Bracing for climate-driven food system shock?
A fascinating and somewhat scary article from Jeff Masters at Weather Underground paints a very plausible picture of how climate change could trigger a confluence of weather-related impacts around the globe that, together, lead to an unprecedented shock to the global food system. He fleshes out a report put together by Lloyd’s of London, which posited several events around the world, including an El Niño-driven drought from India through Southeast Asia to Australia (triggering a 6-20% reduction in key grain harvests), along with floods in the Mississippi basin creating a 7-27% hit on US grain, and torrential rains and landslides causing a 10% drop in Pakistan and the Himalayan lowlands. The addition of a couple of plant-diseases in South America and western Asia add some more 10% reductions to regional harvests, with the cumulative result being a world-wide food crisis.
We’ve had hints of this in the past, as when US floods in 1993 (pictured above) caused US corn production to fall 33%, or the 60% spikes in global food priced during two Russian droughts (pictured below); the more recent one occurred in the same year as damaging floods in Canada and Pakistan, both of which also contributed.
What’s different in the Lloyd’s of London analysis is the idea that climate change could trigger several large impacts at once. Instead of 60% increases in food prices seen in the “bad” years within recent memory, they suggest we could see global food prices leap to 4 or 5 times the norm, which are likely to trigger all manner of social upheaval and tragedy of the sort that tends to trigger us to plunge our heads into the nearest hole in the sand. . . .
It will probably say something about your own comfort with risk to hear that Lloyd’s sees this worst-case scenario as having about a 20% chance of happening during the next forty years. Even if we dodge those odds, the chart above is a reminder that one or a few modest disruptions can have a huge impact on the global food system. It seems prudent for resilient investors to have at least an awareness of these risks, and, if possible, a plan in place for how to respond if food prices spike.