Impact of extreme weather on food & agri companies

08 November 2017

Record breaking temperatures, droughts, floods, intense hurricanes, exceptional hail events, blizzards; the headlines are increasingly full of news of historic weather events. While the media is prone to hype weather to drive advertising dollars, scientific research and data continue to suggest an increase in the frequency and severity of weather events.

Causes of this shift in weather patterns span from dramatic changes in Arctic sea ice altering jet stream patterns, to record breaking warmth in portions of the world’s oceans, as well as intense droughts causing feedback on the atmosphere. 

RECENT EVENTS 

In 2017 alone, we have seen the largest number of category four hurricanes make US landfall in 170 years as well as September becoming the most active Atlantic hurricane month ever. Complete devastation of multiple Caribbean islands transpired while the southern Florida agriculture belt was severely damaged by Hurricane Irma with losses in excess of USD 2 billion. 

Earlier in 2017, after an exceptionally warm winter that allowed many central and southern US crops to come out of dormancy early, several early spring Arctic air masses caused damage to winter wheat and fruit crops in the southeastern US. After multiple years of exceptional drought, the wettest winter on record hit California causing a severe flip in conditions from extreme dryness to flood. Internationally, major floods in the China Yangtze river basin in the summer of 2016 caused significant production declines in rice, cotton, vegetables and livestock. 

FORECAST TECHNOLOGY 

Extreme weather amplifies existing difficulties that occur in the age of just-in-time supply chain logistics. Failure for agri business companies to make quoted deliveries due to transportation delays or supply/demand imbalances can cause amplified prices for procurement and delivery of goods. 

JLT Re strategic partner, Riskpulse, provides real-time and forecast technology to food and agri business companies through automated alerting and routing technology. By utilising these forecasts, companies are given the opportunity to proactively manage supply chain nodes during extreme snow storms, re-route over-the-road shipments and increase stock before the event transpires, resulting in profit from delivering goods in a time of high demand. 

Companies can mitigate against extreme temperatures during shipping by leveraging temperature forecasts along roads and rails, leading to cost optimisation of refrigeration to preserve temperature sensitive products and increase profits. 

WHEAT SHORTAGES 

The last major row crop disasters that caused significant impacts on the world supply/demand of major row crops was in the early 2010s, when multiple wheat failures in 2011 were followed by widespread and intense drought across the central US in 2012. 

Well below average wheat production in Australia, followed by the US and the Middle East, finally culminated in the worst Russian wheat growing season in a generation. Wheat shortages in Russia resulted in an export embargo, which is a major source for food supplies in the Middle East. Several studies point to the lack of food supply in the Middle East and North Africa, combined by the inability of governments to procure emergency supplies, as an instrumental factor in the rise of the Arab Spring in the early 2010s. 

Russia wheat exports had not been curtailed since the 1974 growing season; this action was believed to escalate political instability across the region, spanning from Syria to Egypt and Libya. 

There is no sign of reversion to a time in our historical record when extreme weather was at lower levels. The confluence of rising temperatures, and the resulting ability of the atmosphere to hold more moisture, sets the stage for above average likelihood of extreme weather outcomes. 

Arctic sea ice loss, most prominently in the summer and autumn, also play a role. Less ice brings warmer temperatures in the Arctic, causing more stagnant jet stream patterns. Weather patterns are more prone to be stuck in place, driving longer periods of entrenched weather regimes. 

Not all impacts are due to ocean and atmosphere changes: agriculture regions also have a feedback on the larger environment. This is particularly true for corn where large amounts of water are required for crop development which feeds high amounts of moisture into the low levels of the atmosphere. In a study published earlier this year, the UK Met Office estimated the annual probability of simultaneous corn crop failures in China and the US at 12%. Contributing 60% of global corn production, simultaneous impacts would be capable of dramatically changing supply/demand dynamics well beyond corn usage. 

RISK MANAGEMENT 

The era of big data and technology solutions, integrating disparate datasets, afford food & agri companies the ability to simulate and implement risk management solutions for key disaster scenarios. Catastrophe modelling is expanding into the agriculture sector for crop yield assessment, whereas property models are well entrenched to probabilistically estimate damage potential. 

These technologies can be deployed to optimise daily operations to longer range strategic planning in terms of distribution centers, preferred supply chain partners with lower risk profiles, resulting in greater transparency into robust risk management plans. 

With a wealth of capital to deploy in the insurance market, the range of insurance solutions is growing in sophistication. 

Tailored weather financial contracts are being evaluated and deployed for critical supply chain nodes to prevent loss of income in the advent of damage from a catastrophe. The ability to leverage catastrophe models to accurately price insurance policy premium and weather data for price evaluation of weather contracts is growing into the sector. 

Technological systems such as those provided by Riskpulse can save millions of dollars per event by optimising distribution to meet demand. The future is bright for advancing analytics to bring more profitable outcomes and reduce volatility in the food & agriculture industries.

Download News Feed

For more information please contact Josh Darr, Vice President and Lead Meteorologist of the JLT Re Analytics team on +1 312-637-6108 or email josh.darr@jltre.com