Climate Change

Heatwaves, drought and forest fires in Europe: Billions of dollars in losses for agricultural sector

Heatwaves and drought across large parts of Europe are causing massive reductions in crop yields this year, while forest fires are burning in Scandinavia. The consequences are billion-dollar losses for agriculture. In some cases, entire harvests have been lost. And as if this was not enough, scientists expect summer dry spells with high temperatures to occur more often in the future.

From May on, high-pressure conditions frequently prevailed over the northern half of Europe, and brought record high temperatures as far north as Arctic latitudes. The levels of rainfall remained much lower than usual, and drought conditions developed in large areas of northern, central and eastern Europe. The north and east of Germany, Denmark, Norway and Sweden, Poland, the Baltic and Ukraine are particularly affected by the drought.

In Germany, the months of April and May were the hottest since systematic weather records began in 1881. In June too, temperatures were well above the average for the last few decades. Some regions saw virtually no rain at all in May, while other countries fared little better.

Very warm spring on the heels of a long winter

But the problem was not just the early summer heat. In some countries, the autumn was so wet that many farmers were not able to sow all of their winter cereals. Winter arrived late with very low temperatures that persisted until the end of March, only to be succeeded almost immediately by early summer temperatures.

The consequences of the long period of drought that followed were serious: the grain filling and flowering of many plants were seriously impaired, grain ripened too quickly and the sparse grains remained small. Harvest time was brought forward by up to three weeks. Other crops, such as maize and sugar beets, received far too little water. Livestock farms are similarly affected because there is not enough forage or silage, which means that expensive feed has to be purchased instead. In contrast, hailstorms and torrential rain led to cereal losses in Italy and France.

In Germany, the grain harvest is likely to be more than 10% down on the long-term average. Total crop losses are expected in some parts of northern and eastern Germany. Likewise, in Scandinavia, Poland, parts of Russia and Ukraine, farming associations and governments expect yield losses of between 15% and in some cases 50%. In Poland, the Ministry of Agriculture is predicting a yield loss "on an unprecedented scale". By contrast, other European countries like the Czech Republic, Slovakia, Spain and Turkey have experienced higher rainfall, and expect good harvests.

Outside Europe, the major farming countries like the USA, Canada and Australia are suffering from reduced regional yields due to protracted periods of drought.
Comparatively high loss potential and distinct volatility of drought losses in Germany
Comparatively high loss potential and distinct volatility of drought losses in Germany
Does climate change have a hand in this?

To begin with, it must be said that the outlined weather conditions are exceptional. However, at the same time, research findings have shown that the instances of record summer temperatures in Europe have increased significantly over the last few decades and were above the level one would expect in a climate without any long-term warming trend. In Germany, hot summer weather from high-pressure systems is invariably accompanied by drought. Furthermore, the majority of climate scientists expect that farmers in Europe will have to cope with more frequent periods of high summer temperatures and drought in the future.

The number of hot days in Germany with a maximum temperature of at least 30 degrees has almost tripled since 1950. Models project a further increase in the number of such days, with almost twice as many in May by the middle of this century. In general, summer rainfall will decrease over the long term while the number of very dry summer days will rise, according to climate projections of the German Weather Service. At the same time, increases are expected in other weather extremes, such as hail, strong winds and torrential rainfall in individual regions. A recent study* established an increase in hail events with hailstones bigger than 2 cm in diameter in central and southern parts of Europe over the last four decades.

The expected overall impact from climate change on the agricultural sector over the coming two to three decades is a complex one. There will be negative impacts due to short-term weather extremes that increase fluctuations in yields. Yet in normal years there will also be positive aspects from non-extreme climate characteristics in central European countries with a humid and moderate climate. In the course of the CO2 fertilising effect, plants use groundwater more efficiently, which is why some models for the period until the 2030s expect no losses in yields vis-à-vis a longer-term average. Also, with a longer vegetation period, higher yields can be achieved for crops like cereals and maize, even in higher latitudes. What is more, agriculture can partially compensate for the losses from greater heat and less rainfall through continuous and systematic cultivation of adapted varieties.

The situation is different in southern European regions such as Spain, the south of France, Italy and southeastern Europe, where it has already become substantially drier. This trend is likely to continue, in conjunction with an increased number of periods with high temperatures, which will mean a reduction in yields for some crops.

Adaptation can help reduce yield losses

To compensate for yield losses in the future, agriculture needs to make full use of the available potential for adaptation. This includes selecting more robust varieties and crops, and adapting the current production technology. Sensible prevention measures include irrigation and the use of hail nets to protect fruit crops such as apples. However, adaptation measures are of limited use against the effects of extreme events. In such cases, insurance models are needed that protect farmers against crop losses.

Digital technology in agriculture is enabling new insurance models

Traditional insurance against crop losses bundles several different risks in a single policy. But in Germany and many other countries, people generally opt for less expensive single-risk covers, which usually insure farmers against hail.

The index-based cover segment is still quite small but is experiencing strong growth. This type of insurance is based on a yield index or on weather parameters and offers a simple and somewhat more affordable method of protection that ensures a prompt payout. Covers featuring what are known as parametric triggers are especially useful in emerging and developing countries, where farms are small and loss adjustment therefore entails too high costs. But the so called basis risk also plays a major role in this context. A trigger may not reach the payment threshold even though the insured has suffered a loss. Experiences like these represent an obstacle to introducing this innovative cover.

Which cover concept is most suitable for individual farmers will depend on the type of business they run. What is certain is that the increasing digitalisation of risk management in agriculture, using satellite data for example, will pave the way for improved levels of protection and innovative products.

There is also no doubt that agriculture will feel the impact of climate change more strongly in the future. Co-financing of risks by the public sector should therefore be considered for multiple hazards in order to limit the financial impact on farmers. Numerous countries have already introduced successful systems of this kind.

* Rädler, Groenemeijer, Faust, Sausen 2018: Detecting severe weather trends using an Additive Regressive Convective Hazard Model (ARCHaMo). J. Appl. Meteor. Climatol., DOI:10.1175/JAMC-D-17-0132.1

Munich Re Experts
Eberhard Faust
Eberhard Faust
Head of Research: Climate Risks and Natural Hazards
Maximilian Strobl
Maximilian Strobl
Head of Agricultural Reinsurance Europe / Latinamerica