Climate Risk Primer

8/10/2019 Climate Risk Primer

1/12

The future of buy-to-let

If you have any questions on the contents of this Report please contact Land Commodities Asset Management AG.

Telephone: +41 44 20 55 970Fax: +41 44 20 55 971Email: [email protected]: www.landcommodities.com

Land Commodities Asset Management AG, 2012

Climate Risk Primer: Australian Broadacre Cropping

A Primer on the Facts and Current State of the Science Relating to the Spatial Variabilityof Climate Risk and the Implications for Australian Broadacre Cropping Investors


2/122

All rights reserved. No part of this Report may be reproduced or

transmitted in any form or by any means, electronic or mechanical

including photocopying, recording or any information storage

or retrieval system, without the prior written permission of Land

Commodities as to the form and context in which it may appear.

The Content is for the use only of the Client. The Content is

to be used solely for the purpose of assisting an appraisal of

the Properties by the Client and is not to be used for any other

purpose. No responsibility is accepted to any third party who may

use or rely on the whole or any part of the Content.

The statements and opinions contained in the Report are givenin good faith but are not a substitute for further detailed analysis

and independent enquiry on the part of the Client. Much of the

Content is provided to Land Commodities by others. As such,

Land Commodities cannot control or vouch for its accuracy or

completeness, nor is it within the scope of Land Commodities

Services to check all of the information on the ground.

Land Commodities makes no representation or warranty as to

the accuracy or completeness of the information in this Report.

Nothing contained herein should be relied upon as a promise or

representation as to the future performance of the Properties.

Land Commodities expressly disclaims liability for representations

expressed or implied, contained in, or omissions from, this Report

or any other written or oral communications transmitted to the

Client during the course of their evaluation of the Properties or the

provision by Land Commodities of the Services.

Report means this Report compiled on behalf of the Client.

Content means any data and/or information in the Report

and other content and documentation or support materials

and updates relating to the Report and/or supplied by Land

Commodities and shall include Land Commodities developed

content and content provided by any third party.

Client means the person or legal entity named on the front

cover of the Report.

Properties means a property, or the properties, described in the

Report or with respect to which Land Commodities provides the

Services.

Services means the provision of any service to the Client by

Land Commodities, including without limitation, the Report.Land Commodities means Land Commodities Asset

Management AG.

Please direct all enquiries to:

Land Commodities Asset Management AG

Blegistrasse 9

CH-6340 Baar

Switzerland

Telephone: +41 44 205 59 70

Fax: +41 44 205 59 71

[email protected]

www.landcommodities.com

Copyright Land Commodities Asset Management AG, 2012


3/123

Background

Much of the variability in Australias climate is connectedwith the atmospheric phenomenon known as the SouthernOscillation, a major see-saw of air pressure and rainfallpatterns between the Australian/Indonesian region and theeastern Pacific. The Southern Oscillation gives rise to twomajor weather phenomena: El Nio, generally associatedwith dryer conditions in Australia and its opposite twin, La

Nia, generally associated with wetter conditions.

Given the challenges of accurately predicting weatherconditions over the longer term, agricultural planning anddecision making is usually focused on the short-term; namelythe current crop or pasture growing season and periods outto a maximum of one year. These timescales are exactlythose impacted by the extremes of the Southern Oscillation- La Nia and El Nio - both of which often last for about

10 -12 months, and typically have the biggest impact inthe Australian winter and spring; a key period agriculturallygiven the winter to spring growing season of the AustralianWheatbelt.

Figure 1: Schematic maps indicative of typical rainfall tendencies during El Nio and La Nia events


4/124

El Nio

El Nio refers to the weather conditions which occur whensea surface temperatures in the central to eastern PacificOcean are significantly warmer than normal. This recursevery three to eight years and is generally associated with astrong negative phase in the Southern Oscillation pendulum.

The El Nio phenomenon significantly impacts rainfall and

ensuing crop yields in many parts of the world. In Australia,El Nio events are often associated with severe droughtconditions. Since rainfall variability is the dominant factorcausing year-to-year fluctuations in Australian wheat yield,El Nio is the most significant climate phenomenon withrespect to volatility in farm operating income (and hencelandowner and operator risk).

Whilst in aggregate the relationship between rainfall andyield is broadly similar (i.e. in the majority of cases El Nioevents are associated with reduced yields) the effects differspatially and temporally in their manifestations and impacts

depending on the type of El Nio event. Various studies haveinvestigated the relationship between ENSO and Australianrainfall and found it to be significant, particularly in easternand southern parts of Australia (Pittock, 1975; Ropeleswskiand Halpert, 1987; McBride and Nicholls, 1983; Stone et al.,1996, Mason and Goddard, 2001).

Figure 2 shows the average rainfall pattern in the growingseason during the 12 most extreme El Nio events in the lastcentury (1905, 1914, 1940, 1941, 1946, 1965, 1972, 1977,1982, 1991, 1994 and 1997). As Figure 2 demonstrates,whilst some parts of the extreme south of the western partof Australia receive below average rainfall during El Nio

growing seasons, the risk of drought is higher in the eastern,southern and northern regions.

Figure 3 shows the average rainfall pattern in the summerduring the same 12 El Nio events. As Figure 3 demonstrates,in contrast to the majority of Australia, the eastern edgeof the south western Wheatbelt region can receive aboveaverage rainfall during the summer months in El Nio years.Whilst this can increase the risk of crop damage if excessiveand persistent rainfall is received during the early summerharvest period, these rains can also result in higher residualsoil moisture which can act to boost yields by mitigating the

risk of lower rainfall in the following growing season. Thismay explain the tendency of low rainfall far eastern districts inthe Western Australian Wheatbelt to produce above averageyields in some dryer years when higher rainfall districts to thewest produce below average yields.

(Note: Although Figures 2 & 3 describe the average rainfallduring El Nio, they should not be misinterpreted as aguarantee that any particular region will always experience atypical response to an El Nio event.)


5/125

Figure 2: Average growing season rainfall anomalies (deciles) during the 12 most extreme El Nio years in the last century

Figure 3: Average summer rainfall anomalies (deciles) during the 12 most extreme El Nio years in the last century


6/126

The most comprehensive studies (Potgieter et al., 2002,2005) examining the spatial variability of wheat yields inAustralia during El Nio years separated the 24 occurrencesover the last century (the period 1900 to 2002) into threecategories of El Nio depending on their effect on rainfalland yields. Figures 4 to 6 from this study show the spatialvariability of the impact on Australian wheat yields.

The first category (Figure 4) resulted in a marked reduction

in rainfall and yields in north eastern regions, but had alesser effect on other parts of Australia, with some areas inthe south east, south and south west experiencing higher

rainfall and yields. The second category (Figure 5) resulted ina reduction in rainfall and yields in almost all regions exceptfor the south west (including the lower rainfall Shires of thesouth west which also experienced little or no reductionin rainfall and yields), with some areas in the south westexperiencing higher rainfall and yields. The third category(Figure 6) resulted in a reduction in rainfall and yields inalmost all regions, but the effect was very severe in theeastern and southern regions and less severe in the south

west, with some areas of the south west experiencing higherrainfall and yields.

Figure 4: First category of El Nio event (number of standard deviations of the average anomaly in annual wheat yieldsfrom the long-term mean: 9 years out of 100 years)


7/127

Figure 5: Second category of El Nio event (number of standard deviations of the average anomaly in annual wheat yieldsfrom the long-term mean: 6 out of 100 years)


8/128

Figure 6: Third category of El Nio event (number of standard deviations of the average anomaly in annual wheat yieldsfrom the long-term mean: 9 years out of 100 years)


9/129

La Nia

La Nia refers to the weather conditions which occur whensea surface temperatures in the central to eastern PacificOcean are significantly cooler than normal. This occurswith broadly similar frequency to El Nio and is generallyassociated with a strong positive phase in the SouthernOscillation pendulum.

The effect of La Nia on wheat yields can be either positiveor negative depending on the extent and timing of theincreased rainfall usually associated with the phenomenon.If additional rainfall is experienced during the growingseason this can have a positive impact on yields, however, ifexcessive rainfall results in waterlogging of soils, or in extremecases flooding, the effects can be detrimental. Additionally,excessive and persistent rainfall during the harvest seasoncan damage crops, negatively impacting yields.

As with El Nio, the effects of La Nia differ spatially andtemporally in their manifestations and impacts. Figure 7

shows the average rainfall pattern in the winter and autumngrowing season during the 12 most extreme La Nia eventsin the last century (1910, 1916, 1917, 1938, 1950, 1955,1956, 1971, 1973, 1975, 1988 and 1998). As Figure 7demonstrates, whilst some parts of the south west receiveabove average rainfall during La Nia growing seasons,the risk of flooding is predominantly associated with thenorthern, central, southern and eastern regions.

Recent La Nia years include 197374, Brisbanes worstflooding of the 20th century, the 19982000 period whichsaw flooding across parts of northern and eastern Australiaand the 2011 floods which resulted in more than AU$2

billion of crop damage in eastern Australia.

Figure 8 shows the average rainfall pattern in the summerduring the same 12 La Nia events. As Figure 8 demonstrates,in La Nia years excessive rainfall is more commonly associatedwith the northern and eastern regions during the summermonths. Whilst increased soil moisture from higher summerrainfall can improve yields in the next growing season, therisk of excessive rainfall early in the summer resulting in cropdamage during harvest time is lower in the south west ofAustralia than it is in the eastern and north eastern regions.

(Note: Although Figures 7 & 8 describe the average rainfallduring La Nia, they should not be misinterpreted as aguarantee that any particular region will always experience atypical response to a La Nia event.)


10/1210

Figure 7: Average growing season rainfall anomalies (deciles) during the 12 most extreme La Nia years in the last century

Figure 8: Average summer rainfall anomalies (deciles) during the 12 most extreme La Nia years in the last century


11/1211

Summary and Conclusion

In conclusion, for the majority of extreme weather years occurring in Australia over the last century,owning farms in different parts of Western Australia, as opposed to different parts of Australia aswhole, would have been a more effective diversification strategy from the perspective of mitigating

climate related risk.

References

BOM, 2010: Australian rainfall patterns during La Nia events. Australian Bureau of Meteorology, Product Code: IDCKGEERL0. Availableonline at: http://www.bom.gov.au/climate/enso/ninacomp.shtml

BOM, 2010: Australian rainfall patterns during El Nio events. Australian Bureau of Meteorology, Product Code: IDCKGEERE0. Availableonline at: http://www.bom.gov.au/climate/enso/ninocomp.shtml

Mason, S.J. and L. Goddard, 2001: Probabilistic precipitation anomalies associated with ENSO. Bulletin of the American MeteorologicalSociety. 82(4), 619-638.

McBride, J. L. and N. Nicholls, 1983: Seasonal relationships between Australian rainfall and the Southern Oscillation. Monthly WeatherReport. 111(1822), 1998-2003.

Pittock, A.B. 1975: Climatic change and the patterns of variation in Australian rainfall. Search. 6(11-12), 498-504.

Potgieter, A.B., G.L. Hammer and D. Butler, 2002: Spatial and temporal patterns in Australian wheat yield and their relationship with ENSO.Australian Journal of Agricultural Research. 53, 77-89.

Potgieter, A. B., G. L. Hammer, H. Meinke, R. C. Stone, L. Goddard, 2005: Three Putative Types of El Nio Revealed by Spatial Variability inImpact on Australian Wheat Yield. J. Climate, 18, 15661574

Ropelewski, C.F. and M.S. Halpert, 1987: Global and regional scale precipitation patterns associated with the El Nio/Southern Oscillation.Monthly Weather Review. 115, 1606-1626.

Stone, R.C., G.L. Hammer and T. Marcussen, 1996: Prediction of global rainfall probabilities using phases of the Southern Oscillation Index.

Nature. 384, 252-255.


12/12

t. +41 44 20 55 970

f. +41 44 20 55 971

[email protected]

www.landcommodities.com

Land Commodities Asset Management AGBlegistrasse 9

CH-6340

Baar

Switzerland

Land Commodities Asset Management AG

Documents

Climate Risk Primer