Water & Climate Risks Facing U.S. Corn Production
U.S. corn farmers are among the most productive in the world, generating a record harvest of nearly 14 billion bushels in 2013—enough corn to fill a freight train long enough to circle the Earth. This production supports a mammoth agricultural sector comprised not just of farmers, but also major food, meat and energy companies that have an enormous stake in the long-term productivity and resilience of American agriculture. However, in the face of this bounty, three major threats to U.S. corn production loom: climate change, unsustainable water use and inefficient and damaging fertilizer practices.
Ceres’ new report, Water and Climate Risks Facing U.S. Corn Production: How Companies and Investors Can Cultivate Sustainability analyzes the risks facing U.S. corn production. The report provides recommendations for how corn-buying companies and their investors can catalyze more sustainable agricultural practices, while helping farmers preserve and enhance yields, and protect precious water resources. The research is accompanied by new data and interactive maps that highlight irrigation risks and fertilizer pollution hotspots.
TOP REPORT FINDINGS
The U.S. Corn Value Chain
Corn is the nation’s biggest crop economically and takes up nearly one-third of U.S. cropland—an area equivalent to two Florida’s. In 2013, nearly three-quarters of the corn crop went either to feed animals or to fuel cars – just 10% was used for direct human consumption.
In assessing the U.S. corn value chain, Ceres identifies 16 sectors—from fast food companies to fertilizer manufacturers to grocery retailers— that depend on U.S. corn as a key ingredient of their products or as a market for their inputs and services. In 2013, the top 45 companies in the corn value chain earned $1.7 trillion in revenue, more than the value of Australia’s annual GDP.
Increasingly severe weather events and higher domestic and foreign demand for corn have contributed to a steady uptick and unprecedented volatility in corn prices, which ranged from $2 a bushel 10 years ago to a record $8 a bushel during the devastating 2012 drought. This volatility has vast implications for the many industries that rely on corn. High corn prices in the wake of extreme flooding in spring 2011 and the prolonged drought in 2012 shuttered ethanol plants, contributed to the culling of beef herds, and reduced margins for many processed food and beverage companies.
Extreme Weather & Climate Change
Severe droughts, floods and heat waves at key moments in the growing season are becoming increasingly common, causing dramatic year-to-year supply shocks. Corn is uniquely sensitive to hotter temperatures and water stress. According to the latest National Climate Assessment, climate change means that farmers can expect a higher incidence and intensity of floods, droughts and extreme heat, which can reduce corn’s ability to pollinate. Given limited water availability in parts of the Great Plains region, a northward shift in corn acreage is predicted, increasing the risk of stranded agricultural assets such as processing, storage and transportation infrastructure.
Irrigation Demand & Groundwater Depletion
Corn is a thirsty plant, and receives the most irrigation water overall of any American crop: 15.4 million acre-feet annually, or the equivalent of more than 7 million Olympic-sized swimming pools. While per bushel water use has improved over time, total irrigated water demand for corn has grown due to geographic expansion of the crop, especially in areas with high water stress and groundwater depletion.
Over half of the country’s irrigated corn production—worth nearly $9 billion annually—depends on groundwater from the over-exploited High Plains aquifer. Ceres finds that $2.5 billion-worth of corn grain is grown in 20 counties over portions of the High Plains aquifer where groundwater levels are rapidly declining. Of these, five counties have over $150 million each in annual corn grain production at risk from groundwater depletion: Yuma County in Colorado and York, Hamilton, Adams and Filmore counties in Nebraska.
Fertilizer Use & Nutrient Pollution
Compounding these environmental challenges, corn uses the most fertilizer of all major U.S. crops. In 2010, U.S. corn production required 9.5 million tons of nitrogen, phosphorus and potash—the equivalent of 380 million 50-pound bags of household lawn fertilizer. Nitrogen run-off from cornfields is the single largest source of nutrient pollution to the Gulf of Mexico’s “dead zone,” an area the size of Connecticut that is essentially devoid of life.
Because water pollution from agricultural run-off is largely unregulated, drinking water utilities, and the commercial fishing and outdoor recreation industries currently bear the financial burden of nutrient pollution. The USDA estimates that the cost of removing nitrate alone from U.S. drinking water supplies by large water utilities is more than $4.8 billion per year.
Nutrient pollution also represents a direct economic loss to corn farmers: Ceres finds that in 2013, $420 million in fertilizer washed off corn acres into the Mississippi River and eventually the Gulf of Mexico.
Recommendations for Companies that Buy Corn
The report highlights many of the farming practices that can help reduce the risks facing America’s corn growers, while also improving yields and saving on input costs. It also provides recommendations for companies that source U.S. corn—and their investors—on how to be key partners in mitigating impacts to water resources. The recommendations for companies include:
- Setting goals to source corn sustainably. Companies that buy corn should develop a corporate policy that commits them to sourcing agricultural inputs that are grown in ways that reduce impacts to freshwater and the environment. These policies should be tied to measureable, time-bound goals.
- Communicating clear expectations to suppliers. For companies not dealing directly with farmers (i.e. those buying grain from intermediary suppliers), priorities for reducing environmental risks in farming practices should be well communicated to suppliers and integrated into supplier codes and procurement contracts. Where possible, policies, metrics and data requests should be aligned with others in the industry.
- Incentivizing the procurement function. To enable improved sourcing practices, supply chain managers will need additional expertise on environmental risks in agriculture, and should be compensated against performance objectives that include reducing these risks.
- Prioritizing action based on risk. Companies should develop sourcing strategies that prioritize action in sourcing regions of higher risk, such as those associated with water stress, groundwater depletion and/or nutrient pollution, using the maps in this report.
- Joining multi-stakeholder efforts to develop shared metrics and approaches. Companies should consider constructive participation in initiatives such as Field to Market that are providing U.S. corn growers with the tools, information and other resources to improve farming practices.
- Providing value to farmers. Farmers should not be expected to change their practices without incentives and support from others in the value chain. Companies can help growers by providing direct agronomic assistance, performance guarantees and credit, as well as financial support to local and regional organizations that assist farmers.
- When possible, buying less corn. Corn has an inherently higher fertilizer and water use profile than many other crops. For sectors with a heavy reliance on corn such as meat and ethanol, substitute grains with a preferable environmental risk profile may already be available or their production can be encouraged by working with growers to select profitable alternatives.
- Taking public policy positions that support sustainable agriculture. Government policies that mitigate climate change and encourage risk-reducing, environmentally beneficial farming practices and long-term land and water stewardship will lead to more stable commodity prices and resilient agricultural markets. Companies should ensure that their own policy positions, lobbying activities, and industry groups support legislation and regulation that advances those ends.
- Being transparent. Disclose to investors and stakeholders the company’s exposure to climate and water-related risks in its agricultural supply chain, as well strategies and progress toward mitigating these risks.