New Risk Assessment Report A Wake Up Call for U.S. Agriculture

July 24, 2019

It should come as no surprise to most that another report has been published warning of the increasing costs that will come with a changing climate. “Climate Change and Agricultural Risk Management Into the 21st Century” was released Monday, delivering the message that the federal government’s cost exposure is expected to increase as weather averages and extremes change over the coming decades.

The study uses statistical, geophysical and economic models to explore the mechanisms by which climate change could affect future costs of the government’s farm safety net programs. The starkest among the report’s bottom lines: Cost increases incurred by the Federal Crop Insurance Program would jump to 37 percent by around 2080, under the severe greenhouse gas (GHG) concentration scenarios calculated by researchers.

That this warning is coming from USDA’s own Economic Research Service (ERS) marks a significant recognition of climate change and the threat it poses to agriculture from an administration that has remained, at best, skeptical of climate change, if not outright dismissive of the threat.

The U.S. government has a number of programs that mitigate risk in agriculture, including the Federal Crop Insurance Program (FCIP), which provides subsidized coverage. Others, like Agriculture Risk Coverage (ARC), Price Loss Coverage (PLC), and several others, provide payments to farmers in response to adverse production or market conditions.

Together, the costs of the programs have averaged about $12 billion annually over the past decade, the ERS says. Year-to-year fluctuations in these costs are heavily influenced by weather variability, which affects yields and prices. The researchers go on to say that the federal government’s cost exposure is expected to increase as weather averages and extremes change over the coming decades.

In fact, earlier this month, USDA officials said that they expect farmers to file insurance claims exceeding $1 billion for some 10 million acres they have been unable to plant this year due to an unprecedented chain of storms that struck the Midwest and the Mississippi River Valley alone.

By using statistical, geophysical and economic models to explore the mechanisms by which climate change could affect future costs of the government’s farm safety net programs, the researchers simulate the potential impact of climate change on yields of major commodities, then quantify the implications of yield change on planting decisions and prices, which in turn affects the cost of risk management programs.

All climate scenarios considered suggest that climate change would lower domestic production of corn, soybeans and wheat relative to a future scenario with a climate identical to that of the past three decades. All else equal, this implies that prices would be higher than they would otherwise, which implies higher premiums and, consequently, higher subsidies.

Acknowledging that much depends on the severity of future warming, the ERS researchers compared two scenarios representing differing future rates of greenhouse gas emissions and, consequently, differing severities of climate change. Under the “moderate” emissions scenario, the cost of today’s crop insurance program would be about 3.5 percent higher than under a future with a climate similar to that of the recent past. Under the higher emissions scenario, this cost increase is 22 percent.

Those increases take into account a wide range of measures to adapt to climate change, including changes in what might be planted, where crops would be planted, and how farmers manage their production in response to changes in expected yields and prices. However, if adaptation is not included in their models, the researchers say the cost increases would jump to 10 percent and 37 percent, under the moderate and severe GHG concentration scenarios, respectively.

The ERS report puts even more emphasis on the need for policies that can maximize agriculture’s contribution to stemming climate change, particularly by financially incentivizing farmers, ranchers and forestland owners to adopt adaptive management systems and practices. Adaptive management involves responses taken by producers and the value chain to reduce risks and capture opportunities created by changing conditions. These actions range from minor adjustments in existing production systems to major changes in production and marketing practices.

An increasingly variable climate poses unprecedented risks to the sustainability of U.S. agriculture. Now is the time to step up efforts to help partners innovate effective local adaptations that sustain productivity, enhance climate resilience, and contribute to the local and global goals for sustainable development.

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