Making crops more resilient to drought risk

This year has been marked by some of the worst global droughts in recent history.

March 2022 was the hottest month in India since the country’s meteorological department started maintaining records 122 years ago. Blistering heat has scorched wheat fields in the country, reducing expected yields by an average of 15 percent¹Pratik Parija, “Heat to scorch India’s wheat supplies, adding food-shortage worries to world,” Bloomberg, May 1, 2022. and prompting India to ban wheat exports.²Mayank Bhardwaj, Rajendra Jadhav, and Nigam Prusty, “India bans wheat exports as heat wave hurts crop, domestic prices soar,” Reuters, May 15, 2022. Europe is emerging from a drought that appears to be the worst in at least 500 years.³“Summer drought keeps its grip on Europe,” Joint Research Centre, August 22, 2022. As a result, relative to the five-year average, the forecasts for EU crop yields for maize, soybean, and sunflowers have been cut by 16 percent, 15 percent, and 12 percent, respectively.⁴Kevin Whitelaw, “Europe’s drought may be continent’s worst in at least 500 years,” Bloomberg, August 23, 2022. These droughts could also exacerbate food supply disruptions caused by the war in Ukraine.⁵“A reflection on global food security challenges amid the war in Ukraine and the early impact of climate change,” McKinsey, August 17, 2022.

We estimate that up to 14 percent of global rain-fed cropland was affected by moderate to extreme levels of drought between March and August 2022, representing a production value of $6 billion, with some crops and regions disproportionally affected. For example, about 34 percent of global soybean cropland was at risk (Exhibit 1). In Italy, up to 57 percent of wheat and up to 61 percent of maize cropland area is currently at severe to extreme risk as the country faces its worst drought in 70 years (Exhibit 2).⁶Kasha Patel, “Scenes from Italy’s worst drought in 70 years,” Washington Post, July 7, 2022

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Despite severe drought conditions in certain regions, however, the overall global supply of certain crops may still be robust. Global wheat production, for example, is expected to reach record highs due to favorable growing conditions in Canada, Russia, and the United States.⁷Andrew Sowell and Bryn Swearingen, “Wheat outlook: August 2022,” USDA, August 16, 2022.

Nevertheless, this year’s drought is already creating economic disruptions throughout regional agricultural supply chains. Italian olive oil production may be almost 30 percent lower than last year, while specialty importers are preparing for price increases of up to 50 percent for Italian rice and tomatoes.⁸Sarah Butler, “Northern Italy drought threatens olive oil, risotto rice and passata supplies,” Guardian, July 13, 2022. US cotton farmers are expected to lose as much as 40 percent of their crop this year,⁹Ryan Dezember, “Drought devastates U.S. cotton harvest,” Wall Street Journal, August 16, 2022. and French corn production has fallen by 11 percent compared with the five-year average.¹⁰Hugo Struna, “Europe’s summer crops severely affected by extreme weather,” Euractiv, August 24, 2022. Argentina’s maize planting has stalled as the country’s main farming zones face their driest conditions in almost 30 years,¹¹Maximillian Heath, “Argentina corn planting stalled as ‘great drought’ fears rise,” Reuters, September 15, 2022. with 95 percent of maize cropland at moderate to extreme risk (Exhibit 3).

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There is mounting evidence that drought-induced supply chain shocks (such as crop yield reductions or impacts on planting schedules) may become increasingly severe in the near future. Recent research shows that, on a global level, drought conditions exceeding historical ranges could occur more frequently under future climate conditions.¹²Yusuke Satoh et al., “The timing of unprecedented hydrological drought under climate change,” Nature Communications, 2022, Volume 13; Yadu Pokhrel et al., “Global terrestrial water storage and drought severity under climate change,” Nature Climate Change, 2021, Volume 11. Beyond droughts, climate science shows that hazards such as extreme precipitation and temperature events are expected to become more common globally.¹³For more, see Climate risk and response: Physical hazards and socioeconomic impacts, McKinsey Global Institute, January 16, 2020.

Regional droughts may also have impacts. In Europe, increas­ingly severe drought conditions could reduce agriculture economic output by 10 percent¹⁴Carmelo Cammalleri et al., “Increased economic drought impacts in Europe with anthropogenic warming,” Nature Climate Change, 2021, Volume 11. in the absence of efforts to mitigate climate change. Other regions where research indicates an increasing vulnerability to drought risk include northern India,¹⁵V. Gupta and M. K. Jain, “Investigation of multi-model spatiotemporal mesoscale drought projections over India under climate change scenario,” Journal of Hydrology, 2018, Volume 567. China’s Pearl River Basin,¹⁶Zhaoli Wang et al., “Climate change enhances the severity and variability of drought in the Pearl River Basin in South China in the 21st century,” Agricultural and Forest Meteorology, 2018, Volume 249. East Africa,¹⁷Gebremedhin Gebremeskel Haile et al., “Projected impacts of climate change on drought patterns over East Africa,” Earth’s Future, 2020, Volume 8. Australia, and South America.¹⁸Nengcheng Chen, Lei Xu, and Xiang Zhang, “Global drought trends under 1.5 and 2 °C warming,” International Journal of Climatology, March 2019, Volume 39, Number 4. Moreover, research warns that conventional drought assessment methods may be failing to capture the complexity of climate-change dynamics,¹⁹R. Kyle Bocinsky, Zachary H. Hoylman, and Kelsey G. Jencso, “Drought assessment has been outpaced by climate change: Empirical arguments for a paradigm shift,” Nature Communication, May 2022, Volume 13. complicating estimates of and reactions to the impact of drought on the global agricultural supply.

Companies whose agricultural supply chains have been affected by drought can consider following a three-step approach to becoming more resilient to drought:

Create a baseline awareness of drought risk exposure across the supply chain. To maximize the effectiveness of building drought resilience, organizations can start by creating a single source of truth about the historical and current drought exposure of key supply chain assets. This may involve mapping drought-related vulnerabilities, collecting relevant drought-related earth observation data, and quantifying both historical losses from drought and current drought risk.

Establish clear targets for building drought resilience. Next, companies may benefit from prioritizing desired outcomes of efforts to build drought resilience. These targets could be simple—such as making automated drought alerts accessible to relevant stakeholders or enabling better identification of at-risk suppliers—or more complex, such as more accurately predicting delays in the procurement of raw agricultural materials or integrating drought alerts within broader analytics-driven risk management efforts and end-to-end supply chain optimization systems.

Prioritize resilience-building initiatives based on feasibility and impact. After clear targets have been defined, organizations can identify and implement initiatives that bring them closer to their resilience objectives. Such initiatives may differ by sector:

• Consumer packaged goods players that source from a global supplier base may benefit from establishing processes that enable quicker responses to drought-related shocks. For example, they could implement agile supplier-switching mechanisms, avoid single-source procurement, maintain supplier relationships, use Earth observation data and advanced analytics to monitor drought in real time, and compute optimal procurement responses in advance to enable faster decisions when a predefined drought scenario occurs.²⁰For more, see “How advanced analytics can address agricultural supply chain shocks,” McKinsey, April 14, 2022.
• Growers and food processing companies may benefit from establishing farming practices that are better able to cope with potential droughts. These may include reviewing the case for controlled or more efficient irrigation systems, innovating in drought-resistant genetics, increasing the use of recycled water in farming,²¹Sheikh et al., “Grey water: Agricultural use of reclaimed water in California,” Journal of Contemporary Water Research & Education, December 2018, Volume 165, Number 1. and reviewing the suitability of growing a given crop in a region based on long-term climate trends.
• Public-sector or nongovernmental organizations may benefit from building predictive drought-monitoring systems that are able to inform rapid disaster response, building public alert systems that provide targeted agronomic advice to farmers in affected regions, providing incentives for growers to adopt drought-resilient practices such as using climate-smart irrigation or growing drought-resistant crops, building new water infrastructure such as reservoirs and weirs to extreme weather events, or upgrading storage facilities to ensure supply continuity when drought affects crop production.

Up to 14 percent of cropland around the world has suffered from moderate to extreme levels of drought in 2022. This has had a significant effect on global agricultural supply chains, including decreased crop yields and delayed planting schedules. Organizations that carry out initiatives to boost drought resilience will be in a better position to respond quickly and wisely to future drought-related shocks to supply chains.