European heat and drought to cost agriculture sector billions, says Munich Re

The heatwaves, droughts and forest fires currently affecting swathes of Europe will cost the agriculture sector billions of dollars with entire harvests lost in some cases, Munich Re warns.

According to the reinsurer, the grain harvest in Germany is likely to be down more than 10% on the long-term average as a result of the hot and dry weather. Total crop losses are expected in some parts of northern and eastern Germany.

In Scandinavia, Poland, parts of Russia and Ukraine, farming associations and governments expect yield losses of between 15% and 50%, Munich Re said. Poland’s Ministry of Agriculture predicts a loss “on an unprecedented scale”.

“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,” write Eberhard Faust, head of research climate risks and natural hazards at Munich Re, and colleague Maximilian Strobl, regional head of agro-insurance Asia and Canada, client management US.

Outside Europe, major farming countries like the US, Canada and Australia are also suffering from reduced regional yields due to protracted periods of drought.

High-pressure conditions have dominated northern Europe since May, bringing record temperatures. Meanwhile, rainfall has been much lower than normal and drought conditions have developed in large areas of northern, central and eastern Europe.

Germany, Denmark, Norway and Sweden, Poland, the Baltic and Ukraine are particularly affected by the drought.

The Munich Re experts point out that scientists expect summer dry spells with high temperatures to occur more often in the future as a result of climate change. Other weather extremes – such as hail, strong winds and torrential rainfall – are also set to increase.

The overall impact of climate change on agriculture during the next few decades in northern Europe will therefore be complex, they add.

“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,” Mr Faust and Mr Strobl explain.

With a longer vegetation period, higher yields can be achieved for crops like cereals and maize, even in higher latitudes, they add. Meanwhile, agriculture can partially compensate for losses from greater heat and less rainfall, through continuous and systematic cultivation of adapted varieties, the experts say.

The situation is different in southern European regions such as Spain, the south of France, Italy and southeastern Europe, where it is already substantially dryer. “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,” add Mr Faust and Mr Strobl.

Agriculture will need to react by using more robust crop varieties and adapting current production technology, but adaptation measures are of limited use against the effects of extreme events, say Mr Faust and Strobl. In such cases, insurance needs to help protect farmers against crop losses. Insurance based on yield indexes or weather parameters offers potential solutions, they add.