Wake up and smell the coffee: rising food prices show destabilising impact of climate crisis

Dec. 1, 2024

Policymakers must act as extreme weather events put more pressure on food inflation and production worldwide

Your morning – and afternoon – coffee is the latest staple threatened by climate chaos: the price of quality arabica beans shot to its highest level in almost 50 years last week amid fears of a poor harvest in Brazil.

It follows warnings that orange crops have been wiped out by the catastrophic floods in Valencia, Spain; and the soaring cost of olive oil in recent years, as the southern Mediterranean has sweltered.

The cost of the beans accounts for only about 5% of the price of a fancy latte, according to the economic research group Capital Economics, so the impact on coffee drinkers is likely to be minimal, but almost every week seems to bring fresh news of climate-induced price increases.

In the rich world these cause inconvenience and make the lives of low-income households harder. In developing countries, they can mean outright hunger.

Sometimes these price jumps follow extreme weather events, as in the case of the Spanish floods. Scientists tell us such events have already become more common as a result the climate crisis, and will continue to multiply. Or the jumps may result from the higher temperatures that have become a new and alarming normal, forcing farmers to rethink longstanding cultivation patterns.

A paper for the UN’s Department for Economic and Social Affairs recently said: “Staple crops like corn, soya beans, wheat, rice, cotton and oats exhibit suboptimal growth when exposed to excessive heat.”

It went on to warn that the diminishing availability of water was another damaging factor – with the wider spread of pests and diseases – as climate patterns changed.

If a single foodstuff is affected, or a defined region, the impact in shoppers’ baskets, in the developed world at least, may be minimal: retailers can source alternative producers, and shoppers can substitute other products. But economists are increasingly starting to assemble evidence that global heating is putting systemic upward pressure on food inflation – as well as injecting volatility into the food production system worldwide.

The challenges can be compounded by climate-related transport bottlenecks, as when the number of ships that could transit the Panama Canal each day had to be cut because of low water levels.

Research published earlier this year in the journal Communications Earth & Environment found that climate pressures could add on average anything from 0.9 to 3.2 percentage points to global food price inflation over the next decade, depending on how much hotter we allow the planet to get. In hard-hit regions, the impact can be much worse.

This is yet another reason that action on curbing emissions is essential, and it strengthens the arguments of countries who were fighting for a bigger financial settlement from the rich world at the Cop29 summit. But even on the best-case scenario, climate-related price chaos is already here to stay.

All which raises the question of whether policymakers have the tools to cope with this new era of uncertainty. Whacking up interest rates is not meant to be the right response to supply shocks anyway but it seems particularly ill-suited to dealing with climate-induced shortages.

The European Central Bank president, Christine Lagarde, discussed some of these issues last year at the central bankers’ annual gabfest in Jackson Hole, Wyoming, in a speech that questioned whether conventional monetary policy could work in what she called “an age of shifts and breaks”. (Lagarde also referred to other important structural changes, such as the geopolitical reordering of trade patterns.)

The economist Isabella Weber has shown that corporations have extraordinary pricing power in the grip of shocks such as this, which they use to build profit margins at the expense of consumers.

She believes governments may have to use unconventional approaches to managing the resulting inflation – including price caps, and potentially even building up buffer stocks of staple foods for emergencies.

The latter sounds like an extreme measure, but Liz Truss’s energy price guarantee – a drastic intervention in the UK’s energy market to shield households from soaring bills after the Russian invasion of Ukraine – would have been unthinkable, until it wasn’t.

Clearly, a significant part of the response to climate-induced price rises should also be to invest in global resilience in the face of the onrushing crisis: flood defences, more weather-resistant crop varieties, and research into tackling pests and diseases.

But as the economist Andrew Sissons argued recently, in the current political environment there is a problem with many of these solutions – they are costly, and long term.

Judging by the spate of global elections over the past 12 months in which incumbents have been turfed out, voters have little patience for the price of staples rocketing. The cost of a box of eggs featured repeatedly in the US campaign, for example.

There is little sense either that the cash-strapped public are prepared to bear the costs of insulating the economy against structural shifts such as these – or that politicians are willing to discuss the trade-offs honestly. And populists, including Reform in the UK, are ever-ready to pounce on environmental spending as wasteful and unnecessary.

Ed Miliband’s green investment dash in the UK may be an honourable exception – but Labour’s current plans are a shadow of the £28bn a year once promised, and the payback in terms of lower bills looks a long way off. Or, as Sissons puts it: “The things that actually work to tackle cost of living crises may not fit neatly into electoral cycles.”

Food price shocks are only one aspect of the climate crisis, but their growing frequency is a warning sign that we are entering a new, more volatile era, with a policy toolkit created in calmer times.

[Top: Arabica coffee beans, orange crops and olive oil are among the foodstuffs affected by climate-induced price increases. Photograph: Enrico Mantegazza/Alamy