Charles W. Elliott
A global pre-eminent insurance market is waving red flags about the risk of climate-change shocks to our world food system that could quadruple the price of basic food commodities, cause widespread famine and social instability, and bring down governments. Are world capitals paying attention?
Adding to the chorus of voices warning of threats to the global food system caused by climate change is global insurer Lloyds, which recently issued its report, “Food System Shock: The insurance impacts of acute disruption to global food supply“. Food System Shock is one in a series of Lloyd “emerging risk” reports that address risks that are “perceived to be potentially significant but which may not be fully understood or allowed for in insurance terms and conditions, pricing, reserving or capital setting.” This is not the first risk report on climate change issued by Lloyds (see, Lloyds’ Catastrophe Modelling and Climate Change (2014)), nor the first to address global food security (see, Lloyds’ Feast or Famine (2013)). But it is the first by Lloyds to connect these two, explicitly addressing the impacts of climate change on food production and follow-on effects to society in a globalized economy.
As with other Lloyds’ emerging threat reports, Food System Shock employs scenario modeling, in which events occur that are based on plausible expert data-based assumptions. In this case, a “production shock” is posited to occur within one year affecting several agricultural commodities in various regions of the world:
Experts in the fields of food security and the economics of sustainable development were asked to develop a plausible scenario of a global production shock to some of the world’s staple food crops, and to describe the cascade of impacts that could result.
The climate-change event driving the scenario is a strong warm-phase of the El Niño Southern Oscillation (ENSO) in the central equatorial Pacific Ocean. Climate models indicate that climate change increases the probability and amplitude of these events. See, e.g., “Climate Change Could Double Likelihood of Super El Ninos.” The scenario event causes flooding in the Mississippi and Missouri Rivers, drought in India, Australia, and Southeast Asia, and intense rainfall in Bangladesh and eastern Pakistan that submerges cropland. As a result, severe impacts to agricultural production of rice, soybeans, corn, and wheat occur. The analysis modeled the impacts to global commodity prices as a result of these production losses and export control responses by individual countries. In the scenario, corn and wheat prices rise to triple from 2000 prices; rice prices rise 500% in India. Countries on the World Food Programme (WTF) food insecurity watch list become unable to import food. Food riots break out in urban areas across the Middle East, North Africa, and Latin America. Government instability results in a number of countries. The U.S. stock market falls by 5%; main European markets fall 10%; more than a $1 trillion of market value is wiped out.
As the report tersely concludes:
In summary, quadrupled commodity prices and commodity stock fluctuations, coupled with civil unrest, result in significant negative humanitarian consequences and major financial losses worldwide.
There is little doubt that a systemic production shock to the world’s most important food crops as described in this scenario would generate a cascade of economic, political and social impacts. What is striking about the scenario is that the probability of occurrence is estimated as significantly higher than the benchmark return period of 1:200 years applied for assessing insurers’ ability to pay claims against extreme events.
Masked by this dry language, the insurance industry is, and should be, deeply worried. Our global connectedness is both a strength and a deep vulnerability. We are reminded that we are all interconnected in fundamental ways. What happens in one ocean affects us all. The cascading consequences revealed by this scenario modeling demonstrate an urgent need to build more robust resilience throughout the global food production, supply, and distribution system.
But even this is likely to enable only a weak adaptive response to the impacts of the climate change dynamics already “baked into” the levels of CO² we have released and will inevitably release into the atmosphere. What we need, of course, is collective action that will swiftly end the burning of fossil fuels and prevent the worst effects from emerging.
Absent from the Lloyds’ report is any sense of the scale of human suffering that would be wrought from these consequences. It is as though the sheer magnitude of the damage and chaos that would result cannot be directly spoken of. Yet we should not speak of a million starving people without pausing to understand what that truly means for each person, each family, each community that would be so badly hurt.
The world’s climate change negotiators will descend upon Paris on November 30, 2015 for the 21st U.N. Conference on Climate Change. After decades of delay and inaction, we hope that they will finally keep in mind the millions of the poor and those most vulnerable to climate change disasters, most of whom have never burned a gallon of gasoline or a pound of coal their entire lives.