Knowledge for better food systems

Lloyd’s emerging risk report 2015: Food system shock - the insurance impacts of acute disruption to global food supply

This report, commissioned by Lloyd’s, describes how our food system is becoming increasingly vulnerable to acute shocks and underlines the pressing need to reduce the uncertainty surrounding the impacts of an extreme shock to the food supply.

The report authors write:

“Sudden disruptions to the supply chain could reduce the global food supply and trigger a spike in food prices, leading to substantial knock-on effects for businesses and societies. The food system’s existing vulnerability to systemic shocks is being exacerbated by factors such as climate change, water stress, ongoing globalisation, and heightening political instability. The report is based on a scenario that was developed to explore the implications for insurance and risk of extreme shock to global food production. Experts in the field of food security and the economics of sustainable development were asked to develop a scenario describing a plausible, relatively severe production shock affecting multiple agricultural commodities and regions, and to describe the cascade of events that could result.”

The report argues that the systemic production shock to the world’s staple food crops described in the scenario would have widespread economic, political and social impacts.

Key facts:

  • A systemic shock to global food crop production could have widespread economic, political and social impacts, including food price rises, food riots and changes in stock market values.
  • Food system shock could trigger significant claims across multiple classes of insurance, which could be compounded by the potential for food system shock and its consequences to span multiple years. The insurance industry could also be affected by impacts on investment income, and the global regulatory and business environment.
  • The insurance industry is in a position to make an important contribution to improving the resilience and sustainability of the global food system by encouraging businesses to think about their exposure to risks throughout the food supply chain and prioritise the development of innovative risk transfer products.
  • Insurers need to work with researchers to develop models capable of capturing not only the physical effects of extreme events but also their various economic and social impacts.

Read the full report and see more information on Lloyd’s website here.

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While some of the food system challenges facing humanity are local, in an interconnected world, adopting a global perspective is essential. Many environmental issues, such as climate change, need supranational commitments and action to be addressed effectively. Due to ever increasing global trade flows, prices of commodities are connected through space; a drought in Romania may thus increase the price of wheat in Zimbabwe.

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