Anomalous Weather, Prices and the ‘Missing Middle’.

Abstract

Climate change will increase the frequency of extreme weather events, affecting food systems. How food prices in domestic markets are affected by resulting supply shocks is key to understanding the impacts of climate change on food security. The expectation that supply shocks translate to higher consumer prices may, however, not hold true even for commodities that see minimal processing from farm to plate, and where markets deviate from perfect competition. Focussing on the UK banana market, we show that anomalous weather patterns in exporting countries result in effectively zero price transmission to consumers, while wholesale prices see considerable fluctuation. But anomalous weather in exporting countries affects the spread between wholesale and retail prices suggesting that shocks are absorbed by the supply chain - ‘the missing middle’. Our findings highlight placing equal emphasis on understanding how firms in this ‘missing middle’ will adapt to, and absorb the impact of, climate shocks