A University of Southampton study has found that despite extreme weather conditions, food security has remained robust in the US.
In collaboration with UCL, economists at the University of Southampton have found that market forces have provided food price security over the past century despite increasingly extreme weather conditions caused by climate change.
Research into US wheat commodities also suggests high uncertainty about the state of future harvests has not destabilised the market.
The findings are published in the Journal of Economic Dynamics and Control.
Importance of wheat in the US
Wheat is an important crop for the US’s food security.
A small fraction of wheat production becomes animal feed, and the crop is not used to generate biofuel.
The main buyers of wheat are flour mills, food processors, and direct consumers.
Increase in weather and harvest variability from 1974
The researchers analysed data on American wheat production, inventories, prices, and wider market conditions from 1950 to 2018. They also explored the records of annual fluctuations in the weather for the same period.
The analysis revealed strong evidence of an increase in weather and harvest variability from 1974 onwards.
“Before the mid-70s, oil was the dominant driver of wheat price fluctuations in the US, but after this point we see a much stronger influence coming from a wider set of factors that includes weather and food consumption,” explained lead author Dr Vincenzo De Lipsis of the University of Southampton.
“Due to climate change, extreme weather events, such as droughts and floods, are becoming more frequent and intense worldwide. Understanding the impact of this variability on food commodity prices is crucial, as it could have serious implications for food security.”
US market found to adapt to uncertain climate conditions
The team found that wheat remained competitive in the US market system.
The potential for weather uncertainties to adversely affect wheat prices has increased, but this hasn’t been passed onto the market.
Wheat prices were found to remain relatively stable, along with the price of associated goods.
Why has food security in the US remained robust?
The researchers found that food security in the US has remained strong due to farmers and agricultural industries providing a buffer. This has smoothed out bumps in the supply of grain to retailers and consumers, reducing shocks to the market that poor harvests could cause.
This has been achieved by investment in substantial storage facilities, infrastructure, and good transport links.
No indication that the wheat market is vulnerable to excessive volatility
The study has shown that the US wheat sector has demonstrated remarkable resilience and flexibility in adapting to the unpredictability of the climate by modifying its inventory management.
There is also no indication that the wheat market is vulnerable to excessive volatility from the related financial futures market, which can emerge in commodity markets in response to increased uncertainty regarding future production capacity.
Dr De Lipsis said: “The market mechanism is one of the most effective instruments that governments have available for climate change adaptation and food security.
“But for this to work effectively, we need a combination of factors in place: a well-functioning competitive commodity market, a modern infrastructure with extensive transport networks, sufficient food storage capacity and a liquid futures market.”
The need to prioritise investment in storage mechanisms
The authors acknowledge that stability is easier to achieve in developed and more affluent countries like the US.
Despite this, the results highlight the importance of prioritising investment in these areas in developing regions to ensure food security for the future.
