Impacts of climate-related black swan events on food security in SE Asia

3rd International Symposium on Catastrophe Risk Management,

Singapore, 21-22 February 2012

Roman Hohl, Head Agriculture Asia-Pacific

Swiss Re Singapore

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Table of Contents

� Food security issues in Asia

� La Nina 2010/11 as a base scenario

� Black Swan event: Super La Nina 2050

� Conclusions

� Large demand for agriculture raw materials driven by population growth and increasing wealth that leads to

change in diets

� Majority (62%) of world's undernourished live in Asia and 13 countries show alarming to extremely alarming

levels of hunger in 20101

� Asia is a net importer of agriculture raw material and some countries are highly exposed to international

commodity prices particularly when domestic production shortfalls coincide with high commodity prices

� Agriculture production is dominated by smallholders (87% of world's farms <2 ha in size are in Asia) with

inefficient supply chains, aging infrastructure, limited possibility to expand production area and stagnating

yields

� Large exposure to natural hazards (flood, drought, typhoon, diseases) and some Asian countries are among the

ones to be most severely impacted by climate change2

� Rice is the key staple crop (80% is produced and consumed in Asia) and the key focus of government food

security policies

� Rice production increases are outpaced by population growth and climate change can reduce yields by 11% by

20503

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Food security issues in Asia

Source: 1 IFPRI 2010; 2 World Bank, 2010; 3 IFPRI 2010

Assumptions:

� Stable rice consumption per

capita and no substitutions with

other staple foods

� Production increase to come

mainly from yield increases

� Strategic reserves follows

population growth

� China and India remain self-

sufficient in rice with marginal

imports/exports

� Increasing production/export

potential of Cambodia, Laos and

Myanmar not considered

Result:

� Indonesia can become rice self-

sufficient in 2050

� Rice surplus from Thailand and

Vietnam is used with SE Asia

("closed system")

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Large population growth in SE Asia by 2050

Population (mio) Production

(mio tons)

Consumption

(tons)

Production

(mio tons

Consumption

(tons)

Country 20101 20502 20103 20104 20505 20506

Indonesia 237 294 37.3 39.6 49.0 48.9

Bangladesh 142 255 34.0 34.5 44.7 61.7

Philippines 94 127 10.6 13.0 14.0 17.6

Vietnam 88 118 26.2 19.7 34.4 26.5

Thailand 66 77 20.3 11.5 26.7 13.5

Total 627 871 128.4 118.3 168.8 168.2

Source of data:1 Government census results 2010, government web sites2 United Nations/ESA, WorldPop2300, 20043 Rice production on milled basis, USDA/FAS, Grain: World Markets and Trade, Feb 20124 USDA WASDE Report, Feb 20125 Calculation by author using growth rate of 1% pa 2010-2025 and 0.5% pa 2026-20506 Calculation by author using 2010 annual per capita rice consumption applied on 2050 population

Notes:

2010 global rice production: 448 mio tons (milled basis)

2010 global tradable rice surplus: 34 mio tons (milled basis)

La Nina 2010/11 as a base scenario

2010/11 La Nina events:

� Large-scale cooling of the central and eastern

Pacific with strongest back-to-back La Nina events

since 1973-1976

� Strongest La Nina since 1876 in terms of pressure

gradient Darwin vs. Tahiti (Australian Bureau of

Meteorology)

� Typical La-Nina related impacts with droughts in

Argentina/South Brazil, S/SW USA and floods in

Asia and NE Australia

� Large impact on soft commodity prices (World

Bank Food Price Index +15% Oct 2010-Jan 2011)

Impacts on SE Asia rice production 2010/11:

� Indonesia: wet conditions, production drop 2010

and import 2.7 mio tons

� Thailand: wet conditions, severe flood 2011 with

drop production 11% (2.25 m tons) and 22% drop

in export

� Vietnam: wet conditions in the south, small drop in

production

� Philippines: severe typhoons and flood with drop

production 10% (440,000 ha) and 1.5 mio tons

imports

Source: NOAA

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Source: SE Asia floods 2011, USDA Commodity Intelligence Report, Nov 2011

Black Swan event: Super La Nina 2050

Assumptions:

� Strongest ever observed cooling in the

Pacific over two years (Super La Nina

stronger than 2010/11)

� Typical impacts on rice production in SE

Asia but more severe than 2010/11: flood

in Thailand and Vietnam, excessive

rainfall/flood in Indonesia, severe

typhoons/flood in the Philippines and

Vietnam

� Generally high commodity prices with

economic growth in Asia and a series of

recessions in the developed world

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Severe typhoons

Severe

Flood

Excessive rainfall,

floods

Impact of the Black Swan event

Impact:

� Drop of rice production of 15 mio tons (USD 15 bn at historical USD 1,000/ton

prices) equivalent to around 50% of

2010 tradable rice surplus

� 17 kg less available rice per capita in SE

Asia (Indonesia, Bangladesh, Philippines,

Vietnam and Thailand)

� 33 days no rice per capita in SE Asia

� 81 mio people without rice in SE Asia

(about the population of Vietnam today)

Assumed outcomes:

� Rice shortages, export bans and high

inflation

� Probably some open protest of population

("food riots")

� Increase in global rice prices

� Emergency rice imports (e.g. from Latin

America) or G-to-G procurement from

China (slower population growth than SE

Asia)

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Country Impact rice

production

2010/111

Impact rice

production

20502

Production

impact (mio tons)

Indonesia -5% -2.5

Bangladesh tba 0% -

Philippines -10% -10% -1.4

Vietnam -0.5% -10% -3.4

Thailand -11% -30% -8.0

Total -15.3

Source of data:1 USDA Commodity Intelligence Report, 20112 Scenario by author

� Food security will remain a key concern in Asia – especially for countries with large population growth and

limited ability to increase rice production by 2050

� The tradable rice surplus of the key exporter (Thailand and Vietnam) might have to be used in 2050 to satisfy

demand from other SE Asian countries to feed a growing population at assumed stable rice consumption ratio

per capita

� Extreme weather events (drought, flood, typhoon) will have severe impacts on rice production and spot

market/international commodity prices in Asia and increasingly on a global level

� A Black Swan Event for food security is a super La Nina back-to-back event in 2050 which can result in a

reduction of 11% on daily per capita rice consumption or 81 million population without rice in SE Asia in 2050

� Key measures to address food security issue include:

– Sustainable Increase of agriculture production large investments in infrastructure, increased supply chain efficiency, use of advanced bio technology and building of strategic grains reserves

– Transparent trading, rethinking of export bans/bio fuel usage and completion of the WTO Doha Round treaties

– Better projection of future rice production, climate change impacts assessment and building adequate risk scenario models in the food security context

– Promotion of safety nets: contingent credits, risk transfer instruments (insurance)

– Adequate climate change mitigation/adaptation measures

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Conclusions

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Contact Information

Director

Head of Agriculture Asia Pacific

Swiss Reinsurance Company

1 Raffles Place, #59-00

Singapore 048616

Tel +65 6232 3322

E-mail roman_hohl@swissre.com

Dr. Roman Hohl

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Insured catastrophe losses 1970–2009

USD bn, at 2009 prices

Source: Swiss Re, sigma No 1/2010, Figure 3

2005:

Hurricanes

Katrina, Rita,

Wilma

2008:

Hurricanes Ike,

Gustav

2001:

Attack

on WTC

1999:

Winter storm

Lothar

1992: Hurricane

Andrew 1994:

Northridge

EQ

2004:

Hurricanes Ivan,

Charley, Frances

Ocean Drive, FL, 2000

Ocean Drive, FL, 1926

� increased insurance

penetration

� more values

� more values in high risk area

� higher vulnerability

� climate change (storm, flood)

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