Illustration by Maxwell Holyoke-Hirsch
A Hotter Planet Doesn’t Have to Be Hungrier: Michael J. Roberts
For the rest of this summer and through the fall we’re going to see great volatility in agricultural commodity prices. Inventories for key staples are low, and world demand is growing fast. In response to near- record prices last spring, U.S. farmers, stewards of the world’s largest breadbasket, have managed near-record plantings.
Prices now hinge on the weather. If the heat persists and crops wilt, prices will set record highs. If milder weather returns, prices will plummet as big yields replenish depleted inventories.
We can’t know whether the current heat wave and drought are due specifically to human-induced climate change. But we can safely expect that such heat waves, and ones even more severe, will occur with increasing frequency. And agriculture is the industry that will be most directly affected by warming.
Combined with rapid global population growth and with biofuel subsidies and mandates that have diverted about 40 percent of the U.S. corn crop to ethanol production, climate change has brought us to the precipice of what might turn out to be a catastrophe for the world’s poorest. If food commodity prices double or triple from today’s already elevated levels, hundreds of millions who spend most of their income on these basic grains could suffer severe malnutrition, illness and starvation.
Those of us in relatively rich nations may hardly notice higher prices for crops such as corn, soybeans, rice and wheat. These four comprise about 75 percent of food calories for the world, but they account for just a few pennies of our food dollar, which mostly goes to labor involved in processing and retailing. That commodities are a trivial share of our food budget helps explain why their prices are so volatile -- and why the marketplace probably will not be much help in pushing agriculture to adapt to global warming.
Before getting further into how the market works, though, consider what we know about the potential effects of global warming. Until recently, most agricultural researchers were surprisingly sanguine about its effects on food production. In fact, many thought warming would bring a net gain. In its most recent report, in 2007, the Intergovernmental Panel on Climate Change concluded, “Globally, the potential for food production is projected to increase with increases in local average temperature over a range of 1 to 3 degrees Centigrade.”
Although plant scientists assumed that, in general, warming would be bad for crop yields, in the most temperate and productive regions -- including the U.S. -- the negative effects were expected to be more than offset by a boost that plants would get from having higher concentrations of carbon dioxide in the air. (Plants sequester atmospheric carbon dioxide for photosynthesis.) Plus, it was thought that by extending growing seasons in colder regions, warming might open up whole new growing areas.
Recent research has dampened this optimism.
As far back as 2006, Stephen Long, a crop scientist at the University of Illinois, and his colleagues published persuasive new evidence showing that carbon dioxide fertilization -- that expected boost to yield -- could be much smaller than previously thought. And since 2007, my colleagues and I have amassed a pile of evidence showing that the negative effects of warmer temperatures could be worse than scientists have assumed.
Research just published by my colleagues David Lobell, of Stanford University, and Wolfram Schlenker, of Columbia University, estimates that climate change has already caused a 4 percent to 5 percent reduction in world production of wheat and corn. This happened even though North America has thus far escaped warming during crucial growing-season months. If warming proceeds as the IPCC has projected, an extrapolation based on historical relationships between yield and weather indicates that, by 2035, U.S. yields will be 20 percent to 30 percent lower than they would have been without warming. By 2085, that shortfall will be as much as 80 percent.
Plant breeders and genetic scientists may be able to mitigate this problem by developing plants with greater tolerance for heat. But this will be challenging. Although today’s corn and soybean plants have greater yield potential than they had 50 years ago and show more tolerance for drought, they are if anything less tolerant to extreme heat.
In recent years, public research money -- the root source of past agricultural productivity gains -- has declined. This is especially sad when you consider that past public-research investments paid annual rates of return estimated at 45 percent to 50 percent, numbers any hedge-fund manager could envy.
Now the tough job of cracking heat tolerance rests mainly on the shoulders of private companies such as Monsanto Co. (MON) and Pioneer Hi-Bred. Yet, so far, breeders have focused their research efforts on developing plants with greater tolerance for pests, herbicides and drought, not for heat. The Gates Foundation is now funding some work to fill that gap.
If innovation can compensate for climate change, it will take a long time. Work by Julian Alston, of the University of California at Davis, suggests the time lag from investment to productivity gain can be 20 to 30 years or more. For genetically modified crops, which must undergo an especially complicated and drawn-out regulatory process, the lag could be a decade longer.
If innovation cannot fully compensate for climate change, it would be nice if marketplace forces could help us adapt.
But the trouble here is that prices of agricultural commodities are extremely sensitive to quantities. History has taught us that even small, temporary shifts in expected supply can send prices soaring or plummeting. This is what we are seeing today, as news about the weather or a crop progress report from the U.S. Department of Agriculture drastically affects prices of corn, wheat and soybeans. This volatility is especially remarkable considering the global scale of agricultural production and trade, and the fact that inventories can usually buffer global production shocks. So when prices shoot up or fall, our consumption changes very little. In economist jargon, we say demand is highly inelastic.
Another lesson from history is that price increases and declines tend to persist. Whatever price change occurs this year, for example, roughly 80 percent of it can be expected to stick around until next year and about 65 percent of it until the year after that. This persistence indicates that agricultural supply, like demand, is very inelastic. For if supply were more responsive to prices -- if the world’s farmers could quickly cultivate new crops to make up for past losses -- then price swings would be smaller and more temporary.
The inelasticity of demand and supply implies that adapting to global warming could be painful for some. It’s not that we will all be forced to live in misery, or even that we won’t produce enough food to feed everyone. It’s that the rich won’t adapt by consuming less resource-rich food such as meat and dairy products (derived mainly from corn- and soybean-fed animals) because they can easily afford not to. And if the wealthy choose not to consume fewer resources, this will help push prices to levels that the urban and landless poor can’t afford.
Adapting to Warming
If world prosperity were not so disparate, I suspect we could easily adapt to climate change. We might eat less meat, build space-age greenhouses or industrialize food production on a scale beyond anything heretofore dreamed. Or we might all start growing our own gardens and keeping chickens. We would spend a greater share of our income on food, but life would be a far cry from Malthusian misery.
Sadly, climate change may well cause extreme misery for others. I sympathize with Martin Weitzman, the Harvard economist who argues that the small probability that global warming will cause an extremely bad outcome could be enough to justify spending a substantial share of gross domestic product to curb it. Restraining greenhouse gas emissions would actually cost only a small fraction of GDP (1 percent to 2 percent or less, by most serious calculations), but it doesn’t look as though we’re going to do it. In any case, a considerable amount of warming is already baked in.
So what should we do?
Besides pushing tirelessly for a sensible international agreement that would put a price on greenhouse gas emissions, there are some relatively low-cost things we could do to facilitate adaptation and quell rising commodity prices.
First, we could restore some of the funding to crop sciences. Research dollars could be directed toward the basic research that private companies are less inclined to undertake. Some might also be aimed at developing crop varieties more tolerant of warmer temperatures.
Second, we could persuade countries to reform their processes for approving new genetically modified crops. Ingo Potrykus’s genetically engineered golden rice, developed in 1999, promises to substantially reduce the millions of deaths worldwide each year that stem from vitamin A deficiency. But due to regulatory hurdles, this life-saving variety of rice will not reach the market until at least next year.
Such delay discourages new research as well as attempts to commercialize on-the-shelf discoveries that have already been made. The Organization for Economic Cooperation and Development could help by establishing a standard, reasonable approval process for genetically modified crops in developed nations. This would likely set a precedent that many developing nations could also adopt.
Third, it’s clear that more effective development policy would double as better climate policy. It’s not only that rich and poor adapt differently to higher food prices. It’s also that the world’s most developmentally challenged places -- particularly in Africa -- possess much of the world’s underutilized land.
Even if agriculture is able to meet the challenge of climate change and extreme heat, variable weather and volatile commodity prices will remain. Although that volatility can be disconcerting, it reflects a market working to allocate scarce commodities efficiently -- a job the market does reasonably well. With the right policies in place, food price swings, though still unpredictable, need not be as potentially catastrophic as the weather.
(Michael J. Roberts, a professor of agricultural and resource economics at North Carolina State University, in Raleigh, studies the effects of climate change on the production of staple food grains. The opinions expressed are his own.)
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