Climate Change: A Challenge – and Opportunity – for Agriculture

In the face of challenges – and opportunities – like climate change, Farm Credit's mission to support rural communities and agriculture is crucial.

Climate Change: A Challenge – and Opportunity – for Agriculture

December 2, 2020
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From the dawn of agriculture, farmers contended with their local climate, day-to-day weather events and natural disasters. 

This is nothing new. What is new, however, is the unpredictability of how climate change will affect how farmers manage their crops, livestock and land. As decision-makers managing more than 37 percent  of Earth’s landmass, farmers globally are uniquely positioned to contribute to climate change solutions. And Farm Credit stands ready to help America’s farmers do their part. 

Financing resilient agriculture
In September 2020, the Environmental Defense Fund (EDF) published a report, “Financing Resilient Agriculture: How agricultural lenders can reduce climate risk and help farmers build resilience.” It focuses on the role that agricultural lenders play in supporting farmers as they manage the potential risks presented by climate change. The report relies on extensive research and interviews with a variety of food and agricultural lenders, including Farm Credit and commercial lenders, as well as other relevant experts. 

It details the risks that farm businesses face due to climate change, such as the threat to crop yields created by “higher temperatures, increasingly variable rainfall and more frequent droughts, storms, fires and floods that threaten crop and livestock production across the United States.” 

Mitigating risk 
While crop insurance is one tool farmers frequently use to insulate their businesses from climate-related risks, EDF argues that crop insurance alone is not enough. EDF states: “The U.S. Department of Agriculture’s (USDA) Economic Research Service (ERS) estimates that without farmer adaptation to climate change, the cost of the Federal Crop Insurance Program could increase by over a third in the second half of this century.” It’s also important to note that while crop insurance is important for major field crops in the U.S., three-quarters of American agriculture is uninsured. 

EDF also explains how climate change impacts farm lenders. If farmers are unable to repay their loans due to climate-induced production level declines, then lenders will suffer too.

Integrally tied to one another, EDF calls upon farmers and lenders to collaborate and create a more resilient agriculture system – one that can respond to climate-related challenges, recover fully from climate-related damage and continually transform to adapt in the face of ever-changing conditions.

Agricultural lending: a matter of teamwork 
At Farm Credit, we understand agriculture and are dedicated to providing farmers with the support they need for a sustainable future. Many of our more than 15,000 committed employees farm or grew up in agriculture. They live in the same communities they serve and possess first-hand knowledge of the business decisions their customers face. 

Ultimately, an agricultural loan is a collaboration. Farm Credit lenders only enter into a business partnership with a farmer if they believe the farmer has the capacity to repay the loan. When it comes to environmental sustainability, Farm Credit supports farmers as they integrate climate-smart agricultural practices into their business plans. 

However, our lenders don’t look simply at a farmers’ collateral as a form of loan repayment. Instead, we consider the long-term factors that impact farmers’ repayment capacity. We analyze data provided by on-farm record keeping and consult land grant universities’ scientific data that support business decisions. 

Farm Credit also proudly participates in the U.S. Department of Agriculture (USDA) Natural Resources Conservation Service’s (NRCS) cost-share programs for adoption of conservation practices. Understanding the intricacies of financing conservation agriculture, Farm Credit lenders work with farmers to allow longer loan amortization terms when adopting such programs. This allows farmers the time they need to recover the investment costs. We employ a similar approach—extending loan terms—for customers hoping to implement other climate-smart agriculture practices, as well. 

The Farm Credit difference 
Farm Credit’s cooperative structure ensures a commitment to sustainability – our success depends on the viability of farmers and ranchers for generations to come. At the end of each year, Farm Credit’s net income is only used in two ways: retained within associations to build financial strength that ensures continued lending or passed on to customers by way of patronage dividends. Patronage dividends, in effect, lower the cost of borrowing money and farmers may use those savings for transitioning or continuing to implement climate-smart practices. 

At Farm Credit, we also strive to educate our members and staff on the latest research. We provide educational programs and networking events that focus on economics, business planning, data, markets and more.

In the face of challenges – and opportunities – like climate change, Farm Credit’s mission to support rural communities and agriculture with reliable, consistent credit and financial services is more critical than ever. Regardless what may lie ahead in the days, months and years to come, Farm Credit is committed to standing with America’s farmers and ranchers, in good times and bad, as we work together towards a sustainable future for our industry.

Information for this blog post was gathered from the Environmental Defense Fund’s, “Financing Resilient Agriculture: How agricultural lenders can reduce climate risk and help farmers build resilience,” as well as the report, “Catalytic Capital and Agriculture: Opportunities to Invest in Healthy Soils, Resilient Farms, and a Stable Climate.”

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Debbie Wing, Executive Vice President of Communications

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