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Climate Change Adaptation and Canadian Agriculture September 2020 1
Climate Change Adaptation and Canadian Agriculture: Potential Investment Opportunities
Average global temperatures have been trending higher for the last few
decades, and more than 90% of climate scientists attribute global warming to
an increase in the concentration of greenhouse gases in the atmosphere
generated by human activity.1
The agriculture and food system will likely play a
leading role in both mitigating climate change by reducing emissions, and
adapting to climate change by farming in new ways in new areas in order to
meet nutritional demands of the global population. Agriculture is recognized as
a sector that is particularly sensitive to changing temperatures and precipitation
patterns. Concerns have been raised that changing climate conditions, such as
increasing heat stress, more limited
precipitation and more extreme
weather events, could seriously
compromise growing conditions and
negatively impact crop productivity.
However, in northern latitudes, for
countries such as Canada, Russia and
those in Northern Europe, the
anticipated weather shifts from climate
change are more likely to be favorable
for agricultural production.2
Developing a better understanding of how climate change will impact Canadian
agriculture is important in shaping investment strategy and portfolio construction
for a farmland investor. Climate change will be a key determinant of changes in
the relative competitiveness between different regions, and the appropriate
assumptions on future crop mix and yield will be essential in properly
underwriting investments in Canadian farmland. While precisely forecasting
future outcomes for large, complex systems like climate is not possible,
understanding relative direction and the associated probabilities of expected
long-term changes in climate will help to identify investment opportunities and
risks and to guide operational decisions.
1MIT Climate Science and Solutions, May 2020, https://climateprimer.mit.edu/ 2W.N. Smith, B.B Grant, R.L. Desjardins, R. Kroebel, C. Li, B. Qian, D.E. Worth, B.G. McConkey, C.F. Drury, September 2013, Agriculture, Ecosystems and Environment, Assessing the effects of climate change
The agriculture and food system
will likely play a leading role in
both mitigating climate change by
reducing emissions, and adapting
to climate change by farming in
new ways in new areas in order to
meet nutritional demands of the
global population.
Climate Change Adaptation and Canadian Agriculture September 2020 2
Background and Baseline
Over the last two decades, improvements in crop yields
for multiple major crops in Canada has outpaced most
other advanced economies, including the United States.3
A range of factors have contributed to these gains,
including the application of financial and human capital
and technology, but a warming climate has also had a
positive impact.
Canada’s warming trend is well underway. Over the
period 1998 to 2018, each annual average temperature
for Canada was warmer than the 1901-2000 baseline
average.5 Canada’s rising average temperature has led to
longer growing seasons. These warmer temperatures
have helped enhance crop yields and enabled a shift to
higher-value crops that need more frost-free days: corn
and soybeans comprised 8% of Canada’s harvested area
in 2004, steadily growing to 12% by 2018.
For Canada’s two largest crops by area and value, canola
and wheat, average annual yield growth has exceeded
that of the U.S. and the world average in the period 1998-
2018.8 Although warmer temperatures are not the only
contributor, they are
certainly an important
one. The simultaneous
upward trends in yield
and harvested area
indicates that yield
growth was shared
across established and
new growing areas in
Canada.
Case Study – Corn and soybeans in Manitoba
Manitoba, in the heart of Canada’s prairies, was
historically a key area for wheat, barley, and canola.
Manitoba’s southern border is adjacent to Minnesota and
North Dakota. Chart 6 shows that, especially since 2001,
the production of corn and soybeans in southern Manitoba
has expanded, and this trend has persisted even after
soybean prices declined after 2017. Farmland values in
Manitoba, based on transaction data from Farm Credit
Canada, grew rapidly from 2012 to 2017.11
Annual Average Temperatures Have Been
Consistently Above or Equal to the Reference
Temperature since 19934
Chart 1: Annual average temperature departures from 1961-1990
reference value
Annual Crop Harvested Area Edges Higher Chart 2: Major Row Crop Harvested Area (Million Hectares)6
Annual Production Moves Up on Higher Yields Chart 3: Canada Row Crop Production (Million MT)7
3USDA Production, Supply and Distribution as of August 2020, HNRG Research calculations, 1998 to 2018 marketing years
4Environment and Climate Change Canada, as of 2019, https://www.canada.ca/en/environment-climate-change/services/environmental-indicators/temperature-change.html 5University of Manitoba, Prairie Climate Centre, May 2020 http://prairieclimatecentre.ca/2017/10/seeing-is-believing-historical-records-prove-canada-is-warming/
6, 7Source: Statistics Canada, May 2020
8USDA Production, Supply and Distribution as of August 2020, HNRG
Research calculations, 1998 to 2018 marketing years 9, 10USDA Production, Supply and Distribution as of May 2020 11Farm Credit Canada, 2019 Farmland Values Report, https://www.fcc-
fac.ca/fcc/resources/2019-farmland-values-report-e.pdf
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1948 1958 1968 1978 1988 1998 2008 2018
Under reference
temperature
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temperature
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Oats, Lentils and Dry Peas CornSoybeans BarleyCanola Wheat
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Wheat Barley Corn Oats
Lentils Dry Peas Soybeans Canola
Warmer temperatures have
helped enhance crop yields
and enabled a shift to higher-
value crops that need more
frost-free days: corn and
soybeans comprised 8% of
Canada’s harvested area in
2004, steadily growing to 12%
by 2018.
Climate Change Adaptation and Canadian Agriculture September 2020 3
Climate Outlook for Canada
Looking forward 10-20 years, there is a broad consensus
that climate change will result in warmer average
temperatures in Canada. The Intergovernmental Panel on
Climate Change (IPCC) climate forecast is for average
annual temperatures across Canada to increase 0.5-1.5
degrees Celsius through 2030 compared to a 1990
baseline.13
This projected increase in average
temperature reflects the forecasts from several different
emission scenarios and models. The outlook at a
national level for Canada is mixed for precipitation, with
greater precipitation in some regions and drier conditions
in others.14
The Canadian Centre for Climate Services projects that
even in a low emission scenario, mean temperatures for
Canada are expected to increase in 2021-2040 compared
to 2000.15
The Climate Atlas of Canada, created and
managed by the Prairie Climate Center at the University
of Winnipeg, provides estimates of future temperatures,
precipitation and growing season under several emission
scenarios. In each scenario, five factors that are related
to agricultural performance are projected to increase,
most notably the frost-free season and growing degree
days.16
Estimates of future climate are probabilistic
ranges rather than point estimates, due to the uncertainty
in climate modeling. For Canada, the climate outlook is
for warmer temperatures, leading to an increase in frost-
free days and a longer growing season, enabling more
favorable growing conditions, and potentially longer
windows for planting and harvesting. The extra growing
days, which will vary regionally across Canada, represent
a meaningful opportunity to achieve higher yields,
increase planted area and shift the crop-mix to higher
value crop types.
Recognizing Climate Change as an Investment Opportunity for Canadian Agriculture
The impacts of climate change on agriculture will not be
uniform across regions. In Canada, the magnitude of the
climate change related potential upside and downside
impacts will vary by crop, region and time-period.
The primary opportunities for Canadian agriculture
include capturing land use and crop mix changes afforded
by a longer growing season, but technology will play a
prominent role in enabling and advancing agricultural
productivity the adaptation to the agriculturally more
favorable climatic conditions. This process includes a
12Statistics Canada, accessed on May 19 2020, https://
doi.org/10.25318/3210035901-eng 13,14Intergovernmental Panel on Climate Change (IPCC) Climate Forecast,
May 2020, https://www.ipcc.ch/report/ar4/wg1/global-climate-projections/
15,16Government of Canada, Canadian Centre for Climate Services, May
2020 https://www.canada.ca/en/environment-climate-change/services/
climate-change/canadian-centre-climate-services.html
Corn and Soybeans Grow in Manitoba Chart 6: Corn and Soybeans Area and Yield in Manitoba12
0
60
120
180
0.0
0.8
1.5
2.3
3.0
Ave
rage Y
ield
(bu/a
cre
)
Seeded A
rea (
mil
acre
s) Corn Area (left axis)
Soybeans Area (left axis)
Corn Yield
Soybeans Yield
Canadian Canola Yields Outpace the World Chart 4: Canola Yields (Metric tons per hectare)9
0.00
0.50
1.00
1.50
2.00
2.50
1997 2000 2003 2006 2009 2012 2015 2018
Canada U.S. Global
Canadian Wheat Yields Grow Faster than the U.S. Chart 5: Wheat Yields (Metric tons per hectare)10
0
1
2
3
4
1997 2000 2003 2006 2009 2012 2015 2018
Canada U.S. Global
Climate Change Adaptation and Canadian Agriculture September 2020 4
positive feedback loop to innovation where increased
scale of crop production in new regions enables
additional research and development investment by ag
tech companies. Based on a wide range of studies,17
crop
productivity is expected to increase over the coming
decades; wheat yields are projected to continue to trend
higher; and conditions will likely be more favorable for
corn in western Canada.18
Farm revenue and margins will
benefit as the marginal increase in the growing season
widens the range of crops that can be grown in Canada,
adding resilience and greater adaptability to the Canadian
agricultural sector.
Deployment of new technological solutions will also be needed to mitigate against possible climate-change associated risks, such as more variable precipitation and potentially additional pest pressure due to warmer temperatures.
Although a warmer climate holds potential benefits for
many parts of Canada’s agriculture sector, climate
change also brings heightened risks, including increased
weather uncertainty, and potentially more volatile
temperature and precipitation patterns. Given that the
majority of Canadian agriculture cropland is dryland, this
could pose a risk to crop yields in some regions. More
volatile precipitation could also present new challenges
for irrigation water supply and drainage, both of which are
key to crop production in various regions. The IPCC
projections indicate the potential for additional risk factors
to crop performance, such as temperature extremes,
more variability in precipitation, reduced mountain snow/
ice and higher sea levels.19
Investment Strategy Implications
Canada has vast natural resources, the world’s second-
largest land mass,20
abundant fresh water and extensive
energy sources. The country’s investment environment
benefits from economic scale as the world’s tenth largest
economy,21
political stability, free trade agreements with
most of the world’s largest economies, and a close
relationship with the United States. For investors in
farmland, the addition of Canadian properties to a
diversified portfolio has a strong rationale and will need a
clear assessment of the relative risk and return of
Canadian farmland relative to other regions. A key
question will be how the overall forward-looking climate
risk of Canadian farm assets compare with other major
agricultural investment regions whose climate change
associated risk profile might be more challenging than for
Canada.
Looking Forward
Climate change is leading to significant shifts in growing
conditions for agriculture globally. In Canada, while
increased climate uncertainty will likely bring new risks
requiring adaptation, a warmer climate opens substantial
new opportunities in crop productivity and crop mix.
Understanding and estimating trends and implications for
each crop and region is important for improving
investment selection, valuation and management.
17Ochuodho, Lantz and Olale, Forest Policy and Economics, Economic impacts of climate change considering individual, additive and simultaneous
changes in forest and agriculture sectors in Canada: A dynamic, multi-regional CGE model analysis, December 2015
18W.N. Smith, B.B Grant, R.L. Desjardins, R. Kroebel, C. Li, B. Qian, D.E. Worth, B.G. McConkey, C.F. Drury, September 2013, Agriculture, Ecosys-
tems and Environment, Assessing the effects of climate change 19IPCC, https://www.ipcc.ch/site/assets/uploads/2018/02/ar4-wg1-chapter10-1.pdf 20The World Bank, May 2020 21International Monetary Fund, May 2020
Climate Change Adaptation and Canadian Agriculture September 2020 5
HNRG Research Team Court Washburn, Ph.D
Senior Managing Director
Keith Balter
Managing Director,
Economic Research
Mary Ellen Aronow
Director, Forest Economics
Daniel V. Serna
Associate Director,
Senior Agricultural Economist
Elizabeth Shestakova
Economic Research Analyst
Weiyi Zhang, Ph.D
Senior Natural Resource
Economist
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