Mitigating Droughts and Floods in Agriculture Policy Lessons and Approaches

by Organisation for Economic Co-Operation and Development (OECD) (Editor)

Overview

Climate change is expected to increase the frequency and magnitude of extreme weather events, notably of droughts and floods to which the agriculture sector is particularly exposed. While agricultural productivity growth and policy development have allowed to better cope with these risks and reduce overall impacts on the sector and commodity markets, there is substantial room to improve policy responses and co-ordinate across policy domains, including with respect to water rights and allocation, weather and hydrological information, innovation and education, and insurance and compensation schemes. Indeed, drought and flood risks are likely to become a major policy concern as increasing population will increase the demand for food, feed, fibre, and energy, not to mention the competition for water resources, and urbanisation will increase the demand for flood protection and mitigation, raising the issue of the allocation of flood risks across sectors and areas.

Product Details

ISBN-13:	9781780408132
Publisher:	IWA Publishing
Publication date:	03/22/2016
Pages:	74
Product dimensions:	6.12(w) x 9.25(h) x 0.75(d)

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CHAPTER 1

Characterising and measuring droughts and floods

1.1. The meteorological, hydrological and socio-economic dimensions of drought and flood events

One can consider three dimensions to characterise drought and flood events: meteorological, hydrological, and socio-economic, with each having a distinct set of indicators (for more details, see Box 1.1). Although distinct, these dimensions are nevertheless related (Figure 1.1). The most common indicators used are meteorological and hydrological indicators, as economic, social and environmental impacts are more difficult to assess and can vary a lot across affected people and regions. However, measuring impacts is important to assess the costs and benefits of mitigation strategies against flood and drought risks.

At the source of droughts and floods, there is always a weather event or set of combined weather events. The meteorological dimension of droughts and floods basically focuses on, respectively, the deficit or excess of precipitation compared to reference values. Precipitation, either in excess or in deficit, is the main factor, but other variables such as temperature, humidity, air and soil, and wind also play a role. For example, in the case of the summer melting of glaciers that feed rivers downstream, temperature is a major factor driving river flows and potential flooding risk. Basic indicators of the meteorological dimension include, for example, percentage of normal precipitation, which is calculated as a ratio between current precipitation and a past historical average for a given period of time, but also with more complex indicators such as the Standard Precipitation Index. Other characteristics are important to characterise meteorological floods and droughts, notably their time of occurrence, duration and spatial characteristics (location and spatial extent). Most often, floods relate to sudden events resulting from windstorms or heavy rain while droughts are considered as cumulative events over an extended period of time, from a few weeks to several months or even years. Drought characteristics vary a great deal across continents, countries, and regions, as illustrated by Figure 1.2 which presents the number and duration of major drought events between 1950 and 2000 at the continent level, with implications for the appropriate management of these risks.

The hydrological dimension of floods and droughts refers to the state of water resources in the different compartment of the water system. Basically, excess or deficit rainfall is transmitted to the different components: soils, surface water and groundwater. This transmission may have some time dependency and inertia; for instance, affecting soils first, then surface water, and lastly groundwater. The overall water availability for water users depends on the status of the stock and water flow in the different compartments of the water system. Measuring the state of hydrological systems can be done through the use of indicators: soil moisture, river flows, and levels of groundwater, lakes and dams. The state of water resources is not solely driven by meteorological conditions; rather it is the joint outcome of weather conditions and anthropic use of water: e.g. management of river banks, reservoirs, dams, land cover, and drainage which influence how deficit or excess rainfall is transmitted to hydrological compartments. Water systems are not just ecosystems, but socio-ecosystems.

These considerations lead to an important distinction. While floods are usually defined from a hydrological perspective, there is a net distinction between droughts, a meteorological notion, and water shortages, which relate to a short-run deficit between aggregate water use and aggregate water availability in a given water system. This means that not all droughts translate into water shortage events since it depends on the exposure and vulnerability of affected societies. Finally, water shortages should be distinguished from water scarcity, which corresponds to an aggregate deficit between water use and availability, and in the longer-term, to a structural perspective.

The economic, social and environmental dimensions of droughts and floods relates to the economic, social and environmental impacts of these extreme events. Economic impacts of droughts include direct damages faced by sectors that heavily rely on water for their production process such as agriculture, hydroelectricity, water intensive manufacturing and households. Floods most often affect the productive assets of households and different industries, with potential longer lasting negative impacts on production capacities. Droughts and floods may also have social implications, notably when they affect poorer and more vulnerable categories of the population. Finally, the environmental impact of droughts and floods can also affect the associated ecosystem services and thus social welfare. Examples of this include an increase in the erosion transfer of sediments and nutrients, which results in a decrease of water quality; the non-respect of minimum water flows during drought events can increase concentrations of pollutants as there is less dilution in water and be potentially damaging to aquatic life.

1.2. Assessing and characterising drought and flood risks

Formally, risks are typically characterised by probability distributions. Estimating the probability distribution of droughts and floods requires clearly defining the nature of the risk and the associated indicator that is being used to measure it. In this area, it is more common to focus on meteorological and hydrological indicators, as economic, social and environmental impacts are more difficult to assess and can vary widely across affected people, regions, and time.

There are a number of challenges in assessing the probability distribution of droughts and floods risk, including the following:

• Each drought or flood is to a certain extent unique in terms of spatial characteristics, intensity, impacts, etc. Thus estimating a risk distribution requires some standardisation of definitions which may be challenging in practice.

• Non-stationarity of exposure and vulnerability. Climate change, but also risk exposure, is non stationary: farmers change their cropping patterns over time; the composition of land cover is evolving between urban areas, agriculture, forests and other areas. This makes it difficult to build a stable relation between a given meteorological event and its associated impact on human systems.

• For "catastrophic risks" or "extreme events", there are specific methodological challenges to risk assessment which makes it difficult to have reliable risk estimates, compared to more common or frequent weather events (Box 1.2).

Another important issue associated with the definition and characterisation of droughts and floods is that of the "extreme", "catastrophic" or "disastrous" nature of these risks, especially as this may have implications in terms of policy responses to their management. While these three terms seem to be closely related, they are in fact very different. IPCC (2012) defines an "extreme weather event" as "the occurrence of a weather variable above (or below) a threshold value near the upper (or lower) ends of the range of observed values and variables". This is essentially a statistical perspective, for which the range of extreme values in the probability distribution is respectively represented by the extreme right and left tails.

Such a statistical approach also means that extreme weather events are relative, based on a benchmark of what are considered as average or "normal" weather conditions. It often means that extreme weather events are characterised by low probabilities; however this ultimately depends on the overall shape of the probability distribution function. In some countries, extreme weather events can occur frequently, every five or even three years depending on the region considered. In these cases, it is inappropriate to speak about "extreme" weather events in that sense. Examples include severe droughts in Australia and Spain, which are considered as common weather conditions.

While extreme weather events can be defined in an objective way, the notions of catastrophes and disasters are more subjective and convey very different meanings. Firstly, compared to the notion of extreme weather events, notions of "catastrophes" and "disasters" place more emphasis on the economic, social and environmental impact of climate events rather than their probability and meteorological features. Disasters are often measured in terms of human losses and monetary costs, or loss of biodiversity. The two concepts can coincide: extreme weather events are typically more likely to cause catastrophic economic, social and environmental damages, but this is not necessarily the case. The extent of the damage depends on the exposure and vulnerability of the affected system, which can vary across regions and depend on policy responses to manage droughts and floods. It can be also the case that poor management of moderate drought or flood events may result in catastrophic damages.

Secondly, the terms "catastrophes" or "disasters" have a strong subjective and emotional content, and are used in varying contexts. The term catastrophe or disaster can be applied equally well to a plane crash, an epidemic or to a poor harvest due to drought. Going a step further, one could say that the use of the word catastrophe is more of a prescriptive than descriptive nature. This can be illustrated in practice by the fact that in a number of countries, declaring an area in a state of natural disaster involves triggering exceptional specific responses, beyond the set of usual risk management tools. Calling an event a catastrophe is thus an act that defines the boundaries of risk management.

1.3. Assessing the costs of droughts and floods to agriculture and other sectors

Economic impacts caused by drought affect agriculture through losses in crop yields and livestock production, but also through increased insect infestations, plant diseases and wind erosion (European Commission, 2007). Droughts are rarely considered as a catastrophic event for the agricultural sector in OECD countries at the macroeconomic scale, although they can significantly affect the agriculture sector. Flooding is a significant hazard worldwide, with an estimated USD 700 billion of damages in the period 1985-2008 (Morris et al., 2010). Agriculture, however, by occupying a large proportion of the landscape, can be at once affected by flood risk, but also play a positive role in the overall mitigation of flood risks in water systems as a provider of floodplain areas, or through the influence of upstream agronomic practices reducing flood risk downstream (Morris et al., 2010).

Economic costs of droughts and floods in agriculture can be direct or indirect, instantaneous or induced (Table 1.1). Direct and short-run costs typically include crop and livestock production losses. Direct but induced (longer term) impacts include losses of productive assets such as machinery and buildings, and declines in land value, which can reduce productivity in the longer run and may require significant resources for recovery. Indirect impacts can also be born outside the agriculture sector by related sectors or through agricultural markets. For example, a severe drought in a large commodity exporting country may cause a substantial drop in global agricultural production, leading to a rise in commodity prices at the world level. When insurance markets or compensation mechanisms are in place, the cost of droughts and floods can also be borne at a broader level by insurance policyholders or taxpayers depending on the risk sharing characteristics of these mechanisms.

Typically, direct and tangible costs, i.e. reduction in crop yield, are easier to quantify than are indirect, non-tangible costs such as loss in biodiversity or soil erosion and its associated impact on soil productivity (Volker et al., 2012; Meyer et al., 2013). In some cases, direct tangible costs of droughts and floods may indeed just represent the "tip of the iceberg" as compared to the "real" (but unobserved) full cost of these weather events. Such heterogeneity in cost assessment is susceptible not only to lead to underestimation of the costs of droughts and floods, but also to be a source of bias in favour of sectors for which the cost estimates are more feasible. Caution is therefore necessary when it comes to comparing the costs of droughts and floods between countries and across time.

Another challenge is that the agriculture sector faces a variety of risks that can affect production and income: weather risks, pests and diseases, price risks (on both input and output sides), institutional risks (due to changes in regulations or policy environment). The relative importance and combination of these risks can vary a great deal across countries and farming systems, which can explain different kinds and degrees of policy responses to address them (OECD, 2011). The impact of droughts and floods on farmers' income should be considered thus holistically. Risks can be positively correlated; for example, drought or flood conditions may increase the risk of pests and diseases in some cases, and thereby aggravate crop losses. However, one can observe in some countries a negative correlation between yield and price risks which can, to a certain extent, offset each other in the formation of farmers 'incomes (OECD, 2011). In certain cases, such income can increase if the price swing more than compensates yield losses, and risk is transferred through prices in the value-chain of agricultural commodities.

Without a systematic and harmonised method to assess the costs of droughts and floods in agriculture, one has to rely on case-by-case evaluations. For example, the 1976 drought in France reduced farmers' income by 9% compared to more typical years; the 2005 drought lead to a 22% decrease in farmers' income compared to 2004 (Amigues et al., 2006). Drought is quantitatively the most important risk in France, representing on average 57% of indemnities paid by the French National Guarantee Fund for Agricultural Disaster Risks (Babusiaux, 2000). For some of the most important droughts of the last 40 years, price increases have in a few cases slightly offset yield losses, but external drivers of commodity prices seemed to have been more important drivers than the production failure itself.

In the United States, drought is the primary risk for agricultural production, although exposure can vary a great deal across states. On average, drought risk has been estimated to represent about 40% of crop insurance indemnity payments made between 1948 and 2010 (Wallander et al., 2013). Figure 1.3 presents the crop insurance indemnities and disaster assistance payments for droughts and other weather events since 1970, illustrating the importance of this risk. The 2011-2012 droughts in United States led to unprecedented levels of compensation compared to previous years, although the increasing scale of the programme also explains their upward trend. The 2014 drought in California also had large costs for agriculture and other water users and uses. In terms of price effects, one can observe a significant negative price-yield correlation, especially in the Corn Belt, providing a partial natural hedge for farmers' revenues (Harwood et al., 1999).

A lack of comprehensive knowledge of the costs of droughts and floods is a barrier to the improvement of policy approaches to managing these. In particular, it does not allow to undertake sound cost-efficiency or cost-benefit analysis that could provide useful guidance to citizens, stakeholders and decision-makers. The lack of data and knowledge is not the single barrier: even from a methodological perspective, cost-benefit analysis is more complex when introducing risk and uncertainty. Lack of data on costs is not only an issue for ex ante assessment, but also can be used as decisive arguments in the course of action. For example, in a negotiation process for water restrictions between different waters users (agriculture, industry, tourism) and uses (environmental flows), using cost figures in monetary terms is a powerful rhetorical tool during the bargaining process; however, it may ultimately lead to inefficient water allocation or favouring short-term mitigation efforts over long-run sustainability.

In view of these methodological and data limitations, some encouraging progress is being made. For example, the European project Cost of Natural Hazards (Volker et al., 2012) funded by the EU Seventh Framework Programme for Research and Technological Development (FP7, 2007-2013) undertaken between 2010 and 2012, conducted a state-of-the-art assessment of costs of natural hazards such as droughts and floods. It also analysed their appropriate use in cost-benefit analysis of mitigation and prevention strategies, and identified the main data and methodological gaps (Meyer et al., 2013). The scope was not limited to agriculture but all sectors concerned by natural hazards. The report proposed a comprehensive set of recommendations to expand and improve the assessment of the costs of natural hazards, including specific advice on droughts and floods with a view to better integrate this information in decision-making.

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Table of Contents

- Executive summary; Characterising and measuring droughts and floods; The economics of droughts and floods in agriculture; Policy approaches for the sustainable management of droughts and floods in agriculture