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A threat to the world economy
Fri, 18 Mar Pre-Open

A fairly new term is going to find its way prominently into business textbooks, company boardrooms, investment risk analysis and coffee conversations. It is called "Extreme Weather Economics". The name is pretty self-explanatory. Extreme weather is no more an anomaly, an exception or a rare event. It is very much becoming a routine. Its impact on the global economy is more pronounced than ever before. And it shares as much credit for the economic turmoil as the unscrupulous central bankers and policymakers do.

Rewind back to 2010. A prolonged heat-wave and drought in the summer of 2010 caused Russia's grain production to fall by 36%. It forced the government to ban grain exports for the first time in the post-soviet period. The floods in India and Pakistan had seen cotton prices sky-rocketing. Australia's state of Queensland was severely flooded in late 2010 and early 2011. This part of the country has been the source of most of the world's seaborne coking coal. China is also facing a once-a-century drought that has dried up rivers and threatens farmlands.

There are numerous such stories. There seems no end to this. We'll continue to find ourselves confronting the adverse impacts of extreme weather conditions going forward. Commodity prices have shot up substantially in recent times. Higher input costs, in turn, have eaten up margins of most companies. On the other hand, global grain inventories are already quite low. Many fear that we could very well find the world headed toward a serious food crisis.

This is a serious concern for the global economy. The climate change alarm was not a hoax. Economies and businesses will have to bear the brunt of this new reality. Investors will have a tough time taking into account such unquantifiable risks. Are you factoring weather-related risks on your investments? It will do you good if you do.

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