.[1] Because of this increase the World Bank predicts an increase of future water demand of 25 to 40 percent.[2] Meanwhile, climate change makes it difficult to meet these new water demands due to an increase in major disruptive climate events like “Megadroughts” that are already impacting the Western United States.[3]

  • How do we understand the water risk associated with an increased need for water agriculture and the climate change impacts to water supplies?
  • How do I apply water risk analysis to a smaller scoped task such an agricultural loan portfolio or property transaction?

A water risk analysis provides a system to answer these questions. In this two-part series we will explain:

  • The different scopes for water risk analysis,
  • The benefits and limitations of each, and
  • how they can work together to create a more complete look at a group of parcels.

Scoping Analysis

Assessing water risk stems from a business aim of whether there is enough water for an area to safely meet water demand. The most important follow up question in taking on a water risk analysis is then what is the geographic scope

What is the Geographic Scope?

If you must assess multiple jurisdictions, such as the western United States or even a few counties, you will quickly find increased complexities as compared to two parcels in the same jurisdiction. The geographic area can include both the physical geography such as a groundwater subbasin, or a political boundary such as a water district service territory or parcel boundary. You should include both physical and political boundaries in your research scope to better understand how mother nature and regulation may impact risk analysis.

What is the Thing to be Analyzed?

Ask what the type of thing is you are analyzing. If it is a loan application for acquiring agricultural property, then the thing is a parcel or parcels of land. If it is for something more complex, such as a food supply chain, the thing is an understanding of where the growers are, what is being grown, how and when is it harvested and processed, and possibly regulatory analysis.

Hypothetical Project

Say you are tasked with assessing the potential water risk of a group of properties owned by AgriHarvest Farmhands LLC that your organization is interested in lending money to.

  1. Geographic Scope: You locate the properties in California, in a single county, spread out in two different water districts.
  2. What is the Thing to be Analyzed: You are looking at agricultural properties that you learned are primarily almonds.
  3. Most Important Variables:
    • You are assessing agricultural properties in different water districts so the ability of each water district to deliver water consistently, and with sufficient water supply to meet almond orchard water demand.
    • Also, this is in California so the Groundwater Sustainability Agencies may have additional affects to water availability, and the typical amount of water needed to support almond trees will also be important.

Looks like you have an excellent start on scoping your analysis. Let’s get to the data!

The Global Macro View: NASA Satellite Data

NASA GRACE-FO, a satellite data collection program, in cooperation with the German Research Centre for Geosciences, completed work on mapping the globes groundwater supplies and providing groundwater drought indication on a global scale.

Image Credit: NASA https://nasagrace.unl.edu/

For more information on the project and the data, head over to https://nasagrace.unl.edu/. A dataset that is massive requires laser focus on a few variables over the entire planet. For many this may be illuminating, but a bit too removed from the scope for our hypothetical analysis.

Zooming In: The Regional Macro View

Based on work with customers with varying water risk analysis objectives, there are some common concerns among those relying on water for their operations. Frequently asked: “what are the risks of not having enough water for what is planted in an area?” The folks at WRI created the Aqueduct Mapping Tool that provides a look at water risk using more variables than NASA’s project and the ability to look a bit closer at water risk for a region. Below is a look at Physical Agricultural Water Risk with a focus on the Western United States using the Aqueduct Mapping tool.

Image Credit: Water Resources Institute https://www.wri.org/aqueduct

For more maps and an explanation of the data, checkout the WRI website at https://www.wri.org/aqueduct. This analysis can help you understand the impacts of regional stressors to water and provides a starting point for regional forecasting. If your scope is based on a regional analysis, maybe for supply chain concern or targeting regional land acquisitions, then this is a significant starting point. However, most projects, including our hypothetical, will require more depth than what we depict above.

Head over to Part 2 of this series to learn about micro views of water risk and how to incorporate those into answering the fundamental question: “Is there enough water to meet the water demand?”

[1] Accessed on May 11, 2020 https://www.worldbank.org/en/topic/water-in-agriculture

[2] Id.

[3] Accessed on May 11, 2020 https://blogs.ei.columbia.edu/2020/04/16/climate-driven-megadrought-emerging-western-u-s/