Climate Change Brings Risks to Midwest Ag, Part 1

Though the weather changes frequently in the middle part of the United States, adverse climate-related changes represent a serious risk to Midwest agriculture and could impair the region’s financial health – especially given the farm sector’s importance in the region.

Furthermore the health of agriculture remains vital to the banking system of the region, with almost 30 percent of U.S. agricultural banks headquartered in the Seventh District of the Federal Reserve System. As a regulator of banks, the Federal Reserve Bank of Chicago has a keen interest in the performance of the banking sector and risks it may face, such as those generated by climate change that will impact agriculture. In addition the Federal Reserve System has responsibility for monetary policy, which requires understanding risks to the economy and its future growth. Inasmuch as climate change has the potential to limit growth of the economy through effects on sectors, such as agriculture, the Chicago Fed seeks to understand these risks – especially for the Midwest and its capacity to produce economic output.

Warmer temperatures and greater variability during the critical growing period for corn and soybeans could lead to reduced levels of production. An acute, albeit likely slow, change in crop production poses a significant risk, especially presuming that demand for those crops continues to increase as a result of worldwide population growth and the importance of the Midwest as a major contributor to feeding the world. Farming and ranching in the Midwest involve significant risks in the best of times, let alone during climate change. Moreover the effects of climate change will not be uniform across the region, as spatial variation and product diversity are important factors.

Agriculture supports Midwest economy

The American Midwest spans a large group of states, the core of which is in the Seventh District. Agriculture is a primary driver of economic activity in many rural areas of the Midwest. As seen in figure 1, counties throughout the Midwest are dependent on agriculture as defined by the U.S. Department of Agriculture’s Economic Research Service, based on cutoffs of 25 percent for income or 16 percent of employment from farming. Many rural Midwestern counties that didn’t meet those USDA criteria also have substantial agricultural economic activity.


Source: agupdate.com

Photo Credit: GettyImages-Harvepino