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Global weather patterns have become extreme and erratic across many parts of the world due to climate change issues. This has led to a number of weather related disasters each year impacting supply chains, curbing retail spending and increasing global commodity prices affecting consumers, businesses and the overall economy. Nonetheless, many industries like insurance, construction and others related to rebuilding efforts tend to benefit in the long term.
Since the early 2000s, global weather patterns have been volatile and extreme due to the effects of global warming and climate change. In 2011, there were 296 global weather related natural disasters (droughts, extreme temperatures, floods, storms and wildfires) with 243 million disaster victims globally according to EM-DAT, the International Disaster Database;
While this was lower than the average of 349 global weather related natural disasters recorded between 2001 and 2010, the estimated economic losses from global weather related natural disasters in 2011, at US$136 billion, were the highest ever registered compared to the 2001-2010 average of US$85.3 billion;
In 2011, floods had the highest occurrence (55.8% of global weather related natural disasters) followed by storms (30.2%). During the year, floods in Thailand had the highest economic damage from weather related natural disasters at US$40.0 billion followed by storms in the USA (US$25.0 billion) and the drought in the USA (US$8.0 billion);
Erratic global weather patterns have a direct impact on agricultural production affecting global supply chains and prices of several global commodities. For example, by mid-2012 there was an unprecedented rise in the global prices of corn, soybean and wheat owing to the heat wave and drought in the USA and Eastern European countries like Russia, Ukraine, Kazakhstan and others;
This increases inflationary pressures affecting consumers and businesses while governments face the challenge of financing high damage costs and rebuilding supply chains that could impede economic growth. Nonetheless, there are some industries like insurance and construction that benefit from extreme weather patterns in the long term.
Top Five Countries with Highest Economic Damage Costs from Weather Related Disasters: 2011
Source: EM-DAT; The OFDA/CRED International Disaster Database
Direct impact agricultural production and global commodity prices
Erratic global weather patterns reduce agricultural productivity affecting global supply chains and increasing prices of several global commodities. For example:
The 2010 wildfires and droughts in Russia – amongst the largest exporters of wheat globally – caused a severe drop in agricultural production forcing the government to impose a ban on the export of grain amid fears that the harvest will not meet domestic demand. This not only threatened global food security but also led to a 121% increase (US$ terms) in global wheat prices between June 2010 and February 2011;
The acute heat wave and drought in the USA in 2012 is severely affecting over 60.0% of corn and soybean production. This is crucial for global food supplies as the USA is the world’s largest exporter of corn, soybean and wheat. Since the end of 2011, corn prices have increased by 45.1% to reach US$609 per metric ton in July 2012 while soybean prices rose by 28.8% to reach US$333 per metric ton in the same month;
Torrential rains in Brazil, delayed monsoons in India and poor precipitation in Australia are dampening sugar production in 2012 which could create supply shortages and drive up sugar prices. Brazil is the world’s largest producer of sugarcane and largest exporter of sugar while India is the second largest producer of sugar cane globally;
Low stocks of staples like corn and soybean have spillover effects and raise the prices of other foodstuffs. Corn and soybean are not only used to feed animals but also produce ethanol and make cooking oil.
Food Index and Prices of Selected Commodities: January 2010 – July 2012
Source: Euromonitor International from IMF
Incidences of weather related natural disasters are likely to increase over the coming years with the growing effects of climate change. According to EM-DAT, between January and July 2012, there were 35 occurrences of extreme temperatures globally, compared to an average of 21 occurrences in the 2001-2011 period;
Over the coming years, extreme weather patterns will continue to have far reaching consequences on the global economy, particularly in the current scenario where several downside risks loom over the global economic outlook in 2012. Bumper crops in 2012 could have given some relief to the global economy. However, governments are concerned about an impending food crisis and the prospect of another price shock.