HSBC Global Research paper points to rising wheat prices linked to lower harvests that have resulted from weather volatility
As the heatwave continues and scientists fear 2018's high temperatures and dry weather could become the norm in the future, there are inevitably pressing worries for farmers to contend with.
In the UK, farmers' representatives are warning of serious impacts if the current spell of hot, dry weather continues, with fears over potential shortages of potatoes, lettuce, broccoli, peas and carrots that could push up prices for key produce, according to the BBC. There are also concerns about the knock-on impact on animal feed and therefore meat and dairy production and prices.
This week research by HSBC provides further evidence that extreme weather is putting inflationary pressure on crucial foodstuffs such as wheat, with agricultural commodity price volatility likely to continue in the long term as a result of climate change.
A paper released yesterday by the banking giant's Global Research unit highlights recent price spikes for key agricultural commodities - including wheat, soybean and maize - and warns heatwaves and droughts across Europe and the US are an increasing threat to food security and supply chains.
It highlights the US Wheat Futures prices which on Tuesday hit a three-year high, climbing 36 per cent higher than the average for August 2017. At the same time prices in Europe for milling wheat are now at their highest in four years.
Meanwhile, wheat harvest levels in Germany - Europe's second largest producer - are forecast to fall to their lowest in 15 years and are almost 25 per cent lower than last year, the paper explains, while atypical weather including unseasonably high temperatures are also affecting harvests in Russia, Ukraine, and France.
As a result, grain is scarcer and global prices are rising, heightening the risks to food security and company supply chains and requiring improved farming methods and technology to build in future resilience, the paper argues.
"Whilst summer months typically see higher prices for grains, climate events are responsible for above-average spikes this year, in our view," states the paper, which was co-authored by Lucy Acton, ESG Analyst at HSBC.
Yesterday's paper cites previous "dramatic" wheat price rises in 2010 and 2011 in Russia and Ukraine - the third and ninth largest global producers - caused by severe droughts and heatwaves, which when combined with oil price spikes and a growth in biofuels had a knock on effect on other grain prices and broader food indices.
"While we expect price increases to be tempered this time due to larger than average stockpiles of grains from good harvests last year, periods of volatility increase the risks to food security and companies' agro-commodity supply chains," the paper adds.
It comes amid an ongoing heatwave across Europe which has seen scarce rainfall, record temperatures in the Arctic Circle and wildfires in Greece. Scientists concluded late last month the current heatwave was twice as likely to occur because of human-caused climate change.
Previous HSBC analysis last month highlighted agriculture as both a perpetrator and victim of global warming, and found that of all cereals it analysed wheat was the commodity most vulnerable to climate change. Moreover, it concluded agriculturally-dominant and climate vulnerable economies are likely to face structural economic risks over the long term, pointing to Ukraine as being the highest risk economy with 27 per cent of its GDP derived from agriculture.
As a result, the authors of yesterday's paper said more agricultural commodity price rises and/or volatility is anticipated in future "as climate impacts accumulate and weather patterns become less predictable".
"We think countries will need to build resilience in their agricultural systems, achieved via agricultural technology, improved water infrastructure and new farming methods," the paper concludes.
Numerous studies over the years have warned climate change, drought and volatile weather could lead to crop shortages, causing myriad knock-on impacts on economies. One of the latest reports from Verisk Maplecroft last week added further weight to these concerns, concluding that climate impacts on worker productivity and export revenues are likely to hit the world's poorest citizens in climate vulnerable countries the hardest. Worsening conditions and heat stress from climate change is likely to hit West Africa the most, potentially putting at risk almost $10bn in export value from the region by the middle of the century.
All in all it paints a worrying picture for farmers, company supply chains, and consumers across developing and developed countries alike as climate change impacts worsen, both now and in the future. But, with 2018's summer heatwave having arguably raised alarm bells louder than before, the hope is that it will spur rapid and concerted action from businesses and governmnts to build greater resilience into the global agricultural sector.
HM Treasury says consultation on taxing plastic waste received highest ever response rate from businesses and the public, with strong support for measures to cut demand for takeaway containers
Three companies team up to develop waste plastics as a raw material for making fuels, chemicals and new plastics
BusinessGreen brings you this week's green economy headlines from around the world
Westcott Venture Park plans to build 15MW direct wire solar farm to make it the first "carbon-negative" business park in the UK