Making crops more resilient to drought risk

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This year has been marked by some of the worst global droughts in recent history.

March 2022 was the hottest month in India since the country’s meteorological department started maintaining records 122 years ago. Blistering heat has scorched wheat fields in the country, reducing expected yields by an average of 15 percent1 and prompting India to ban wheat exports.2 Europe is emerging from a drought that appears to be the worst in at least 500 years.3 As a result, relative to the five-year average, the forecasts for EU crop yields for maize, soybean, and sunflowers have been cut by 16 percent, 15 percent, and 12 percent, respectively.4 These droughts could also exacerbate food supply disruptions caused by the war in Ukraine.5

We estimate that up to 14 percent of global rain-fed cropland was affected by moderate to extreme levels of drought between March and August 2022, representing a production value of $6 billion, with some crops and regions disproportionally affected. For example, about 34 percent of global soybean cropland was at risk (Exhibit 1). In Italy, up to 57 percent of wheat and up to 61 percent of maize cropland area is currently at severe to extreme risk as the country faces its worst drought in 70 years (Exhibit 2).6

At the end of August 2022, global wheat, maize, and soybean croplands were at moderate to high risk of drought.
At the end of August 2022, more than 60 percent of wheat and maize in France were at risk of drought, while a majority of both crops in Italy were at high risk.

Despite severe drought conditions in certain regions, however, the overall global supply of certain crops may still be robust. Global wheat production, for example, is expected to reach record highs due to favorable growing conditions in Canada, Russia, and the United States.7

Nevertheless, this year’s drought is already creating economic disruptions throughout regional agricultural supply chains. Italian olive oil production may be almost 30 percent lower than last year, while specialty importers are preparing for price increases of up to 50 percent for Italian rice and tomatoes.8 US cotton farmers are expected to lose as much as 40 percent of their crop this year,9 and French corn production has fallen by 11 percent compared with the five-year average.10 Argentina’s maize planting has stalled as the country’s main farming zones face their driest conditions in almost 30 years,11 with 95 percent of maize cropland at moderate to extreme risk (Exhibit 3).

At the end of August 2022, most of Argentina’s cropland was at high risk of  drought, as was 47 percent of maize and 59 percent of soybean cropland in Brazil.

There is mounting evidence that drought-induced supply chain shocks (such as crop yield reductions or impacts on planting schedules) may become increasingly severe in the near future. Recent research shows that, on a global level, drought conditions exceeding historical ranges could occur more frequently under future climate conditions.12 Beyond droughts, climate science shows that hazards such as extreme precipitation and temperature events are expected to become more common globally.13Climate risk and response: Physical hazards and socioeconomic impacts, McKinsey Global Institute, January 16, 2020.

Regional droughts may also have impacts. In Europe, increas­ingly severe drought conditions could reduce agriculture economic output by 10 percent14 in the absence of efforts to mitigate climate change. Other regions where research indicates an increasing vulnerability to drought risk include northern India,15 China’s Pearl River Basin,16 East Africa,17 Australia, and South America.18 Moreover, research warns that conventional drought assessment methods may be failing to capture the complexity of climate-change dynamics,19 complicating estimates of and reactions to the impact of drought on the global agricultural supply.

Companies whose agricultural supply chains have been affected by drought can consider following a three-step approach to becoming more resilient to drought:

Create a baseline awareness of drought risk exposure across the supply chain. To maximize the effectiveness of building drought resilience, organizations can start by creating a single source of truth about the historical and current drought exposure of key supply chain assets. This may involve mapping drought-related vulnerabilities, collecting relevant drought-related earth observation data, and quantifying both historical losses from drought and current drought risk.

Establish clear targets for building drought resilience. Next, companies may benefit from prioritizing desired outcomes of efforts to build drought resilience. These targets could be simple—such as making automated drought alerts accessible to relevant stakeholders or enabling better identification of at-risk suppliers—or more complex, such as more accurately predicting delays in the procurement of raw agricultural materials or integrating drought alerts within broader analytics-driven risk management efforts and end-to-end supply chain optimization systems.

Prioritize resilience-building initiatives based on feasibility and impact. After clear targets have been defined, organizations can identify and implement initiatives that bring them closer to their resilience objectives. Such initiatives may differ by sector:

  • Consumer packaged goods players that source from a global supplier base may benefit from establishing processes that enable quicker responses to drought-related shocks. For example, they could implement agile supplier-switching mechanisms, avoid single-source procurement, maintain supplier relationships, use Earth observation data and advanced analytics to monitor drought in real time, and compute optimal procurement responses in advance to enable faster decisions when a predefined drought scenario occurs.20How advanced analytics can address agricultural supply chain shocks,” McKinsey, April 14, 2022.
  • Growers and food processing companies may benefit from establishing farming practices that are better able to cope with potential droughts. These may include reviewing the case for controlled or more efficient irrigation systems, innovating in drought-resistant genetics, increasing the use of recycled water in farming,21 and reviewing the suitability of growing a given crop in a region based on long-term climate trends.
  • Public-sector or nongovernmental organizations may benefit from building predictive drought-monitoring systems that are able to inform rapid disaster response, building public alert systems that provide targeted agronomic advice to farmers in affected regions, providing incentives for growers to adopt drought-resilient practices such as using climate-smart irrigation or growing drought-resistant crops, building new water infrastructure such as reservoirs and weirs to extreme weather events, or upgrading storage facilities to ensure supply continuity when drought affects crop production.

Up to 14 percent of cropland around the world has suffered from moderate to extreme levels of drought in 2022. This has had a significant effect on global agricultural supply chains, including decreased crop yields and delayed planting schedules. Organizations that carry out initiatives to boost drought resilience will be in a better position to respond quickly and wisely to future drought-related shocks to supply chains.

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