Research predicts that China will lose up to 25% of its viable farmland due to climate change, risking crops like rice, wheat, and maize. They aren’t the only ones facing this harsh reality. Supply chains are almost constantly threatened by climate-related catastrophes, especially in areas prone to extreme weather. Supply chain resilience is the only way to ensure production and distribution can bounce back from storms, droughts, floods, and changing conditions.
What is Supply Chain Resilience?
Supply chain resilience is the ability to anticipate disruptions, handle disturbances, and bounce back from them without major upsets. Businesses that depend on physical goods are especially reliant upon resilient supply chains and suffer greatly from unpreparedness.
Supply chain disruptions could be anything: political instability, supplier failure, natural disasters, global pandemics, or international trade disputes. In the case of a natural disaster rattling supply chain, a resilient business model could have alternate suppliers in-network, various modes of transportation available, smart facilities that protect inventory, or even predictive software to warn them of the event.
How Climate Change Can Disrupt the Global Supply Chain
In today’s globalized economy, companies rely on vast and interconnected supply chains to source materials from around the world, manufacture and assemble goods in different countries, and distribute and sell those products globally. When extreme temperatures lead to droughts, floods, hurricanes, and wildfires, the effects extend far past the local impact areas to all their global business partners and stakeholders. The China floods of 2021 shed light on the vulnerability of global supply chains, with companies like FedEx, Ikea, and Nissan taking hits.
Case Study: Climate Change-Fueled Flooding in China Threatened Cities, Manufacturing, and Food Security
We’re bringing you exclusive content from our newsletter, The Forecast, right here on Medium. Sign up here. This story is from our feature called the Weather Corner, where we take a deep dive into weird weather around the world, from our August 10th, 2021, newsletter.
In July, 2021, a 3-day-long deluge of rain brought the equivalent of an average year’s worth of water to the northern megacity Zhengzhou, China. At that time, the city saw a total of 24 inches, compared to an annual average of 24.5 inches.
Resulting flooding displaced one million people, caused 11 billion yuan (US$1.7 billion) in property damage, and reportedly killed dozens of people across the region — trapping some in subways, cars, in basements, or sweeping them under swirling waters and mudslides.
What Caused the Flood in China
Much like certain parts of Germany, the Netherlands and Belgium, the region saw unusually slow-moving rain storms cause massive flooding. These events make it painfully clear how climate change can exacerbate seasonal rains.
China, especially the Henan region that Zhengzhou is located in, routinely experiences flooding in the summer months. The season typically has typhoons off the coast and heavy rains inland. Henan in particular is part of the Yellow River basin, so the province has several major river systems running through it that are prone to flooding amid summer storms. In fact, one nickname for the Yellow River is “China’s Sorrow” because the river has historically overflowed its bank and caused devastating floods that killed millions of people.
The Cycles of Disruption
In the past century, however, China disrupted these river systems to build up dams, levees, and reservoirs — cutting connections between rivers and lakes and building over flood plains that once absorbed annual summer downpours. The water helped as Henan rapidly urbanized and converted much of its open lands and forests into farmland in the later half of the 1900s. Now, the region is a major base for industry and agriculture.
Sheepskin rafts on the Yellow River in China. Source: Pixabay
But climate change threatens this precarious situation. Greenhouse gases trap heat in the Earth’s atmosphere, causing average temperatures to rise all over the world. Warmer air can hold more moisture, which can supercharge storms. Worse storms, obviously, lead to worse flooding (although flooding itself is a complex phenomenon that occurs due to many causes, including land development and ground conditions).
The Devastating Consequences on The Supply Chain
The Zhengzhou flood China experienced in 2021 originated from a perfect storm of such unfavorable conditions. In the city, tunnels and subways flooded, power to at least one hospital was cut, and roads collapsed. Across the province, several dams and reservoirs breached warning levels, and soldiers were mobilized to divert rivers that had burst their banks. Flights and trains in many parts of Henan were suspended. Authorities said 200,000 people were displaced in the China flood disaster and more than three million people were affected.
In addition, as a result, supply chain disruptions abounded. One complex in Zhengzhou that produces almost half of Apple’s iPhones sold worldwide was affected by the flooding and had to trigger its emergency response, according to the Wall Street Journal. Apple is gearing up to launch this year’s new iPhones, and so assembly and shipping could be potentially delayed, although Apple has said that it won’t be as of now. Overall, the storms caused $10 billion (65.5 billion yuan) in economic losses in the manufacturing sector, according to China Daily.
More agrarian parts of the province that have hog farms and wheat growing experienced this heavy rainfall, as well, leading to in-field flooding and logistical transportation problems. More than 200,000 hectares of farmland were underwater, according to Reuters. In addition, small farmers expected to be severely affected by the torrential rains with a “significant” short-term impact on logistics, including the transportation of hogs, according to Shanghai JC Intelligence, an agriculture consulting firm.
Another concern is the potential outbreak of African swine fever, Lin Guofa, a senior analyst at consultancy Bric Agriculture Group, told Bloomberg. Floods can increase the risk of disease because healthy hogs may be infected through contact with sick pigs or contaminated feed and water.
By 2019, the country had lost 100 million hogs due to swine fever, according to CNN. While it has mostly recovered, the situation remains complicated. The country is a top pork consumer and exporter. In 2021, China reported 11 incidents of the disease, but new strains with milder symptoms and a longer incubation period are emerging. This made it difficult to identify cases immediately, the farm ministry said.
The Henan province is the second-largest hog producer. It’s home to the world’s biggest pig farm operated by Muyuan Foods Co. and the planet’s top pork processor, WH Group. Muyuan’s shares fell almost 5% that week to the lowest since November last year.
Beyond pig farming, the Henan province is China’s top wheat grower, accounting for nearly 30% of output. While the main wheat crop has already been harvested, rains have likely affected its quality, which will lead to greater levels of imports.
China Flooding Resulted in Direct Economic Losses of US$348 Million
According to the South China Morning Post, altogether, the floods resulted in direct economic losses of 2.25 billion yuan (US$348 million) for China’s poultry and livestock industries after 248,000 pigs and 6.4 million chickens died.
How Climate Forecasting AI Helps in Such Situations
Catastrophes like the flood in China cast light upon the looming presence of climate change and the importance of climate forecasting technology. Tools like ClimateAI’s supply chain resilience model make it possible to predict supply and demand, optimize transport modes and routes, automate menial tasks, and plan inventory strategically.
The bulk of resilient supply chain management is risk assessment: predicting natural disasters and shifting climate trends. This allows decision-makers to make smarter judgment calls when planning things like warehouse locations and transportation providers.
In the case of the China floods, AI could have recommended more suitable factory locations less exposed to flooding.
When teams have access to predictive analytics, they can plan superior disaster recovery plans. In China’s case, this could have looked like an emergency livestock evacuation or more absolute coordination of power and resources after the fact. Building the resilient supply chains required to withstand tremendous weather crises requires the progressive forecasting that only tools like ClimateAi can provide.
A contingency plan outlines necessary actions to be taken in case of an emergency to minimize the impact on business operations. AI can simulate the most likely weather-related scenarios so that businesses can determine potential areas of weakness and create more informed contingency plans, resulting in more resilient supply chains.
As we’ve seen in China, many farms in previous “safe” zones are now subject to weather extremes. Adapting to the new normal means moving assets to more predictable regions and diversifying supply networks. Food security depends on the ability of the agricultural industry to predict, plan, and prepare, implementing supply chain resiliency based on predictive technology.
AI can forecast supply and demand levels and predict inventory-threatening floods and storms. This technology allows businesses to relocate vulnerable inventory and stock up on products likely to be in high demand after a natural disaster. Building a resilient supply chain not only prevents operational delays but can also shorten the disaster recovery process.
The drastic flooding in China displayed the shortcomings of depending on so few suppliers for key resources and materials. Almost half of the world’s Apple products are produced in a city at risk of extreme flooding? That won’t do.
Predictive models help businesses evaluate the strengths and weaknesses of suppliers and make smarter decisions about network diversification.
Business Continuity Planning
Adaptivity is essential for longevity. Building a resilient supply chain means adapting to new, moving variables and being flexible enough to bounce back from disruptions. The floods in China have prompted a huge movement toward long-term planning and sustainable practices.
How ClimateAi Supports Supply Chain Resilience
With climate resilience at its core, ClimateAi takes the mystery out of building a resilient supply chain.
Food + Agriculture Climate Insights
With ClimateAi, growers get regional and field-level insights to inform product placement, yield expectations, and more. ClimateAi will simulate crop performance under weather condition possibilities, optimizing sourcing strategies and investment decisions. Customize variables of interest to study Chill Hours, Growing Degree Days (GDD), and seasonal trends.
Increase agricultural supply chain resilience through our agriculture risk management tool’s comprehensive forecasting technology. Attain higher yields at a higher quality with ClimateAi.
Finance Risk Analysis
Many companies forget that climate exposure is a weighted financial stability factor. Our climate change software translates predictions into meaningful business insights. With ClimateAi, investors can identify potential downside risks, uncover new investment opportunities, and anticipate industry ups and downs. Define what sustainability looks like in your business context and build operational and supply chain resilience sooner rather than later. Our climate connoisseurs team can build impact models based on your variables of interest.
Agricultural commodities are often subject to price volatility due to weather patterns, geopolitical events, and changes into global supply and demand. Agriculture technology service providers like ClimateAI give stakeholders and growers insights on macromarket conditions so they can make key material decisions weeks, months, or years out. Achieve supply chain resilience with superior accuracy and protect valuable agri-commodities now and in the future.
Water Risk Management
After the China flooding, water management teams kicked into high gear to begin widespread risk analysis that would avoid or soften the blow of future storms. ClimateAi’s water management software that applies top-tier forecasting to predict replenishment or lack thereof of key groundwater resources. Our water availability maps incorporate local contexts to create custom models for each situation.
Weather-Smart Demand Planning
Based on your past sales data, our demand planning software “de-biases climate” from historic sales patterns for easy analysis. We’ll train our AI model to forecast supply and demand expectations based on local weather possibilities with industry data. A customizable dashboard can notify teams of demand spikes and supply risks, strengthening your supply chain resilience now and in the future. You can even tailor notification thresholds to suit your situation, location, and supply sensitivity.
Climate Risk Management
Our climate risk management software runs risk scenarios across weeks or decades and emissions projections with sophisticated reporting. Assess your assets’ exposure to climate risk and gain deeper individual insights into each location, supplier, and commodity. Predict bottlenecks and evaluate how each link in your supply chain can help or hurt operations. Built to be a scalable solution, the ClimateAi platform makes supply chain resilience attainable and intuitive.
Implementation of Climate Forecasting AI
Companies can integrate climate forecasting AI into their existing systems to achieve greater sustainability, financial stability, and supply chain resilience. Here’s how it begins with ClimateAi.
Conduct a Needs Assessment
A needs assessment involves evaluating the current state of your operations and identifying which areas are particularly exposed to climate risk. We will do a deep dive into current supply chain resiliency and potential threats. We will then determine what tools will best forecast your relevant conditions and whether or not they are readily available.
Identify the Right Forecasting Technology
Considering factors like accuracy, ease of use, cost, and reliability, our team will narrow down the most efficient and beneficial AI tools to use. We will research and test various AI forecasting technologies and identify which will be most helpful in building resilient supply chains for each business.
Develop an Implementation Plan
With your collaboration, we will create an explicit plan to integrate AI into existing supply chain operations and smoothly incorporate the technology into current data analysis techniques. At this stage, it’s important to establish metrics and objectives that will be used to measure performance and supply chain resiliency.
Secure the Necessary Resources
Now for the logistics. We can help guide you through the allocation of funding, labor, and equipment, ensuring a successful implementation of the new platform. Team members must be sufficiently trained and readied to use the new technology to its fullest capacity.
Integrate Climate Forecasting AI into Your Supply Chain Management System
Once preparation is complete, the team can start using and experimenting with the ClimateAi platform. Through hands-on learning, employees can collect and analyze data, using this information to create more resilient supply chain management strategies. The new data will provide novel insights, and teams might opt to customize settings as they go.
Monitor and Evaluate Performance
By monitoring the performance of models, teams can continuously refine thresholds and simulations to optimize overall insights. Adjust settings as needed to achieve internal goals and get closer to building the resilient supply chain you’ve been striving for.
China’s devastating floods acted as a wake-up call to manufacturers and agriculturalists. It’s time to get smart about facing climate risk; in fact, it’s no longer affordable not to.
Implementing climate forecasting AI is the only way to turn risk into opportunity, predicting climate patterns and making profitable investments based on them. Supply chain resilience is about anticipating problems and bouncing back from them faster than the competition.
Let ClimateAi help your business prepare for the future of climate change. Schedule a discovery call today.