Insurance and Climate Change column

Report Sees Major Food Shortage as Climate Change Danger

By | July 16, 2015

Climate change reports and studies abound lately – as you will note from a previous column – but one recent report gives potentially the starkest prediction yet of what impacts climate change could have.

The report from Lloyd’s of London, “Food System Shock: The insurance impacts of acute disruption to global food supply,” isn’t focused on climate change, but the author of the report calls it out as “an exacerbating factor.”

The report notes that a shock to the global food supply could trigger “significant claims across multiple classes of insurance,” including terrorism and political violence, political risk, business interruption, marine and aviation, agriculture, environmental liability and product liability and recall.

The insurance industry may also be affected by impacts on investment, the report adds.

Here’s a positive, somewhat enabling, note in the report: “The insurance industry is in a position to make an important contribution to improving the resilience and sustainability of the global food system.”

Those two words, “resilience” and “sustainability” are often associated with climate change and the insurance industry’s role in helping prepare for any ramifications from climate change.

The references in the report to climate change and its role in endangering the world’s food supply don’t stop there.

Coinciding with increased pressure on food supplies is the supply chain’s vulnerability to “sudden acute disruptions,” according to the report.

“Although there is a large amount of uncertainty about exactly how climate change might impact world food production over the coming decades, there is general consensus that the overall effect will be negative,” the report states. “Increases in the intensity and frequency of extreme weather events such as floods, droughts and wildfires, coupled with a rise in conditions amenable to the spread and persistence of agricultural pests and diseases, are expected to have a destabilising effect on world food production.”

Trevor Maynard, the report’s author, explained why he made such dire predictions.

“The pressure on the food system is growing for various reasons,” said Maynard, who heads exposure management and reinsurance at Lloyd’s. “You can’t really disentangle one thing from another.”

For instance: population growth is occurring at the same time as climate change, and the two are closely related. From 1950 to present the world population grew from 2.5 billion to 7.2 billion, and advances in mechanized farming and irrigation haven’t kept pace, he said.

“Then climate change comes along and increases the possibility of extreme events like drought, wildfires, flooding, and also brings a higher severity of events,” Maynard said, adding that as the Earth warms “there’s more energy entering the atmosphere.”

Maria Helena Semedo, a deputy director with the Food and Agricultural Organization of the United Nations, recently called for “urgent concerted policy responses” to the danger climate change poses to food systems.

Semedo, Maynard and others like her have joined in warning that carbon emissions must be reduced, and efforts must be made to promote resilience and sustainability in food supplies and in other areas.

The NSW Farmers Association, a large agriculture group in Australia, made international headlines this week when it dramatically shifted its climate change stance.

The group had backed those who wanted to investigate whether human activities were causing any global change.

Members this week during an annual conference voted to recognize that primary producers “are on the front lines of seasonal variability, exacerbated by a changing climate.”

The group further called on governments to back “the transition from fossil fuels.”

Just why these calls are coming from food producers and those who represent them is explained in the Lloyd’s report.

Thanks to increased chances of drought, which some have tied to climate change, certain crops may take a big hit.

The forecast of an El Nin᷉o also needs to be assigned some blame – although potential rains may be welcome in places like drought-plagued California, a large agricultural player. But when combined with drought conditions and fiercer storms driven by the cyclical weather phenomenon, food shocks across several crops are increasingly possible, according to the report.

Some estimated losses outlined in the report:

  • Maize: 10 percent production shock
  • Soybean: 11 percent production shock
  • Wheat: 7 percent production shock
  • Rice: 7 percent production shock

The strong possibility of an El Nin᷉o brings drought expectations to India, which produces an estimated 20 percent of the world’s rice, as well as Australia, a major producer of wheat, and South East Asia, the world’s largest exporter of rice.

Rice, followed by wheat, is the world’s most consumed food grain, with global consumption reaching 444 million metric tons in 2011, according to the U.S Department of Agriculture.

In his report Maynard dedicated a great deal of ink to outlining the potential impact of El Nin᷉o, but he didn’t have a problem assigning a great deal of blame to persistent drought throughout parts of the world and what he believes is one of its driving factors.

“We know that drought is more likely and consistent with climate change predictions,” Maynard said.

The bottom-line reasoning for putting together the report is to alert the insurance community to the potential and grave dangers that food shortages present, Maynard said.

“The reasons for doing research is to get the idea out there that there are multiple classes of insurance that will be affected,” Maynard said.

Past columns:

Lloyd’s Food Sytem Shock Report