CFTC Member Underscores the Need for Crop Insurers to Assess Climate Risks

February 19, 2020

Awareness of the dire threats posed by a changing climate is growing, particularly among sectors that have until now been slow to quantify the adverse impacts that society faces from a decimated agricultural sector. Fortunately, the agricultural industry is awakening to the hazards it faces from growing and increasingly disruptive weather patterns – as exemplified by an upsurge in recent years of high temperatures and the drought and wildfires that come with it, or heavy rains and accompanying flooding.

Attesting to understanding of the perils ahead for agriculture are warnings delivered last Friday by a member of the Commodity Futures Trading Commission (CFTC) to the 56th Crop Insurance and Reinsurance Bureau (CIRB) annual meeting in Bonita Springs, FL – a gathering of those who write policies and risk management tools, vital components of the safety net for the nation’s farmers and ranchers.

In addition to demonstrating the growing recognition within the ag sector of the dangers posed by a changing climate, the remarks from CFTC Commissioner Rostin Behnam reinforce the need for farmers, ranchers and forestland owners across North America to enhance the resilience of their operations against future environmental challenges while concurrently producing food, feed, fiber, energy and ecosystems services more sustainably.

Benham ran off a litany of severe and frequently extreme weather events that have affected the sector and its economy across the globe, citing last year’s tally of 820 natural disaster events causing overall losses of $150 billion. Of those events, 38 percent were storms; 45 percent were floods, flash floods and landslides; and 10 percent were heatwaves, cold spells, and wildfires.

He said that the National Oceanic and Atmospheric Administration (NOAA) found that 2019 was the fifth consecutive year in which 10 or more billion-dollar weather and climate disaster events impacted the United States. Furthermore, the nation broke another record when the year from July 2018 through June 2019 marked the wettest 12 months this country had experienced since records began 125 years ago.

The CFTC commissioner cites USDA figures showing agricultural producers were unable to plant crops on more than 19.4 million acres last year, marking the most prevented-plant acreage since the department began releasing the report in 2007, and 17.49 million acres more than reported at the same time in 2018. More than 73 percent of the 2019 prevented-planting acreage was in 12 Midwestern states, where heavy rainfall and flooding prevented many producers from planting core commodities like corn, soybeans and wheat.

Benham, a former senior counsel with the Senate Agriculture Committee, established in November – with the blessing of his fellow commissioners – a Climate Related Financial Market Risk subcommittee. He told the crop insurers that his panel “includes some of the sharpest minds on climate related financial market risk and represents a first-of-a kind U.S.-based comprehensive, inclusive effort to study and address the issues.” The advisory panel is set to bring back policy recommendations to the commission in June.

Meanwhile, he says, insurers need to increase their focus on climate risk to investments, and they will need access to reliable data to accurately measure and manage that risk. Benham says he’s encouraged by the core policy responses to climate risk that are gaining traction with many different financial actors, citing as examples the International Monetary Fund, the Federal Reserve and the Bank of England. There is also an industry effort underway to develop and standardize voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers and other stakeholders.

Benham stressed that much more remains to be done, a task compounded by the complexity of the issues that must be addressed, and conceded that each of the critical issues that remain to be tackled seems to be as mired in complexity. But he remains confident that his risk panel’s work will lead to thoughtful, actionable and data-driven recommendations that will move not only the CFTC, “but perhaps larger U.S. and global financial policy in the right direction.”

Critical to meeting the climate challenges ahead is “collective action,” Benham said, calling for private sector and public sector participation – a partnership – that will contribute to an evolving, but critical conversation. SfL concurs, having long called for the participation of those who work the land in developing the solutions that can meet the challenges, including risk, of a changing climate. We further agree with the commissioner’s assertion that policy makers cannot wait for the “perfect” solution. Action is required now, and every step – however big or small – is a positive step towards addressing these risks.

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