Overview, Development, Purpose, and Formation of Business Strategy
The memo concerns climate change and its impact on the business strategy of Limoneira, a California-based global agribusiness and seller of citrus to grocery stores and food establishments in the United States. California is a dominant leader in the agriculture industry due to several factors, including its distinctive climate and natural resources and a rich legacy of innovative agricultural practices and technology (Sumner & Matthews, 2022). Between 2010 and 2020, California single-handedly produced approximately 11% of the agricultural produce in the U.S. while concurrently supplying agricultural products worldwide (Vankin, 2023). Furthermore, the state shipped more than $20 billion of food, feed, and fiber overseas, accounting for approximately 16% of total U.S. agricultural exports in 2020).
Regardless, climate change issues, including extreme weather patterns and excessive droughts, threaten California’s capacity for maximally producing agricultural produce. Water supply has been the main barrier to the effective implementation of business strategies in California’s agriculture industry, mainly owing to the drought (Sumner & Matthews, 2022). Irrigation is necessary for most crops in most areas of the state. However, the state’s farmers face more significant challenges in securing reliable water supplies each year at the cost they are accustomed to, thereby making drought and the water supply situation a complex and contentious.
In that regard, companies like Limoneira have to design and implement business strategies that consider the negative impact of climate change, as the phenomenon has altered priorities by increasing challenges in the agriculture industry. One of the most consequential impacts of climate change is increased food prices, as extreme climatic and weather conditions have increased operational costs, meaning that firms in the industry have to increase prices to break even. It is imperative to have a comprehensive understanding of how climate change impacts the agriculture industry and Limoneria to strategize on the future. Examining the impact of climate change will provide the capacity for establishing potential interventions in terms of industry practices, regulatory frameworks, and strategic business approaches for the short- and long-term.
Role of Relevant Public Policy and Government Legislation
One of the most significant policies is the Sustainable Groundwater Management Act (SGMA), which was implemented because continuing changes in climate and weather patterns caused overreliance on groundwater. The policy aims to mitigate overdrafts and bring basins into balanced levels of pumping and recharge, subsequently avoiding water shortages for both the population of the state and the agriculture industry (USGS, 2024). Another policy is the California Global Warming Solutions Act of 2006, which the state established to enforce the reduction of greenhouse emissions, improve energy efficiency, and increase investment in clean technology (Department of Economic and Social Affairs, 2024).
Possible Impact of the Policies on the Evolution of Business Strategy in California
California Global Warming Solutions Act’s potential impact on Limoneira’s business strategy is adopting programs, practices, and technology that facilitate sustainable agriculture while reducing the carbon footprint. The SGMA limits business strategies for firms that want to use much water, as the law has led to the formation of groundwater sustainability agencies that set limits to the amount of water that firms in the industry can pump from underground aquifers.
On the one hand, the SGMA has limited the amount of water a single agribusiness can access and use in its operations (USGS, 2023). Subsequently, the limitation has led to an inflexible water management approach that is costly for coping with growing water scarcity in light of agricultural output. Climate change and increased environmental regulation compound the water shortage caused by the policy.
On the other hand, the SGMA’s capacity to regulate water usage means that companies in the California agriculture industry could experience sustained growth and operational streamlining in the long term. Water cuts due to the SGMA policy mean that businesses in the state have to develop more innovative water management strategies, thus contributing to the potential for improved sustainability in the short- and long term.
Impact of Drought on the Development and Implementation of Agri-Business Strategy
Over the next five to ten years, drought will affect how agribusinesses develop and implement their strategies due to its impact on agricultural production. Garcia-Leon et al. (2021) note that lack of water due to drought reduces yields and, in some instances, total crop loss. As a result, companies in the industry experience economic losses, which ripple through the entire economy. That means that drought affects agribusinesses` bottom line and agriculture in general. Lack of water also increases disease susceptibility, reduces resistance to pests, and causes a general weakening of crop structure. In that case, the agribusiness strategy must consider the possibility of lower yields, increased use of pesticides, and overall increases in operational costs.
Drought also reduces the quantity of surface water available, affecting farm water systems that depend on surface water for irrigation. Consequently, agribusiness strategies are forced to determine the potential interventions, such as other water alternatives or reducing the crop amount to ensure sufficient supply. Such reductions reduce overall revenue generation, leading to layoffs and operational inefficiencies.
Businesses in the agriculture industry also have to develop and implement agribusiness strategies considering drought-induced supply chains and losses. Orimoleye (2022) notes that, unfortunately, companies in the industry have to transfer some of the losses incurred due to drought to consumers through higher prices. The more losses the companies incur due to drought, the more consumer prices of agricultural prices increase.
Drought also creates winners. Supplies from other regions are likely to bring their produce to a region with drought-induced scarcity of agricultural produce to capitalize on the supply shortage and limit price increases. Therefore, producers outside a drought-stricken area will benefit from increased demand for their agricultural produce in the next five to ten years, while those from the drought-stricken areas face risks of lower output, higher losses, and overall supply chain disruptions. As such, agribusiness strategies have to consider the effects of drought in order to guarantee sustainability.
Business Policy Recommendations for the Agriculture Industry
Climate change issues, particularly drought, have a significant impact on the agriculture industry compared to other industries because agricultural production is dependent on climate and weather. The sections above have established that drought has caused extensive changes in how companies develop and implement agribusiness strategies due to reduced production amid increased operational costs and risks. The following recommendations are necessary for ensuring that businesses in the industry will not only mitigate the effects of drought but also improve their respective capacities for sustainability.
Improving Insurance Programs
Businesses in the agriculture industry should collaborate with insurance companies and the government in enhancing insurance programs, which will improve preparedness for, mitigation of, and response to drought-induced challenges in the sector. Enhanced insurance offers are attributed to ensuring that businesses can easily purchase insurance coverage against drought, weather, and climate events that may reduce yields or the total product in production farms (Alam et al., 2020; Ward et al., 2019). The most impactful aspect of drought is financial losses resulting from lowered produce or higher operational costs. More accessible, comprehensive, and affordable insurance policies will improve sustainability and repel drought effects by offering coverage for crops lost, livestock deaths, and expenses businesses in the sector incur due to drought.
Design and Implement Training and Technical Assistance
Hands-on training and technical assistance programs by the relevant stakeholders can help businesses formulate and implement plans for mitigating the negative financial and operational impacts of drought. Marengo et al. 92022) observe that industry-wide coordination for training and technical assistance enables farmers to identify and determine the best strategies for addressing drought, where they understand options such as drought-resistant crops, on-farm wells, ground drilling, crop insurance, conservation systems, restoration of wetlands, among other risk management approaches. Furthermore, such programs can improve preparedness and response to drought because businesses in the agriculture industry can prioritize the need to incorporate drought concerns and protect environmental resources through effective water management. In short, training and technical assistance will ensure sustainability in the next five to ten years by improving efficiency in drought mitigation. The programs will teach and assist in a manner that businesses can adjust production strategies based on the predicted severity and durations of drought, plant crops that withstand drought conditions, increase irrigation efficiency, water conservation, and soil moisture retention techniques, and diversify crop production to balance the risks that drought loss poses.
Collaborative Research and Development (R&D)
R&D programs are pivotal for determining whether or not businesses in the agriculture industry will sustain themselves regardless of the effects of drought. Liu et al. (2020) note that research and the subsequent advancements generate new technologies, improve policies, and also lead to new or enhanced practices, meaning that it provides new and improved findings that increase efficiency and agricultural products, reducing the pressure natural resources, and also improves response and preparedness to climate change challenges. Hence, government entities, educational institutions, and organizations in the agriculture industry should cooperate in funding R&D to guarantee the sustainability of the companies in the agriculture industry while concurrently improving food security and resilience over the next five to ten years.
Yours Sincerely
[Student Name]
References
Alam, A. F., Begum, H., Masud, M. M., Al-Amin, A. Q., & Leal Filho, W. (2020). Agriculture insurance for disaster risk reduction: A case study of Malaysia. International Journal of Disaster Risk Reduction, 47, 101626.
Department of Economic and Social Affairs. Global Warming Solutions Act (State of California). Department of Economic and Social Affairs, https://sdgs.un.org/partnerships/global-warming-solutions-act-state-california
García-León, D., Standardi, G., & Staccione, A. (2021). An integrated approach for the estimation of agricultural drought costs. Land Use Policy, 100, 104923.
Liu, Y., Ma, X., Shu, L., Hancke, G. P., & Abu-Mahfouz, A. M. (2020). From Industry 4.0 to Agriculture 4.0: Current status, enabling technologies, and research challenges. IEEE Transactions on Industrial Informatics, 17(6), 4322-4334.
Marengo, J. A., Galdos, M. V., Challinor, A., Cunha, A. P., Marin, F. R., Vianna, M. D. S., & Bender, F. (2022). Drought in Northeast Brazil: A review of agricultural and policy adaptation options for food security. Climate Resilience and Sustainability, 1(1), 17-37.
Orimoloye, I. R. (2022). Agricultural drought and its potential impacts: Enabling decision-support for food security in vulnerable regions. Frontiers in Sustainable Food Systems, 6, 838824.
Sumner, D. A., & Matthews, W. A. (2022). Continued Drought in 2022 Ravages California’s Sacramento Valley Economy. University of California, Davis, 2-14.
USGS. (2023, n.d). Sustainable Groundwater Management Act (SGMA). The United States Geological Survey, https://www.usgs.gov/centers/land-subsidence-in-california/science/sustainable-groundwater-management-act-sgma
Vankin, J. (2023, May 8). Agriculture has Shaped the State and the Country. California Local, https://californialocal.com/localnews/statewide/ca/article/show/36707-california-agriculture-dairy-wheat-fruit-vegetables/
Ward, P. S., Makhija, S., & Spielman, D. J. (2020). Drought‐tolerant rice, weather index insurance, and comprehensive risk management for smallholders: evidence from a multi‐year field experiment in India. Australian Journal of Agricultural and Resource
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