To see the impact of record-breaking temperatures around the world, watch wheat. Found in everything from bread to noodles, biscuits to cereals, beer to cakes — there is no more widely grown staple crop and more than 170 million metric tons trade every year. So when the weather ruins harvests in one spot, it can shock markets and economies that are thousands of miles away.
1. How serious has it gotten?
It’s a weak global harvest, but not a disaster. The biggest growers — Russia, Australia and the European Union — have been hurt by high heat or widespread drought and as a result, the world is heading for the first deficit in six years. While harvests in some places, especially northern Europe, have been terrible and cost farmers billions of dollars, no one is expecting major shortages. Farmers are coming off years of bumper harvests and stockpiles will help buffer the effects of a poor crop.
Benchmark wheat futures in Chicago have soared to a three-year high as traders bet on diminished supplies. That’ll likely mean a higher food import bill for countries that don’t grow enough of their own wheat, and could contribute to faster inflation in some places. The crop failures will also likely spur a shift in trade flows. For example, the U.S. is expected to capture market share with their big crops. Germany, usually a wheat exporter, may flip to being a net importer.
In highly developed economies, higher wheat prices won’t significantly change the cost of bread you see at the grocery store. Poorer countries, particularly in Africa and the Middle East, are more sensitive to price fluctuations because they depend on food imports and it’s a bigger part of the overall budget. But wheat prices are still far below the levels from previous spikes and big stockpiles will keep a lid on prices.
Bread prices have a long history of kickstarting unrest and political instability. For example, in 2010, Russia experienced a record heat wave that damaged the wheat crop. The government responded by banning exports to make sure consumers had enough supply. Wheat prices in international markets doubled in a matter of months, raising the price of bread for millions of people. During the food price spikes of 2011 and 2008, the world saw food riots in more than 30 nations across Africa, Asia and the Middle East.
5. What to expect next?
- How climate change is impacting the food we eat
- QuickTake explainers on what raw materials can tell us about trade war’s impact and on how Russia came to dominate wheat trade
- OECD-FAO Agricultural Outlook 2018-2027, with special focus on the Middle East and North Africa
- The impact of dry spells on grain production in Russia, Germany and Australia
— With assistance by Hayley Warren