PhD Literature Review Sample: Climate Change Risk Assessment in Strategic Business Planning: Experience of Nigerian Agricultural Firms

1. Key Challenges of Climate Change Risk Assessments in Strategic Business Planning

Strategic business planning is usually defined as the process where the vision of company leaders is transformed into practical goals and objectives for short-term, medium-term, and long-term perspectives (Ali et al., 2020; Dwikat et al., 2022; Omerkhil et al., 2020). These activities frequently have a cyclical nature, since the formulation and implementation of new ideas are usually supported by the evaluation of past ones to ensure that they still reflect the company’s general direction and are compatible with the changing business environment (Ramirez, 2024).

Risk assessments form an integral part of such activities since strategic plans must account for contingencies to ensure that they can be realised even in the worst-case scenario (Haider & Tehseen, 2022). Climate change crises represent a challenging threat in terms of their prediction and evaluation, due to the diversity of climate-related hazards and drivers (Yang et al., 2024). Complex risk assessment may include the use of satellite imagery, AI recognition of trends, and other advanced tools that may be difficult to acquire in the case of small and medium agricultural firms in developing countries.

One of the key climate change risks affecting agricultural farms is seasonality (Aina et al., 2024; Dissa et al., 2024). These households generally follow cyclical annual patterns of crop, weather, and market fluctuations. This predictability allows them to utilise strategic planning and be more resilient in their decision-making and adaptive capacity. Moreover, such countries as Nigeria rely on rainfall as a part of agricultural practices (Amare & Balana, 2023). Droughts and other consequences of climate change, as well as soil erosion caused by radical changes in soil moisture levels, substantially increase the uncertainty in this sphere.

From a risk assessment standpoint, this makes it highly problematic to predict potential threats and integrate strategic response mechanisms into long-term plans and budgets (Meuwissen et al., 2019). The need to urgently adjust to unexpected weather patterns increases costs and introduces expensive redundancies to build greater resilience. Continuing the earlier discussed resource deficiency issues of small and medium agricultural firms, such risk assessments require longitudinal data spanning over multiple years to recognise key trends and make accurate risk predictions, which may be difficult for such companies (Chishimba & Wilson, 2021).

Another risk area is associated with flooding, erosion, and sea level rise risks (Adishi & Oluka, 2018; Berhanu & Wolde, 2019; Pasquier et al., 2024). While many agricultural farms rely on permanent buildings and crop fields, increasing sea levels or precipitation levels can affect these areas in multiple ways. On the one hand, an insufficient amount of rainwater creates droughts that make agriculture extremely difficult in hot climates. This reduces the ability to grow crops and forces farmers to change the location of their crop fields or invest resources in expensive irrigation systems (Ani et al., 2021). On the other hand, the rising sea level disrupts coastal zones and makes it more difficult to engage in agricultural activities in such areas. While residential buildings can be elevated to prevent temporary flooding, the same strategy may not be applied to all crop fields (Osuji et al., 2023). As a result, firm survival depends on unpredictable weather conditions, which makes it difficult to protect critical business assets with strong risk assessment instruments.

The problem of accurate climate change risk assessment is also important for the development of financial resilience and attracting external investments (Akukwe & Isiwu, 2024; Giupponi et al., 2024). With many firms in Africa relying on these instruments as a source in their growth and development plans, these stakeholders expect clear explanations of all possible threats and the ways of their mitigation (Osuji et al., 2023). Key risks must be quantified and mapped in order to convince external parties that their investments are safe and will not be affected by some unexpected emerging risks. It should also be noted that climate resilience at the level of individual firms overlaps with climate resilience at the level of critical infrastructure included in many global sustainability programmes, including the United Nations (UN) Sustainable Development Goals (SDGs) (Argyroudis et al., 2022). While some challenges may be company-specific, many climate threats affect whole regions of the world, which makes it difficult or impossible for individual companies to mitigate their impact or manage such risks on their own (Wossen et al., 2018). International organisations such as the UN or the World Bank usually possess the resources required to monitor the emergence and development of such risks and the infrastructures associated with the provision of financial and other forms of support.

Finally, climate change risk assessments can be complicated by the differences in the effects of climate change on the yields of different crops (Chavas et al., 2019; Estrada et al., 2020). Temperature, precipitation, and other factors can have a significant impact on these outputs that vary substantially from estimations based on data from different agroecological zones (Freudenreich & Mubhoff, 2018). As found by such models as the Assessment of Impacts and Risks of Climate Change on Agriculture (AIRCCA), the yield rates of wheat, maize, and rice can be affected to the degree making certain cultures sub-optimal for some areas (Estrada et al., 2020). Unfortunately, such estimations are rarely made, with many farmers relying on available data from different regions of the world.

Additionally, climate changes can create additional pest risks (Rosace et al., 2024). These indirect consequences may be difficult to predict, since changes in precipitation levels and temperature have complex relationships with the survival and reproduction cycles of insects and rodents. In many situations, these risks can only be assessed after their emergence due to their complete unpredictability (Hountondji et al., 2018). In this situation, Nigerian farms may need to account for these threats in advance as an element of their strategic business planning to maintain readiness.

2. Risk Assessment Strategies of Agricultural Firms

This section explores evidence collected from agricultural firms in different countries within the scope of their assessment of climate change risks and the ways they incorporate such information into their strategic business planning initiatives (Oduniyi et al., 2020; Ufot, 2019). The study of Antwi-Agyei and Stringer (2021) explored the agricultural sector of north-eastern Ghana. As found by the authors, key problems with risk assessment and mitigation were associated with technical skills and knowledge of local actors. More specifically, many firms lacked awareness of advanced smart agricultural interventions, including soil moisture conservation, and did not perform continued monitoring of climate change phenomena (Omerkhil et al., 2020). This reduced their response options and introduced greater unpredictability since they relied on guesswork rather than big data.

Similarly, the primary data from Kenya, Ethiopia, and Tanzania collected by Gebre (2021) indicated that only 52% of surveyed households in these countries had sufficient food security levels, with the remaining 48% being exposed to different degrees of food insecurity due to climate change factors. The most significant factors were temperature variabilities and precipitation figures. It was also noted by the authors that agricultural risks were intensified by poverty, conflicts, and other similar issues reducing the availability of infrastructure, such as irrigation systems or monitoring and data analysis systems (Gebre, 2021). The absence of such support mechanisms made local firms dependent on weather conditions and reduced their capability to assess threat levels, predict future threats, and mitigate them through strategic business planning, which was similar to the results obtained by Argyroudis et al. (2022), Hountondji et al. (2018); and Yang et al. (2024).

As noted by Rehman et al. (2021) and Sohail et al. (2022) in their analyses of multiple agricultural regions in developing countries, a large share of the general population cannot properly read and interpret climate data. This problem overlaps with the earlier discussed infrastructural and security problems, as well as the absence of high-quality centralised education and longitudinal information collection (Antwi-Agyei & Stringer, 2021). While some problems with insufficient precipitation and rising temperatures can be addressed with additional fertiliser application, changes in growing techniques, or the use of additional equipment, all of these response strategies require a good knowledge of modern practices in this field and the presence of accurate data making such risk assessments possible (Mereu et al., 2024). This makes the strategies outlined by such authors as Mereu et al. (2024) and Nalau and Verrall (2021) including open-access datasets provision sub-optimal due to the limited number of local specialists in Nigeria and other African countries capable of interpreting this information and developing effective countermeasures on its basis.

Another challenge associated with risk assessment may be linked to the diverse geography of some countries (Otekunrin et al., 2019; Tanir et al., 2024). In the case of Nigeria, this state’s climate zones range from humid equatorial to arid, while its ecosystems include rainforests, semi-arid savannas, swamp forests, and other zones (Ogbo et al., 2019). While not all of them are suitable for agricultural purposes, this diversity means that the development of standardised risk assessment and risk management policies may be extremely challenging. In this scenario, individual firms may need to develop their own unique resilience strategies, which will increase their expenses and decrease the ability to generalise identified best practices to other firms across the whole country (Sohail et al., 2022).

The analysis of Nigerian agricultural insurance conducted by Madaki et al. (2023) confirmed some of these concerns with their surveys of 1,080 Nigerian households across six different agroecological areas. As found by this study, key identified risks included flood threats, weather changes, insufficient precipitation, and pest and disease outbreaks. With that being said, the respondents noted that the assessment of these issues was limited by such factors as education, farm size, and perceived capability to mitigate them in the case of their identification (Madaki et al., 2023). More specifically, risk insurance availability was not consistent across all analysed areas, which meant that increased awareness of climate-change-related risks could not be transformed into specific strategic business planning activities in many cases, since such risks could only be accepted due to the absence of viable mitigation, transfer, and avoidance methods (Mereu et al., 2024).

These findings were consistent with the study of Ayinde et al. (2024) appraising the resilience of Nigerian farmers. The authors used a multi-level measurement framework with 60 indicators to get a balanced understanding of existing risk profiles for most practitioners. According to their findings, up to 96.5% of agricultural firms in this country had sub-optimal resilience levels within the scope of climate-related shocks. This demonstrates the systemic nature of the problem that can be further intensified in the case of new companies lacking the accumulated resources required to withstand a ‘bad year’ and accept the risks they cannot transfer or mitigate. While such authors as Adamaagashi et al. (2023) and Nalau and Verrall (2021) report a number of strategic response practices used by some Nigerian farmers such as efficient water management, crop diversification, climate-smart agriculture, climate information systems, the creation of farmer cooperatives, and sustainable soil practices, many of these techniques rely on the coordination of multiple households or state support.

Another large-scale study of Nigerian agricultural firms conducted by Ani et al. (2021) revealed that the majority of such companies did not have established risk assessment strategies for climate risks. Their owners and managers mainly considered them force majeure factors that cannot be effectively mitigated by tools other than financial instruments such as insurance. If such options were not available, this effectively left agricultural firms exposed to this type of risks, since their magnitude could not always be reliably estimated with this approach to strategic business planning (Madaki et al., 2023). According to Ojo et al. (2024), four out of five Nigerian farmers are financially vulnerable due to climate change risks. The assessments of their adaptive capacity using the Foster Greer-Thorbecke framework demonstrated controversial results. On the one hand, they could not achieve financial resilience without external support and resource provision, which potentially decreased their capability to deal with this type of threat. On the other hand, the available response strategies involving the use of advanced agricultural techniques had a generally positive and statistically significant impact on adaptive capacity. Hence, excessive focus on financial instruments in strategic business planning could potentially hinder the capability of Nigerian agricultural firms to mitigate climate change risks.

References

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