Drought throughout North America is threatening agribusiness stability, as diminishing levels of water available for crops has reduced yields and wiped out some harvests altogether.1

The effect of persistent drought not only affects farms, ranches and fisheries, but the entirety of agribusiness, including food production and distribution. It also means higher prices for consumers.

There’s no doubt that drought is an issue — scientists have determined the current drought in California and the U.S West is the worst in more than a millennium.2 What agribusinesses, producers in particular, should understand is that water scarcity may be the new normal. That makes risk mitigation against drought an essential part of any agribusiness strategy.

The components of a risk mitigation plan

For the immediate term, agribusinesses need to prepare. Here are four elements of minimizing drought risk:

  1. Government Assistance. Low water supplies, extreme heat and surging power demand mean more rolling blackouts in 2022.3 Many producers will not be able to irrigate their crops. Federal government assistance programs can help mitigate the financial losses of drought and conservation programs help farmers become more resilient to drought.4 Federal crop insurance can also assist agribusinesses that lose crops due to drought; in 2021, the USDA Risk Management Agency streamlined and accelerated payouts to farmers in drought-affected areas.5
  1. Awareness and education. Consider public-private partnerships established to innovate and provide aid for droughts, such as the Environmental Quality Incentives Program, which aims to provide financial and technical assistance to agribusiness.6 These partnerships aim to help producers with irrigation methods, create additives for soil, improve the qualities in the soil and identify additional water conservation methods.
  1. Risk identification and early warning. Monitoring water levels and creating an impact assessment can help identify drought risk, allowing farmers and food manufacturers to secure proper insurance and government assistance. Growers might also consider parametric coverage for crops that are otherwise uninsurable. Parametric coverage insures against an event happening with payouts based on the magnitude of the weather event, no matter the damage to the crop or buildings.7
  1. Mitigation and preparedness. A risk factor assessment, which is a historical study of drought, will help inform decision making. While the intensity and probability of drought may be impossible to predict, different methods can reduce a drought’s overall impact. For farmers, this includes:
  • micro irrigation;
  • evaluating and improving the management of existing irrigation systems;
  • creating an irrigation schedule;
  • crop rotation; and
  • residue and tillage management.8

Contact a HUB agribusiness expert for more information on mitigating drought-related risk.

1 Bloomberg “World’s Food Supplies Get Slammed by Drought, Floods and Frost,” July 24, 2021.
2 Mercury News, “Current drought is worst in 1,200 years in California and the American West, new study shows,” February 14, 2022.
3 Sacramento Bee, “‘Risk of further outages’: California warns of blackouts as another hot summer looms,” May 6, 2022.
4 U.S. Department of Agriculture, “Disaster Assistance Programs,” accessed June 6, 2022.
5 U.S. Department of Agriculture, “RMA Authorizes Emergency Procedures to Help Drought Impacted-Producers,” July 13, 2021.
6 USDA Natural Resources Conservation Service “Environmental Quality Incentives Program.”
7 NAIC Center for Insurance Policy and Research “Parametric Disaster Insurance,” February 24, 2022.
8 USDA Natural Resources Conservation Service Washington “Minimize the Effects of Drought on Your Operation,” 2015.