U.S. is 'losing some of these smaller farms' due to ongoing drought's impact: Economist

American Farm Bureau Federation Economist Daniel Munch joins Yahoo Finance Live to discuss how ongoing weather conditions, specifically drought, are having a devastating impact on U.S. agriculture.

Video transcript

- Speaking of heat waves, and rising temperatures have persisted well into 2022, putting production of commodities at risk. As we discussed now, farmers and ranchers across the western half of the country are continuing to battle severe drought conditions. Let's bring in Danny Munch, American Farm Bureau Federation economist, to discuss. Danny, good to see you. We've seen these devastating pictures, historically low water levels at Lake Powell and Lake Mead. We've heard of the reports of cuts from the Colorado River. But we hear little about the impact on farmers. Primarily, what is it? What's it been?

DANIEL MUNCH: Right. So we've surveyed a lot of our producers in the western region. When we look at crops, many of our producers, 37%, have reported tilling under crops because of dry conditions. 33% are removing orchard and other multiyear crops like vineyards because they just don't have enough water. Many of these multiyear crops are major investments. They don't start producing fruit for three to five years. So to make that decision to move a crop is a massive undertaking for future revenue.

On the livestock side, just massive liquidation of the livestock herds because they don't have enough water to support their herds. People are going across state lines, driving 13, 14 hours to get hay at extremely exorbitant rates. So just major changes that farmers and ranchers are facing because of these dry conditions.

- And I want to ask you about any sort of help that might be on the way. We've seen that farmers in Rhode Island, federal aid is available for them to help mitigate some of these production losses. But what about more widespread? What sort of relief is on the way for some of these farmers?

DANIEL MUNCH: Right. So in the past few years, we've had some ad hoc disaster assistance like the WHIP+ program, which provided payments, albeit very late, that came a few years late for crop losses. We have the Emergency Relief Program, which came out this year, which is supposed to fund farmers for some of those production losses last year. That has not been extended yet for 2022.

There are a lot of risk management options we're trying to improve crop insurance for specialty crops so that it's more affordable for producers to protect against drought losses. We're also looking at funding for western water infrastructure as the Bureau of Reclamation and how this water is managed in different reservoirs is pertinent to farmers' access to surface water.

- Danny, California, 50%, 50 said that farmers had to remove trees and multiyear crops due to this drought. It is a devastating number. What's been the impact on prices?

DANIEL MUNCH: Right. Yeah. And California produces over 80% of our fruits, or nuts, a lot of our vegetables, many of these coming from orchard trees. When we think about what is this the impact, well, first we have to see are there other places we can obtain these crops. So for almonds, for instance, California produces 80% of the world's almonds. If there's a large impact on the supply because of drought and farmers are moving orchards, we don't really have another place to get almonds.

So upon harvest, consumers are going to immediately see price increases when they're trying to find almonds. They might need to shrink the diversity of items that they buy at the grocery store. Same with a lot of your other specialty crops. Arizona, California produce 98% of our leafy greens, romaine, iceberg lettuce, all those things come from those states. When farmers have to till under, it's going to have an immediate impact on consumer's ability to find those items and lift up those prices unless we can find another foreign supply. So watching those items closely.

- And Danny, as you mentioned, this is a multiyear investment that these farmers are making, trying to really plan for the future based on just what's happening right now. How are they having to change their investment strategies given some of the costs and some of the issues that they're facing right now?

DANIEL MUNCH: So depending on the size of the operation, farmers are handling this all sorts of different ways. On one end, you have smaller producers who can't really absorb these changes. And they don't really have the finances to invest and change. So some of those smaller farms, unfortunately, we're losing those smaller farms.

Some of the larger farms which can absorb the changes, they might be able to invest in other states. Although, usually different climates are not conducive to growing orchards in other states. Some places are investing in other countries. But if we think about our ability to source from our own country, it's very important that we remain supportive of those producers so that we can have a source domestically of these items that are coming from arid regions.

- And, unfortunately, it's only getting worse, in particular circling back to the Colorado River where those cuts are most significant in Arizona and Nevada. How does it impact the industry agriculture there?

DANIEL MUNCH: Great. So Colorado River basin in total supplies about 5.5 million acres of agricultural land. In Nevada, much of the agricultural production is grazing. So when you lose that water access, you're unable to grow a lot of alfalfa, which shoots up prices for cattle producers, for dairy producers who need that feed to feed their livestock. That then shoots down the line to forcing more cattle sell offs, higher prices for milk, and lower margins for farmers.

In Arizona, there's a lot of specialty crops, as I mentioned, leafy greens, dates. A lot of fruits are grown down there. So further water cuts makes it much more difficult for farmers to have access to what they need to grow those crops, and then more broadly has an impact on our domestic supply of those goods as well.

- And so when you look at perhaps the imports and exports tied to agriculture in the US, how is all this being affected?

DANIEL MUNCH: Right. So California especially, a lot of those items are exported. Asia, heavy producer of almonds. Oregon exports tons of hazelnuts. And much of their eastern half is drought covered. So it impacts our ability to have the supply we need to meet the customer demands from other country's exports. If we have a limited supply because of drought, we're going to increase our demand for exports from other nations and rely upon those farmers to produce, which with all the different supply chain disruptions we've been seeing, it's difficult to see an efficient process where we have that supply when we need it at a low price for consumers.

- All right. Danny Munch, thank you so much for joining us this afternoon with your insight.