Europe Faces Biggest Food Price Shock in G7 From Hotter World

A global food crunch due to extreme weather would boost prices more in the euro area than in Group of Seven economies, according to Oxford Economics.

A “severe” shock to food prices from climate events could raise food prices in countries sharing the currency by 1.6 percentage points a year, the economic adviser said in a report. That would translate into an increase in headline inflation of as much as 0.6 percentage point, economists Robert Marks and Ronan Hegarty said in the study published Thursday.

Natural disasters and heat waves could cause more harvest failures, damage infrastructure and disrupt supply chains in the future as global warming continues, with nations in Europe roasted by a heat wave this week. The resulting rises in food costs would increase pressure on central banks to rein in inflation.

“Climate change and nature-loss are increasingly contributing to food price inflation and volatility, presenting a long-term risk to economies,” the authors said. “Recent research has found at least 14 cases of local or regional price spikes since 2022 linked to unprecedented extreme weather events.”

A drought in Brazil saw global coffee prices jump 55% between 2023 and 2024, while heat waves in Ghana and the Ivory Coast led to a 280% surge in cocoa prices, according to the report.

Europe is more sensitive to global markets than other G7 economies, according to the report. A price shock could see food prices rise 1 percentage point in the UK, but just 0.28 point in the US and 0.35 point in Japan.

It takes two-and-a-half years on average for global commodity prices to return to pre-shock trends, according to the report. The study comes as central banks are looking into the impact of climate change on food supplies and prices.

“Agricultural and food price channel deserves particular attention in climate stress testing, scenario analysis, and risk management exercises,” the Oxford Economics researchers wrote.

Photograph: An employee checks cauliflowers imported from Portugal at the D & F McCarthy Ltd. fresh fruit and vegetable wholesaler in Norwich, UK, on Tuesday, Feb. 28, 2023; photo credit: Chris Ratcliffe/Bloomberg