Throughout the Mediterranean, reduced yields and higher input costs for olive producers have pushed up prices to 20-year highs this year. The production problems are only going to get worse as the effects of climate become more acute, predicts Divita.
For millennia, food production and pricing have been disrupted by the weather, with one-off events such as heatwaves, droughts, flooding or frosts cutting harvests and raising prices. War and disease are also factors, as the world saw recently after Russia’s invasion of Ukraine, and the swine fever that swept through China’s pig population.
But another, more sustained thread has run through many sharp increases in food prices. From oranges in Brazil to cocoa in west Africa; olives in southern Europe to coffee in Vietnam, permanently shifting weather patterns as a result of climate change are reducing crop yields, squeezing supplies and driving up prices.
Adam Davis, co-founder of global agricultural hedge fund Farrer Capital, says climate change has helped drive up prices for a long list of food commodities trading at higher levels this year. “Wheat is up 17 per cent, palm oil 23 per cent . . . sugar 9 per cent and pork 21 per cent,” he says. For the consumer, the “lag effect of those high commodity prices is not going away”.
A third of the food price increases in the UK in 2023 was down to climate change, according to the Energy and Climate Intelligence Unit think-tank. “There’s a material impact from climate change on global food prices,” says Frederic Neumann, chief Asia economist at HSBC. “It’s easy to shrug off individual events as being isolated, but we’ve just seen such a sequence of abnormal events and disruptions that, of course, add up to climate change impact.”
Such repeated events result in “a permanent impact on the ability to supply food,” argues Neumann. Food price rises once considered temporary are becoming a source of persistent inflationary pressure.
Globally, annual food inflation rates could rise by up to 3.2 percentage points per year within the next decade or so as a result of higher temperatures, according to a recent study by the European Central Bank and the Potsdam Institute for Climate Impact Research.
UK fruit and vegetable production has plummeted as farms have been hit by extreme weather.
The country suffered the wettest 18 months since records began across the 2023-24 growing year, leaving soil waterlogged and some farms totally underwater. The impact on harvests has been disastrous. Data from the Department for Environment, Food and Rural Affairs shows that year-on-year vegetable yields decreased by 4.9% to 2.2m tonnes in 2023, and the production volumes of fruit decreased by 12% to 585,000 tonnes.
Scientists say that climate breakdown caused by the burning of fossil fuels is likely to bring more extreme weather to the UK, including more frequent floods and droughts.
Farmers said they were not able to plant due to the wet weather, and this is borne out in the statistics. The growing area of vegetables was down, falling by 6.5% to 101,000 hectares. A dry early summer in 2023 also did not help, as those who could not irrigate found it hard to plant.
Nature – Global Warming and Heat Extremes to Enhance Inflationary Pressures:
Climate impacts on economic productivity indicate that climate change may threaten price stability. Here we apply fixed-effects regressions to over 27,000 observations of monthly consumer price indices worldwide to quantify the impacts of climate conditions on inflation. Higher temperatures increase food and headline inflation persistently over 12 months in both higher- and lower-income countries. Effects vary across seasons and regions depending on climatic norms, with further impacts from daily temperature variability and extreme precipitation. Evaluating these results under temperature increases projected for 2035 implies upwards pressures on food and headline inflation of 0.92-3.23 and 0.32-1.18 percentage-points per-year respectively on average globally (uncertainty range across emission scenarios, climate models and empirical specifications). Pressures are largest at low latitudes and show strong seasonality at high latitudes, peaking in summer. Finally, the 2022 extreme summer heat increased food inflation in Europe by 0.43-0.93 percentage-points which warming projected for 2035 would amplify by 30-50%.
In the US, the Fed’s response to inflation is to raise interest rates, in theory to slow the economy and stymie inflationary trends. I’ve been looking for an economics expert who can tell me if that would work if the reason for the inflation was hard reduction in supply (crop failures).