A new peer reviewed risk assessment produced by Lloyd’s of London shows that humanity may be on the verge of collapse by 2050 unless significant effort is implemented to slow down the effects of global warming. The risk assessment discusses a scenario of three simultaneous disasters-a heatwave in South America, a windblown wheat stern rust pathogen across Russia and a very strong El Nino southern oscillation cycle-all of which are possible given the current trends. The result would essentially cripple global food security.
Lloyd’s commissioned food security and sustainable development economics experts to develop this plausible scenario of a global production shock to some of the world’s staple food crops and to describe the impacts to investigate the implications for both insurance and risk. Members of the UK/US Task Force on Resilience of the Global Food Supply Change to Extreme Events (supported by the UK Foreign and Commonwealth Office) assisted in the development of the scenario and a group of leading academics peer reviewed the risk assessment prior to its presentation to the insurance industry.
The risk assessment model used in the report estimates that wheat, soybean and maize prices will quadruple and rice prices may increase by 500% on those from 2007/8. Wheat and rice production would fall 7%, maize would fall 10% and soybean would decrease 11%. The resulting scarcity would precipitate riots in Latin America, North Africa and the Middle East and the EU and US stock markets falling 5 and 10% respectively.
The degree of shock to each commodity is based on Food and Agriculture Organisation (FAO) data from 1961 to 2013. Three de-trending methods were applied to global aggregated and country data to address changes in crop area, yield, technology and other critical factors over this period. Midpoints of the range of percentage reduction in production for specific years caused by specific historical events were selected as the basis for the components of the scenario.
Global food demand is rising as a result of unprecedented population growth and shifting consumption patterns. The FAO has predicted that agricultural production will need to increase by more than double by 2050 to close the gap between supply and demand.
The existing vulnerability of the world’s food systems is exacerbated by a number of factors including increases in the intensity and frequency of floods, droughts and wildfires along with a rise in conditions that are amenable to the spread of agricultural pests and diseases. Water scarcity is another very important factor, given predictions that approximately 66% of the world’s population may live under water stress conditions by 2025.
Agriculture is the world’s largest employer as it provides livelihoods for 40% of the world’s population, and it is also fundamental to the global food system. Most of the discussions around food security have focused on long term pressures which heighten the vulnerability to supply shocks. Crop production shocks are likely to pose a systematic threat to food security if they impacted on any of the world’s traditional surplus production areas or “breadbaskets”.
Businesses are likely to invest more heavily in comprehensive risk transfer structures as they become more aware of the threat of disruption to food systems. Shocks to global food supply could represent significant opportunities for the insurance industry which has a key role in assisting clients to understand their risk exposure and to tailor appropriate solutions in response.
The scenario in the Lloyd’s assessment is based on a “business as usual” approach under which human induced climate change leads to increased flooding and drought and to agriculture functioning under water stress in a decade. If carbon emissions are reduced dramatically and the world’s agricultural systems can adapt, such a dramatic scenario will no longer be on the table.