Systemic Risk in Global Agricultural Markets and Trade Liberalization under Climate Change: Synchronized Crop-Yield Change and Agricultural Price Volatility

Abstract

Climate change will increase simultaneous crop failures or too abundant harvests, creating global synchronized yield change (SYC), and may decrease stability in the portfolio of food supply sources in agricultural trade. This study evaluated the influence of SYC on the global agricultural market and trade liberalization. The analysis employed a global computable general equilibrium model combined with crop models of four major grains (i.e., rice, wheat, maize, and soybeans), based on predictions of five global climate models. Simulation results show that (1) the SYC structure was statistically robust among countries and four crops, and will be enhanced by climate change, (2) such synchronicity increased the agricultural price volatility and lowered social welfare levels more than expected in the random disturbance (non-SYC) case, and (3) trade liberalization benefited both food-importing and exporting regions, but such effects were degraded by SYC. These outcomes were due to synchronicity in crop-yield change and its ranges enhanced by future climate change. Thus, SYC is a cause of systemic risk to food security and must be considered in designing agricultural trade policies and insurance systems.