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Financing Resilient Agriculture

How agricultural lenders can reduce climate risk and help farmers build resilience

The agriculture sector is on the front lines of climate change. Production depends on access to healthy soil, adequate water supplies and predictable weather conditions, all of which are more difficult to access and manage as the climate changes.

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Farmers already experience higher temperatures, increasingly variable rainfall and more frequent droughts, storms, fires and floods that threaten crop and livestock production across the United States. These climate-related challenges compound other severe challenges posed by poor economic conditions and disruptions from the COVID-19 pandemic. While these risks are felt by all farmers, they are particularly challenging for small farms, farmers of color and low-income farming communities.

Climate change also threatens farmers’ financial partners, including agricultural lenders. Nearly half of all agricultural loans are held by lenders with at least one-quarter of their portfolio concentrated in farm operating or real estate loans, and many of those lenders also have correlated risks because of concentrations of loans in particular geographies or related agricultural businesses. This contributes to lending sector vulnerability to climate-related disruptions.

Following severe flooding in the spring of 2019, lenders in the Midwest reported to the Federal Reserve Bank of Chicago that 70% of their borrowers were moderately or severely affected by extreme weather events. That year, the portion of the region’s agricultural loan portfolio reported as having “major” or “severe” repayment problems hit the highest level in 20 years.

Fortunately, agriculture has the capacity to build resilience and protect long-term productivity and profitability.

Building resilience is a complex undertaking that crosses multiple scales, from individual farms to global markets, and requires economic, social, environmental and cultural considerations. This report focuses on a critical piece of puzzle — farm-level management strategies for soil health, water use and crop diversification that enhance climate resilience.

Additional information

Language

English

Pages

49

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