Much of the Western US is now officially in a drought. This post provides information business and government leaders should know about this including insights into how drought impacts key sectors of the economy. It also provides four scenarios that can be used for organizational strategic planning. It concludes with recommendations for business and government leader consideration.
Background
There are 100’s of definitions of drought. We prefer the National Oceanographic and Atmospheric Agency definition. NOAA considers a drought as a period of below-normal precipitation so significant that it causes a water shortage. Droughts impact soil moisture, rivers and lakes. Severe shortages impact agriculture, manufacturing, power generation and public health. Droughts magnify the destructiveness of forest fires and the ability of firefighters to respond.
At the time of this writing a major weather system known as a stationary Heat Dome over the US Pacific Northwest is making existing drought conditions even worse than they were before. It is, of course, impossible to predict with any certainty how the drought will play out, but all indications are this will be bad.
Potential Impact
The following summarizes potential impact of drought by topic areas we believe to be of highest interest to business decision makers. We recommend this baseline of potential impact be understood by all business leaders, including those outside of the US West Coast, since significant impacts will effect the entire nation.
Agriculture
Drought reduces both water availability and water quality necessary for productive farms, ranches, and grazing lands, resulting in significant negative direct and indirect economic impacts to the agricultural sector. Drought also contributes to insect outbreaks and increases in wildfire and other factors that impact agricultural production. This has long been a critical factor for the livelihoods of farming communities, but in extreme situations could potentially impact the quality and availability of many key components of the modern diet.
Energy
All sources of energy require water in their production processes, and energy is required to extract, convey, and deliver water. Because energy and water are so interdependent, the availability and predictability of water resources can directly affect energy systems. Energy is also impacted in heat waves, which is very often coincident with drought.
Manufacturing
Water is used in many manufacturing processes. for years, state governments have been working with manufacturers to help ensure water use is optimized and at a high level we do not assess water shortages will impact manufacturing directly. However, during drought conditions, reductions in or interruption of the water supply can result in a reduction of plant productivity or even at times closure of manufacturing facilities.
Transportation
Drought impacts port and waterway transportation and supply chains, resulting in increased transportation costs. Higher temperatures that often coexist with drought can impact roads, airport runways, and rail lines. Wildfires, which are almost always coincident with drought, also have impacts on transportation.
Public Health
Droughts have been known to cause significant human health outcomes that can challenge public health departments, emergency managers, and healthcare providers. Drought can lead to decreased water quantity and quality, increased incidence of illness or disease, increased mortality rates, and adverse mental health outcomes as livelihoods are challenged. Drought can impact the availability of a workforce to work.
Wildfire Management
Drought is a contributing factor to wildfire. Dry, hot, and windy weather combined with dried out (and more flammable) vegetation increases the probability of large-scale wildfires. As was so horribly demonstrated in the 2020 Fire Season, especially in California, wildfires can impact the functioning of businesses and government by shutting down operations and displaying workers.
Forming An Assessment for Your Organization
At this point we can confidently assess that the drought this year will be worse than usual. Additionally, since it is building upon multiple years of drought the impacts on the issues we outlined above will also be worse than usual. Since it is impossible to build a precise estimate of how impactful it will be. Therefore the approach we recommend for organizations risk management decision is to apply formal processes of creating and examining future scenarios. This can help ensure planners examine realistic potential futures. This scenario based planning can help decision-makers think through future risks and mitigation measures, and opportunities that may arise from the drought.
To kickstart your scenario planning, consider the following four scenarios based on the duration of impact and degree of impact:
Moderate Impact for One Year: Water will remain available for manufacturing and most agriculture. Wildfires will remain dangerous and loss to property and lives will be high, but perhaps only double a normal year and then within a year return to a more normal level of devastation.
Moderate Impact for Multi-Years: Water will remain available for manufacturing at first, but the need to conserve over time will cause shutdowns of some manufacturing and movement of plants to other states or countries. The agricultural sector will be impacted and crop loss will be significant, but prioritization will allow some agriculture to survive (decisions will have to be made on what types of agriculture will continue and which will not). Wildfires will remain dangerous and loss to property and lives will be high, but perhaps only double a normal year. Impact on water shortages on energy production will contribute to fragility of power grid and increase rate of outages, especially in hottest months.
High Impact for A Year: Devastation greater than that of the 2020 wildfires will cause extended stay in place orders and return to lockdown. Death rates due to pollution from fires and lack of water will be much higher for a limited period. Loss of one year’s crop will cause many farms to suffer and require bailout to survive. Food production will be hurt since California is in many ways the nation’s most important food producer, but recovery will come the next year and losses will be made up by purchases of food products on the global market. Impact of drought on energy production will cause increase in power outages impacting business and quality of life. Manufacturing in Western states will see limited interruption that is reflected in production numbers but not of significant impact. Impact of the drought on all citizens of Western states will seek opportunities to move to other regions in the hope they never face this significant crisis again.
High Impact for Multi-Years: This is the scenario no one wants, worst case. It will involve widespread failure of crops, significantly reducing the amount of US produced vegetables, fruits, meat and dairy. Besides the roughly $50 Billion dollar loss to the agricultural industry, consumers around the nation will be impacted by more limited choices in food and will pay far more for what they get. Manufacturing in the Western US will be impacted because of widespread forest fires and extreme restrictions on water use. Impact of drought on energy production will make it harder to deliver stable electricity to businesses and homes, making periodic outages a routine occurrence, especially in hotter months. A widespread health crisis will be reflected in increased death due to pollution from fires and lack of sanitary water. Entire towns will be burned in fire. Downward spiral of the economy in the West will impact businesses across the nation and will also result in migration out of Western states to the East in search of respite from the drought and, hopefully, jobs. Higher education in the West will suffer from lack of students, lack of educators and lack of safe spaces.
Leveraging These Scenarios In Your Strategic Planning
Decision-makers can use these four scenarios in planning sessions by examining each scenario in turn. Ask yourself and your planners these questions for each scenario:
- Are there any core business processes that will fail in this future?
- What will the competitive landscape look like in this future?
- Is there anything we need to invest in now to optimize our position in this future?
- Are there any prudent changes to corporate policy to reduce risks in this future?
- How and when will we know if this future will come to pass?
- Are there changes to our products or services that can better serve the world in this scenario?
- How can our organization better inform and protect our people to reduce their personal risks in this future?
- Are there changes to our technology infrastructure that can help us succeed in this future?
- Should we make changes to our supply chain or partnerships or target customers to succeed in this future?
Concluding Thoughts
Integrating drought scenarios like the above into business planning can allow organizations to proactively prepare and adjust as best as possible.
Many adjustments should be made by the nation, some of which are going to take years to execute on. These include designing and fielding a new energy grid built for the environment of today and tomorrow vice the one that was built for a cooler age. The nation should also prioritize its water movement and storage infrastructure. There is enough water in the nation, it is just not distributed and managed the way it needs to be for an optimal future. Other longer term solutions include establishing more high capacity Desalination plants. One worth studying is the Carlsbad Desalination Plant, a project laughed at by its detractors and criticized for being a big waste even after it was turned on in 1993. Environmental rights groups tried to kill it. Budget hawks thought it was a waste. Many politicians took easy pot shots at its supporters. But the supporters won out and now this plant provides enough water for 400,000 people. It is a case study in planning and preparation.
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