Current Situation in the US
According to the National Oceanic and Atmospheric Administration, the United States is experiencing its most severe drought in over 50 years. In this article we will explore some of the causes and the subsequent consequences that it has on agriculture.
This drought is caused by the convergence of several factors:
— La Niña pattern of cool water in the equatorial Pacific, which normally generates in parts of North America wetter climatic conditions, ended earlier this year.
— During the winter, snow levels were below average, contributing to premature drying of the soil in the spring and early summer.
— The first six months of the 2012 have been the warmest on record and high temperatures have remained to date.
The drought has developed and expanded more rapidly than those of previous years and has affected a higher percentage of the country (over 50% of the country and almost 80% of the agricultural land).
This drought has impacted Midwestern states and in particular the “Corn Belt” region where corn has been the dominant crop since 1850. Industry experts are anticipating a 20% decline in grain yield for 2012.
The decrease in yield and grain quality has directly affected the increase in prices in recent months where the price per bushel of corn has risen up to 20% and the soybean up to 17%, affecting among other things, the demand for U.S. exports.
The increase in grain prices impacts margins for livestock producers, which have been dealt a blow by the rising cost of feed prices, which has led many to cull their herds before they are fully grown. Rising costs have also impacted ethanol producers (more if you consider that about 40% of corn production in the United States is headed for the production of biofuel).
According to the U.S. Department of Agriculture, for 2013 we can anticipate further price increases beef up 4% to 5%, dairy up 3.5% to 4.5%, poultry and eggs up to 3% to 4%, and pork up 2.5% to 3.5%.
The Wordwide Ripple Effect
The consequences of the US draught can have an opposite economic impact depending on the region.
While the US has been the first country to experience the impact of its own draught, Russia and Australia, both large grain importers, have been the first to feel the ripple effect at the cash register as poultry and dairy farmers are forced to absorb higher feed costs.
On the other hand, there is an opportunity for countries exporting corn and soybeans in South America, such as Argentina, Brazil and Paraguay, where demand for exports has risen. This increase has positively impacted revenues earmarked for investment in agriculture and the expansion of social protection systems that cushion the effects of rising food prices on consumption of low-income households. Combined with the improvements in grain production from the previous year, some South American countries are benefiting.
Measures to tackle the crisis
Future weather patterns don’t look favorable, as reported by the General Secretary of the World Meteorological Organization (WMO), Michel Jarraud. “Climate change is likely to cause an increase in the frequency, intensity and duration of droughts.”
In recent months, the head of the USDA has offered several resources to provide assistance to cope with drought through care programs providing information about Federal Assistance and policies for economic relief. UN agencies are urging affected nations to implement agreed policies that face droughts based on risk management rather than acting case by case.
In order to promote these policies, the WMO will participate in the organization of a national policy to combat drought, which will take place from 11 to 15 March, 2013 at the United Nations.