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U.S. Drought Demonstrates Complexity, Severity of Water Risk

As much of the United States continues to suffer through what the National Oceanic and Atmospheric Administration (NOAA) has called the country’s most extensive drought in more than 50 years, there is growing concern over how broad and severe the impacts of the dry spell may be. Events like this drought—which are projected to become increasingly common should climate change continue unabated— provide a sharp reminder of how heavily communities and global economies rely on water. They also teach another lesson: natural resource challenges like water scarcity cannot simply be viewed as environmental issues; they are real and material drivers of risk that governments, businesses, and investors must carefully consider in the context of the global economy.

Crop damage from drought in the United States - Nasa Earth Observatory

Water Risk Impacts

To illustrate how complex and severe water risks can be, here are just a few of the impacts the current U.S. drought is creating:

Impact: Reduced Crop Yields

Who is impacted? U.S. agricultural economy

The drought’s most apparent, immediate impact has been a reduction in crop yields across the 29 states in the affected area. Estimated U.S. corn yields have dropped steadily as the drought has worsened over the last several weeks. Reduced yields and the threat of outright crop failure have severe and immediate impacts that stretch even beyond farmers and communities who rely on their crops for their livelihoods. Other members of the agricultural economy—from equipment providers suffering lost sales to ranchers facing increased feed prices--are also affected.

Impact: Agricultural Price Spikes

Who is impacted? Consumers and suppliers ranging from local grocery stores to international marketplaces

The threat of reduced crop yields has had an immediate impact on agricultural commodity prices, sending corn futures up more than 50 percent over the course of a month. Increasing costs for agricultural products create far-reaching impacts up and down supply chains. The cost of food at the supermarket may rise, with fresh meat prices projected to increase by as much as 10 percent. Prices for corn and soybeans, both vital staples, are already both on the rise. These rising prices are likely to have far-reaching implications across today’s inter-connected global markets. For example, increases in grain price are correlated to increases in price for essential fertilizers such as potash: demand for fertilizer grows as farmers try to meet the increased demand for grains, sending fertilizer prices up. If grain prices continue to increase, countries that import large quantities of fertilizer, such as China, may face increased costs.

Impact: "Knock-on" impacts

Who is impacted? Small businesses and beyond

While the threat that drought poses to agriculture is often the most discussed, the dry spell in the U.S. is already demonstrating several unexpected “knock-on” impacts. Lack of rain has contributed to a devastating wildfire season out West, which created more than $450 million worth of damage in Colorado alone. Lack of rain can add another headache for small business owners in lines of work such as recreational boating, who are already under pressure in a lean economy. Shale gas extraction has also been impacted, with water shortages in western Pennsylvania leading to the suspension of many water withdrawal permits for gas drillers.

The Worst May be yet to Come

The water risks facing governments, businesses, investors, communities, and others are undeniably severe. But there’s an even greater threat looming: Research indicates that droughts in the U.S. will likely intensify and become more common as global temperatures rise.

To help understand water risks and opportunities, the World Resources Institute’s Aqueduct project creates global and regional maps of the drivers of water-related risks. The Aqueduct map pictured below shows how climate change, economic development, and other trends could change water stress levels in the United States by 2025. The orange hues on the current drought area indicate that water availability may be an even greater cause for concern for the region in the decade ahead.

Projected water stress in the United States, 2025. From Aqueduct Water Risk Atlas

The Road Ahead

As time goes on, the full impacts of the ongoing drought in the U.S. will become more apparent. What’s becoming increasingly evident is that communities and economies far beyond the current dry region will experience these impacts. Climate change, economic growth, and urbanization are emphasizing the urgent need to improve our understanding and management of water risks. We need to continue developing tools like WRI's Aqueduct which help analyze the risks related to water and drought and begin to take steps to mitigate these risks on a global and local scale. Businesses and governments alike have a key role to play in bringing their skill in identifying and managing complex risks to bear on the natural resource challenges poised to define the 21st century.

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