The Underlying Climate Mechanisms of International Food Trade

The global climate is changing. The year 2015 was, like many recent years before it, the warmest on record. This documented trend of higher temperatures, what we call climate change, is increasing the chances of ‘extreme heat events’ – several days or more of unusually hot, harmful weather conditions. While extreme heat events are potentially harmful to human health, they also cause many problems for our crops and food supply.

Corn is particularly vulnerable to extreme heat events. As extreme weather events rise, we expect US corn yield to become increasingly unstable. This type of instability – known as yield volatility – means that the commodity market will consequently also become more volatile and unstable. Just how unstable it becomes will depend, in part, on our economic integration. International market integration, through free trade, is shown to dampen the instability of the prices of commodities (agricultural goods and products). In addition, increased integration between the food and energy sectors also has the potential to diminish this type of volatility – but only in the absence of biofuel mandates.

Climate change will have long term affects. The predicted impacts vary by crop type and location, but, by the end of the century they are expected to be overwhelmingly negative and world food prices will rise (relative to baseline values). The impacts won’t be the same for everyone. Farm households, and those employed in agriculture may benefit from higher prices. Urban households, however, are expected to lose – particularly the poorest households who devote the largest share of their income to food. As world prices for crops rise, the areas that are least affected by rising temperatures will benefit (relatively) more from climate change.

Over the coming decades, different regions’ comparative advantages will be altered by the changing climate. Areas that now produce an abundance of crops may find that they are no longer able to do so, and areas that were historically poor for crop growth may become more viable. In a freely functioning global economy, trade patterns would respond to this by evolving to comparative advantages. This would in turn give low income consumers access to food at the most favorable prices possible. Historically, however, food trade has faced many obstacles – both tariff and non-tariff barriers – as well as poor infrastructure and limited trade facilitation. This limits the ability of trade to adjust to a changing economic landscape.

In the worst case scenario, climate change impacts on agriculture will cause a 120% rise in malnutrition in South Asia under current trade policies. However, under fully integrated world markets, the rise in malnutrition headcount is far smaller. Global integration of commodity markets significantly reduces food security risks due to climate change at mid-century. Economic integration can facilitate adaptation to climate change and lead to enhanced food security in the near term and in the long run.