Was the wheat price spike caused by the weather or the export ban?

The weather has been terrible in Russia this year: too hot and too little precipitation.  This has led to widely reported increases in wheat prices as well as higher prices for corn, soybeans, rice and other food staples.  A couple days ago wheat prices went up more than six percent in one day as Russia announced it would stop exports in an attempt to keep domestic wheat prices from getting too high.  This of course led to higher price for the rest of the world and possibly export bans in other countries.

This, I think, illustrates some of the worry about climate change and agricultural production.  These kinds of policy responses, and indeed much of agricultural policy in general, tends to come along in response to extreme events.  Some and perhaps most of these knee-jerk policies, like export bans, tend to make the problem worse.

Now we can all emphatically argue that countries shouldn't ban exports in response to a crisis.  But the reality is that these kinds of responses will happen just as they always have happened.  So if climate changes brings about these kinds of episodes more frequently, or generally causes greater uncertainty as agricultural production shifts to new regions, we can probably expect more price spikes and more hunger in the poorest food-importing countries.  Greater variability in production and uncertainty about policy responses will also cause speculators to rationally store more grains. While greater storage will help to buffer the greater uncertainty, by holding inventories at greater levels greater uncertainty can also cause prices to be higher on average, even if average total production is unaffected by climate change.

It is just these issues I'm starting work on with David Lobell and Wolfram Schlenker.

Comments

  1. There's a parallel to the Deepwater disaster. Peak oil doesn't mean we run out of oil; it means we have to undertake more expensive and riskier methods to obtain it.

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  2. Crazy to think that 18 million tons of wheat are rotting in India at the same time... but highlights the challenges to governments effectively intervening on food security, however well-intentioned.

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  3. less meat more mindsAugust 7, 2010 at 1:34 PM

    I couldn't figure out why Russian wheat was toast despite a dozen initial mews articles. Were elevators being burnt? Were the farm fields swept by grassfire? Or was the drought to blame? It wasn't until the export ban announcement that I noticed someone mention drought. So, the export ban drew attention to this issue.
    Some hedgefund just opened up a new oil sands fund to increase AGW. Still not a wheat storage instrument, nor an instrument that shorts feed crops.

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  4. lessmeatmoremindsAugust 7, 2010 at 1:50 PM

    R, that is sick. The World Bank gives loans and gurantees to coal plant construction that will annihilate the 3rd world (except for the employees of the plant) but no one stores grain necessary to keep India's workforce healthy. What is India's plan *when* Monsoons get screwed up by coal? Rely on Russian and Australian exports?

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