Alan Guebert: Managing climate risk is good business and good for the future


Alan Guebert, Special to the Farm Forum (SD)

Apr 29, 2021


With the wave of a wand, you’re the boss of the Farm Credit System. You manage a portfolio of 592,000 ag-related customers holding 946,119 loans totaling $315 billion — $113 billion in real estate debt alone — according to December FCS data.


Those numbers keep most people up at night but you sleep like a baby because your staff understands risk and how to “price” loans based on the Five Cs of lending: collateral, capital, character, capacity and conditions.


Recently, though, a sixth and seventh “C” have made your days longer and your nights sweatier: climate change. How do you factor into your loans the unknown damage bigger, more frequent hurricanes, floods, droughts, harsher winters and hotter growing seasons will have on agriculture?


The only solace you’ve found so far is that you’re not alone. Other ag lenders like commercial banks, insurance companies and the U.S. Department of Agriculture’s Farm Service Agency are fumbling for answers, too.


In fact, all have been fumbling for years, notes Steve Suppan, a senior policy analyst at the Institute of Agriculture & Trade Policy, in a detailed report, titled “Agricultural Finance for Climate Resilience,” published last fall.


Worse, the best answers so far — “… larger and increasingly frequent ad hoc disaster payments and increasing subsides for private crop insurance from taxpayers funds” — clearly are “not sustainable fiscally, economically or environmentally.”


Still, a reformed federal crop insurance program could be a key element in a new, climate-flexible lending program. The reason is obvious: