Climate Change: A Growing Challenge for Crop Production
The agricultural sector is particularly vulnerable to the impacts of climate change. Weather events are becoming more frequent, severe, and unpredictable, making it increasingly difficult for producers to adapt. Recent examples from around the world highlight this challenge: French vineyards were struck by severe frost in 2021, Europe suffered from extreme heat and drought in 2022, and cyclones and tornadoes in the U.S. contributed to an estimated $21 billion in crop losses that same year. To develop sustainable agriculture, a comprehensive approach to risk management is essential.
The economic ramifications of these weather risks are substantial. When crop production is compromised, the entire agrifood chain suffers. Disruptions can affect every stage of the supply chain, from input suppliers to food and beverage companies, creating uncertainty and potential losses due to fluctuating harvest volumes.
French Farmers Face Losses Amid Heavy and Frequent Rainfall
France's 2024 agricultural season is a prime example of the challenges posed by climate change. Excessive rainfall and lack of sunlight during the growing season led to delayed sowing, root asphyxiation, increased disease prevalence, drying issues, in-field germination, and reduced photosynthesis. Consequently, many farmers harvested lower yields, leading to a 25% reduction in the French agriculture ministry's forecast for the 2024 soft wheat harvest, one of the lowest in 40 years.
Plant stress: the effects of extreme heat and cold on plants
These reduced yields impact every stage of the agricultural value chain. Some grain handlers have had to cut back production capacity or struggled to cover fixed costs due to decreased revenues. Processors and agrifood companies have also been affected, often needing to adjust their supply sources at a higher cost. Those dependent on specific crop varieties or locally grown products, such as organic foods, faced particularly significant challenges.
Overall, the financial impact on France's agricultural sector in 2024 is estimated to exceed several hundred million euros. And the effects were not limited to France with neighboring countries in Northern and Western Europe, including Belgium, the UK, Germany, and the Netherlands, also facing similar challenges.
Adaptation and Risk Management Strategies
To minimize their exposure to extreme weather, many stakeholders in the agricultural value chain are exploring new risk management strategies. Producers, both individually and collectively, are adopting new agricultural practices, including selecting new crop types and more resilient varieties better suited to changing climate conditions.
1. Crop Relocation
For example, northern France has experienced a significant rise in sunflower cultivation as an alternative oil source to rapeseed. This shift is partly driven by climate change, which has made the region more suitable to sunflowers, and the search for alternatives to rapeseed, which faces pest challenges and strict treatment regulations. Sunflowers require fewer inputs, reducing production costs and carbon emissions, while also meeting the rising demand for sustainable vegetable oils.
2. Technology Innovation in Agriculture
Investments in technology are also part of the solution. And the use of precision irrigation water-saving systems for efficient water management under climate change is one of them. These systems use advanced sensors and automated controls to deliver the exact amount of water needed at the right time, improving crop growth while conserving water.
Despite these efforts, the risk of exceptional weather events remains high, prompting more businesses to seek protection through the insurance sector. This is particularly true for organizations collecting cereals and oilseeds, which face increasingly variable and unpredictable harvests. With few other protection options available in the event of widespread impact, many are turning to innovative insurance solutions.
3. Parametric Insurance: A New Approach to Agricultural Risk Management
In this context, parametric agriculture insurance is gaining traction. It provides tailored coverage based on specific triggers such as crop yields falling below official agricultural benchmarks or the occurrence of predefined weather events, rather than relying on damage assessments. Its straightforward and scalable nature makes it accessible to a broad spectrum of stakeholders, from individual farmers to relevant parties reliant on agricultural inputs, such as large grain processors.
Parametric Precipitation Product In Action: Protecting Smallholder Farmers in Latin America
Smallholder farmers in Latin America, particularly in Brazil, are highly vulnerable to extreme weather events, which can severely impact their livelihoods. Parametric insurance offers a practical solution for agricultural cooperatives, such as soybean farmers, by providing protection against major risks like severe droughts and heavy rainfall. Because parametric insurance triggers payouts based on the occurrence of a pre-agreed event measured by rainfall amount, clients receive swift compensation when extreme weather occurs. This timely financial support enables farmers to cover essential expenses like seeds, inputs, and loan repayments, helping to mitigate the long-term economic damage and maintain their financial stability.
Parametric Crop Yield Solution in Action: Supporting Biogas Producers in Germany
A biogas producer in Germany faced significant risks due to severe droughts near their production sites. In recent years, high temperatures and low soil moisture drastically reduced corn yields, a critical input for biogas production. To maintain operational agility, the company had to quickly source alternative stock when regular supplies ran low, all while managing additional costs without overburdening cash flow. Parametric insurance offers an effective solution for businesses dependent on agricultural inputs by providing swift compensation when drought conditions are recorded. This timely financial support enables companies to purchase alternative inputs, mitigating the impact of reduced biomass supply and ensuring continuity in production.
