Climate change, agriculture, and the banks of Brazil
The ramifications of climate change extend to financial institutions.
Researchers from the School of Global Policy and Strategy at the University of California San Diego evaluated the ramifications of climate change on agricultural production in Brazil. Further—and this is the emphasis of their paper—they looked at how the anticipated strains on farming will affect Brazil’s agricultural financing.
Their modeling suggests that the shocks to farming will drive up the number of defaults on agricultural loans. Their findings were published in Proceedings of the National Academy of Sciences this month.
The predicted loan problems should come as no surprise. In the opening chapter of Grapes of Wrath, Steinbeck’s novel of the 1930s Dust Bowl, Tom Joad, freshly released from prison, travels back to the family homestead only to find that the Joad family and all the other farmers have been evicted by the banks, the land now cultivated by an employee on a tractor.
The Dust Bowl was a great environmental disaster. A long-term drought worsened by unsuitable farming practices led to some 1.2 billion tons of topsoil being blown away from 156 square miles of the Great Plains between 1934 and 1935. As Steinbeck illustrated, it was also a personal tragedy exacerbated by a financial system that saw the situation only in terms of profit and loss.
And, as Steinbeck cogently depicted, farming is tied to banking and finance. Farm owners need to make payroll, even when their lands are not turning a profit. They also need to make capital investments from time to time, building new structures and buying new tractors and other expensive equipment. From the farmer occupying a few acres growing microgreens to the cattle rancher overseeing hundreds of acres, all farmers need financing.
The authors note that financial institutions have already become increasingly aware of the risks posed by more extreme weather. From 2013 to 2022, agriculture and livestock in Brazil suffered losses of $58 billion because of too much or too little rainfall. To get a better sense of how this all played out in Brazil, the research team concentrated on the Brazilian state of Bahia because it encompasses the diversity of biomes and farming methods in Brazil, from high- to low-tech.
Their analysis found that the higher the predicted temperature, the more often farmers would be delinquent or would default on their loans. Volatility of seasonal changes, such as very late snows or early thaws, which climate change is predicted to bring about, also means more delinquency and default.
The authors suggest improved agricultural resilience, such as building and using cisterns, may be key to mitigating these challenges. Larger solutions should be implemented as well, including changes to Brazil’s financial institutions. The research team notes there are resources already in place to aid the country’s transition to a warmer world, such as Brazil’s agricultural insurance program and its Agricultural Climate Risk Zoning program, which provides planting guidance.
Some of these changes are already occurring. Since July 2022, Brazil’s central bank has been enforcing new rules mandating that banks incorporate climate change-related risks, such as droughts, floods, and forest fires, into their financial stress tests.
From Big Ag to family farms
To feed its population, as well as fight climate change, Brazil is being urged to support local, family farming and deemphasize large production farms. With the country’s rich farming heritage, policy makers see this transition as being better able to fulfill Brazil’s nutritional needs. Family farming provides 70 percent of Brazil’s food but occupies just 23 percent of the country’s arable land. Because of this efficiency, relying more on family farming will combat both deforestation and climate change.
I am Brazilian and couldn't agree more, it's so sad to see that families don't get support here.