In 2015 insurance group Lloyds of London commissioned the report “Food System Shock: The insurance impact of acute disruption to global food supply.” A research team by Aled Jones and Molly Jahn prepared the scenarios in the report with significant contribution from Tobias Lunt. Molly Jahn is a research partner at Pack Creek Capital.
While the report focuses on the consequences of a food system shock on the insurance industry, the scenarios presented also amplify the devastating changes global crop production would face.
The scenario presents a strong warm-phase of the El Niño Southern Oscillation (ENSO) that develops in the central equatorial Pacific Ocean. The report breaks down the weather patterns regionally and the resulting production shock from the plausible climate shifts.
These atmospheric shifts, may result in a shortage of grain production. This then generates increased terrorism, political instability, economic interruption, and other environmental consequences.
“Food stocks remain at a relatively low level (below approximately 80 days of consumption) following recent draughts in California and extreme weather events in Brazil and Asia, therefore grain prices remain high (double the levels seen around 2000).” (Pg. 14).
Specific to commercial agriculture, the report describes how a shock will cause operating costs to spike, “…more resources are needed to recover pre-shock levels of production.”(Pg. 24).
“As was seen in 2008, public agricultural commodity stocks increased 100% in share value […] agricultural engineering supply chain stocks rise 150%.” (Pg. 16).
This report doesn’t consistently ingrain the political message of ‘climate change’ but is matter of fact in the ramifications of food shortages as the scenario discusses the current economic and political landscape with past climate and economic data.
At Pack Creek Capital the discussion we want to have is how to hedge for unforeseen risk as opposed to ignoring the facts about the climate changes we face.
We highly encourage this report to be read. The 2015 findings are playing out as the El Nino hit Africa with the worst food crisis since 1985 from widespread draught caused.*