Grains are among the food commodities that have been heavily impacted by supply chain disruptions in recent years. Image: Reuters/Eduard Korniyenko
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- Emerging climate shocks have impacted major food commodities markets in recent years, prompting some governments to enact protectionist measures.
- However, such measures can exacerbate food insecurity, so we need more cooperation, not less, to protect global supply chains and consumers.
- Supply chain climate action plans could create coalitions of stakeholders to identify climate risks and work towards protecting global networks.
Against the backdrop of a rapidly changing climate, the choices we make in our daily lives, from our holiday destinations to our clothing styles to our dietary preferences, are increasingly influenced by climate events thousands of miles away. Consider, for example, wheat – a staple found in your breakfast cereal, bread and beer.
Research shows major commodities markets have experienced more frequent and long-lasting periods of extreme volatility over the past few years, in contrast to the trends observed throughout the rest of the decade.
Faced with this unprecedented volatility, some countries resort to protectionist measures to safeguard their own interests.
However, these actions often trigger domino effects that exacerbate the exact problem they seek to avoid – escalating prices across food commodity supply chains, which disproportionately impact lower and middle-income consumers, including smallholder farmers who are net consumers themselves.
For instance, the Indian government this summer announced an export ban on non-basmati white rice – about 15% of global rice trade – to address concerns about extreme weather impacts on production and ensure lower prices and availability domestically.
Simultaneously, though, climate risks including heavy rains and floods have threatened the world’s leading rice producer, China, in key growing regions — contributing to a 20% increase in global rice prices since the ban.
Our planet faces several decades of climate change, irrespective of current mitigation efforts, posing new challenges for governments and supply chains. Addressing these challenges requires greater global cooperation, rather than isolation.
Countries and corporations face a critical choice: react to events as they occur, or proactively build resilience to seize emerging opportunities. This is not merely a matter of profit margins, but is inextricably linked to food security and geopolitical stability.
Wheat price spikes might mean an extra dollar for bread for me as an Indian American entrepreneur now living in California, but for my cousins back in India, it means school budget cuts.
We need bold action to secure global supply chains for consumers, countries and companies alike.
Introducing supply chain climate adaptation plans
Like national climate adaptation plans, we need supply chain-specific climate adaptation plans (S-CAPs) to protect the critical network components that all players rely upon.
Intricate international supply chains have hundreds of touchpoints, and every participant shares the risks from damage to these nodes, across production, factories, power plants and ports.
To start, we need to identify which supply chains are most vulnerable to climate change-related disruptions. An international organization like the World Trade Organization (WTO) could take charge and conduct a comprehensive stress testing of supply chains, similar to banks’ stress testing that identifies vulnerabilities in portfolios.
The WTO could then organize coalitions, tapping both major and minor corporate players within supply chains, including their largest exporter and importer countries.
The group’s first step involves a thorough risk assessment and mapping supply chain vulnerabilities. This includes identifying climate-risky nodes on varying timescales, as well as critical transportation routes, geopolitical hotspots and natural disaster-prone areas. Open communication channels are crucial to build a comprehensive risk map.
For instance, we must consider that the climate risk of extreme heat has unexpected correlations, with implications for global supply chains. It is more diversified across the west and east coasts of the US than between the US west coast and Australia's east coast.
After identifying supply chain-wide risks, players and experts can come together to devise a strategy, with tangible steps, to mitigate them. This could involve establishing alternative production facilities in less risky regions, creating transportation redundancies, and investing in climate risk detection technology.
Coalitions should also develop contingency plans around how to quickly shift production, reroute shipments or tap into emergency stockpiles. They must be regularly reviewed and updated based on lessons learned from previous disruptions.
Governments in key locations can provide support by creating favourable regulatory environments, investing in infrastructure, and facilitating international cooperation. They can also establish workforce training programmes to implement action plans – creating jobs and building knowledge to ensure effectiveness.
What’s needed to finance S-CAPs
Like any effort of this scale, S-CAPs would require funding — ideally a combination of companies’ contributions and international funding, such as the United Nations’ (UN) Green Climate Fund, which finances key climate projects such as cold storage in India.
Additionally, private funds could come from historically high-emitting corporations, like oil and gas companies, which face increasing pressure to recompense their historical greenhouse gas emissions and the damages these have caused in vulnerable communities.
But because the outcome is more climate resilience – which directly impacts top and bottom lines in the long-term – S-CAPs would prove self-sustaining.
Research shows that returns on climate adaptation investments range from 2:1 to 10:1 in net benefits. Yet climate adaptation initiatives receive only 7% of climate-related investment – a far cry from the estimated $160 billion to $340 billion needed for adaptation by 2030.
As with any funding-backed initiative, the players involved would need to remain accountable on outcomes. Too often, a lack of transparency and accountability surrounds climate commitments, especially for individual companies.
A sector-wide effort would help ensure progress is made and each coalition could report its headway at COP28, similar to other international agreements. Once key supply chains act, others will see they have developed a competitive advantage.
An initiative like this could be a strong way to focus international attention on climate adaptation with COP imminent.
Collaboration needed to protect supply chains
This comprehensive approach acknowledges that no single entity can address all the complexities and uncertainties impacting supply chains. Instead, an effective effort must involve suppliers, manufacturers, distributors, logistics providers, governments and international organizations.
How is the World Economic Forum contributing to build resilient supply chains?
After COVID-19’s pandemic-induced supply chain disruptions, we can’t let climate change cause the next global economic breakdown. To ensure the smooth functioning of critical industries, there is a growing need for a global effort to protect and enhance supply chains. The sooner we act, the more resilient we’ll be in the long run.
When the COVID-19 crisis hit, the world came together to research, develop, and deploy more than 13 billion vaccines within two years. A global emergency requires a collective global response and climate change is no different.
We must work together now to protect supply chains and make them more resilient to the impacts of extreme climate events.
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The views expressed in this article are those of the author alone and not the World Economic Forum.
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