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From Farm to Table: How Extreme Weather Drives Up Prices Along the Food Supply Chain

From Farm to Table: How Extreme Weather Drives Up Prices Along the Food Supply Chain

By Mounira Magdy

Published: August 12, 2024

Experts say that extreme weather events like fires, floods, heat waves, and droughts pose an increasing risk to the food supply chain in Canada, putting pressure on prices all the way to the grocery store shelves.

Frank Scale, Vice President of Industry Affairs at Food, Health & Consumer Products Of Canada, said, "Any time major weather-related events occur, they tend to drive up costs."

Such events have become more frequent and intense in Canada and around the world.

A 2019 report from the federal government indicated that temperatures are expected to continue rising, driven by human impact, while precipitation is also expected to increase.

Amanda Norris, Chief Economist at Farm Credit Canada, stated that weather plays a significant role in food production, and factors such as too much or too little heat or moisture can affect not only the volume of food produced but also the prevalence of pests and diseases.

She added, "Weather can also impact activities downstream in the supply chain." "For example, infrastructure may be damaged by floods, altering transportation routes and the ability to move these products along the food supply chain."

She noted that shortages caused by severe weather can also lead to higher food prices if supply cannot meet demand.

According to a report released in July by the Canadian Agricultural and Food Policy Institute, the agriculture industry has faced "a series of challenges" recently, including climate change, with the successive impacts of these headwinds reverberating throughout the supply chain.

In a survey for the report, industry respondents along with government members identified extreme weather as one of the largest risks facing the agricultural sector.

Major flooding in British Columbia three years ago hit farmers hard, as hundreds of thousands of chickens and other livestock died after atmospheric rivers caused flooding and landslides.

Drought in 2023 has stressed crop production in Saskatchewan, where output fell by about 11 percent, following two years of a historic 47 percent drop in production due to extreme heat and drought in 2021.

Tyler MacLean, Managing Director of the Agricultural Food Policy Institute, said the agriculture industry has been able to make itself somewhat more resilient to events like drought by changing some of its practices, such as using no-till technology to retain more moisture in the soil. He remarked that while these practices can't protect crops from more extreme weather, they do help in other years.

MacLean noted that extreme weather in other parts of the world can also affect farmers if input costs rise, such as for fertilizers, or if there is a shortage of a key crop causing devastation to commodity prices.

He continued, "An extreme weather event in China or India at the wrong time could have catastrophic results, as there really isn't enough wheat in the rest of the world to compensate for potential losses."

Scale indicated that while farmers often see direct impacts from extreme weather events, the effects are usually indirect for those further along the supply chain, such as manufacturers and processors.

He added that supply chains are generally designed with the lowest cost in mind, meaning disruption risk is higher, such as having one large plant instead of multiple smaller ones or relying on a single source for critical inputs. He explained that a disruption in one part of the supply chain can create a "domino effect."

However, the COVID-19 pandemic and the resulting disruptions to business supply chains have shown that the least costly option is sometimes fraught with risks, according to Scale. Many companies have mapped their supply chains, turning to multiple sources for inputs or identifying backups.

“This has really moved everyone forward,” he said.

But this kind of change cannot mitigate all potential disruptions, Scale said, and shortages and price volatility are likely to worsen.

Extreme weather affects not only the commodities themselves but can also disrupt transportation.

Scale noted that wildfires in Western Canada are the latest example of this, as railway lines have been shut down.

“Yes, you can put things on trucks, but there isn’t enough truck capacity in the country to make up for the railways. So things will be delayed, and they will become more expensive,” he said.

He remarked that if the disruption is a one-time event, the company usually tries to absorb it, but longer-term disruptions or changes typically mean prices will have to increase.

Canadians may notice the impacts of extreme weather events on their food in two ways: when prices rise, and when items suddenly become unavailable.

In November 2022, prices for lettuce soared amid a shortage of iceberg and romaine lettuce due to a virus in a key lettuce-growing area in California. The following spring, heavy rains and storms hit the valley, causing flooding.

Earlier this year, the rise in cocoa futures prices highlighted the effects of high temperatures, weather conditions, and diseases in West Africa, where crop yields were affected.

Orange juice prices witnessed a similar rise this spring, as floods and drought damaged harvesting in Brazil, following a year when Spain and Florida suffered from reduced orange production amid drought and Hurricane Ian, respectively.

Strawberries are also at risk. According to the University of Waterloo, blueberries are expected to become scarcer and more expensive as temperatures rise. It noted that Canada is a major importer of strawberries from California.

Michelle Wasilewski, spokesperson for the Retail Council of Canada, stated in an email that many food categories that have experienced volatility in recent years have stabilized this year. However, she noted that the current extreme heat in Western Canada and the U.S. may affect some prices in the fall and winter.

She added that geopolitical conflicts are making matters worse. “The ongoing conflict in Ukraine has made us more reliant on Canadian grain, so when that is affected by extreme weather, its impact is greater than before.”

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