Managing weather risk
Nothing influences agriculture - and gets
those involved in it talking - more than the weather. Even in so-called
"normal" years, it figures prominently in conversations at coffee shops and
around boardroom tables across the country.
This year, more than most, weather has made
headlines. Western Canada was hit by record amounts of rain that resulted in
devastating flooding and millions of unplanted acres of farmland. New Brunswick
and British Columbia have struggled with forest fires while parts of Eastern
Canada enjoyed the ideal conditions of one of the warmest and longest growing
seasons in recent memory.
Further afield, Pakistan was similarly
affected, with hundreds of thousands left homeless and millions facing food
shortages as the country's key agricultural areas were inundated. By
comparison, Russia battled through the highest average summer temperatures it
had seen in 60 years coupled with a crippling drought that together dramatically
reduced its wheat harvest and forced the Russian government to suspend exports
of that commodity. In fact, 17 countries have suffered record-breaking heat
this year.
"Weather
incidents around the world, from drought and flood, to heat or cold, have a
direct impact on what happens to the agri-food sector here in Canada," says
Mary Lou McCutcheon of Synthesis Agri-Food Network. "Whenever supply is down
somewhere in the world, it drives up the global price of that affected
commodity - and that means Canadian agriculture and Canadian consumers will
feel the impact."
The sheer volume of weather-related
disasters around the world this past year has many wondering if these weather
extremes, commonly believed to be the result of climate change, are becoming
the new normal. Indeed if they are, the agri-food sector needs to be ready to
react and adjust to the new reality.
Insurance is one common way farmers and
agri-businesses can protect themselves against the uncertainties of Mother
Nature. The earliest forms of crop insurance were seen in the 1820s in France
and Germany. In Canada, crop insurance
dates back to 1939. Livestock producers have been working on the development of
a production insurance program as well.
A newer form of weather protection is
hedging. During the 1990s, investors in the U.S. created a weather index based
on average temperatures and began trading them as contracts called weather
derivatives. They are now traded on the Chicago Mercantile Exchange and are
used by energy firms and Fortune 500
companies as a measure of protection against the potential for inclement
weather - but could potentially also be
used by farmers and agri-business.
A longer-term strategy involves research such
as developing crops with drought or temperature-resistant traits. At the
University of Western Ontario's Biotron facility in London, Ontario, work is
underway looking at the potential impacts of climate change. The institute's
sophisticated controlled environments allow researchers to look at things like
the resilience of plants, animals and insects to environmental stress, like
adverse weather events. The Biotron is
also able to look at ways of minimizing the impacts of plant diseases and pests
on agriculture and forestry.
"We
don't need to tell farmers that there are a lot of unknowns with the weather -
everything from when we might face inclement weather to how severe it will be,"
says McCutcheon. "Research is necessary to help us look at what the longer term
impacts of changing weather could be and determining what we can do to mitigate
those impacts."
Weather modification, the act of physically
changing the weather, made the news during the Beijing Olympics in 2008 when
Chinese meteorologists declared they would try to stop rain from falling over
the stadium where the opening ceremonies were being held.
While we must look at how we can manage our
own weather risk here at home, inclement weather in other parts of the world
can also mean opportunity for the Canadian agri-food sector and it pays to plan
ahead, says McCutcheon.
Insights - so what does this mean?
Recognize and manage your risk - The weather has the potential to affect the
agri-food industry regardless of the type of agriculture you're in. No one
commodity or geographic region is immune so it's important to manage risk. This
could be by diversifying crops, expanding farm operations, adding insurance or even
hedging the weather.
We're in a global village - What happens in other parts of the world from
a weather perspective affects us here. Shortages of staple commodities in other
countries - whether for food or to feed livestock and poultry - can mean higher
prices for Canadian farmers or the chance to develop new export markets.
Monitoring global weather events and being ready to react is a key success
factor.
Research is vital - In order to have a clearer picture of the
long term impacts of climate change and inclement weather events, both the
public and private sector must continue to invest in research. Evaluating past
climatic patterns is important, but it's even more critical that research, like
the work being done at the Biotron, also focuses on the future. Research has already developed drought
resistant crops and frost management systems for fruit production. Could it actually lead to the ability to
physically change the weather?
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