Extreme heat and abnormal climate are slamming global economies, fueling inflation.
Korea’s inflation fell below 3 percent in June and July, but torrential downpour, extreme heat waves and typhoons have pushed up the price of vegetables, fruits and other agricultural products.
Korea experienced around 20 days of heat wave this year, far above the average 10.5 days recorded between 1991 and 2020, according to the Korea Meteorological Administration.
Intense heat waves, referring to days when the temperature rises over 33 degrees Celsius, can cause crop failure and kill livestock due to heat stress.
Prices of agricultural products surged 10.6 percent in July from a month earlier, according to the Bank of Korea’s (BOK) data on producer price inflation on Aug. 24.
The price of rice per 20 kilograms (44 pounds) rose 4.6 percent as of Aug. 30 from a month earlier, while the price of cherries per 100 grams soared 39 percent over the same period, according to data by the Korea Agro-Fisheries & Food Trade Corporation.
The price of climate change is also high overseas, hindering the production of key ingredients like olive oil and sugar.
“Abnormal weather patterns, like El Nino, are potentially the biggest upside risk for global food prices,” the BOK said in a report on Aug. 28. “The El Nino is expected to hit hard this year, raising concerns for disruptions in the supply of agricultural products.”
El Nino refers to the warming of the ocean surface, causing a range of effects, like increasing the risk of heavy rainfall and droughts.
Global food prices can go up between 5 to 7 percent, with a time lag of one to two years, when the temperature of the ocean surface rises 1 degree Celsius on an average year, according to the BOK.
Economic losses caused by the climate crisis accounted for 2 percent of the global GDP in 2020, according to “Climate change and P&C insurance: The threat and opportunity,” a report from McKinsey & Company published in November 2020. The figure is expected to grow to 4 percent by 2050.
Impact on corporations
Rising food prices have hurt corporate earnings.
CJ CheilJedang, the food giant behind the Bibigo brand, reported 176.77 billion won ($133.48 million) in net loss in the first half of this year, according to its consolidated earnings. The figure is down more than 180 percent from 500.55 billion won a year earlier.
Nongshim’s net profit jumped 63 percent on year in the first half to 99.15 billion won from a year earlier. But it was due to the base effects, said Nongshim, that were caused by skyrocketing flour costs last year following the war in Ukraine, a major supplier of imported flour.
“Climate change directly affects the profit of the food industry because foodstuffs account for a large portion of our production cost,” said Kim Min-young, a senior PR manager at Nongshim, the seller of Shin Ramyun.
“Extreme volatility and climate variables make agricultural production highly unpredictable. This unpredictability makes it difficult for companies to plan for future business, raising management uncertainties. ”
Other food companies agree that climate change is a concern.
“Raw sugar, corn and wheat are some of the major ingredients we use for our business,” said a PR spokesperson for a food company that spoke on the condition of anonymity. “The industry faces uncertainties if prices are unstable.”
The biotech business is also hurt by the price volatility of grains, as corn is a major ingredient for testing cells.
Korea is heavily impacted by global food prices as the country’s self-sufficiency rate of grain is low.
The rate was 20.9 percent in 2021, according to the Ministry of Agriculture, Food and Rural Affairs. Korea heavily relies on grain imports, excluding rice, according to the central bank.
Rising temperatures have led some companies to increase workers’ rest periods.
Posco extended its lunch time by 30 minutes in July and August to allow workers to blow off steam. Similarly, Samsung Heavy Industries extended its lunch hour by 30 minutes to an hour, from June, depending on the temperature.
For some companies, climate change has been a boon for business.
Kolon Industries, a chemical and textile manufacturing company, doubled its production of Forpe last June compared to 2018, when the cooling fabric began sales to meet the rapidly growing demand, said the company.
Forpe is a specialty fabric made with the company’s proprietary technology that has a cooling effect on the skin. It is largely used in making bedding.
The total amount of fabric sold surged 16-fold in the same period.
The global market for high-tech cooling fabrics is expected to be worth $3.6 billion by 2028, growing at a compound annual growth rate of 7.7 percent, according to data by MarketsandMarkets, a research firm.
Opportunities were also found in the insurance sector.
Samsung Fire & Marine Insurance launched a seasonal insurance product in July, which covers heat-related ailments, including heatstroke and sunstroke.
The insurance costs around 10,000 won per month.
“We launched it in the form of a ‘mini insurance’ to provide easier access,” said Ohn Chang-heon, a PR spokesperson for Samsung Fire & Marine Insurance.
“Sales weren’t high because there aren’t that many people signing up for insurance for heat-related risks. It isn’t a mainstream product, but rather a product that people can sign up for when they need coverage for a short period of time, such as when they have to spend time outdoors.”
Similar insurance products were launched in Japan last year, and the number is growing, according to a report from the Korea Insurance Research Institute in July. Japanese service providers include Sumitomo Life.
But it will not be easy for such insurance products to grow prevalent.
“It’s difficult to measure the danger level of natural hazards, including heatwaves,” said a source from the insurance industry who spoke on the condition of anonymity. “That’s why insurance companies are reluctant to create products for heat waves. But more companies are expected to review related products as damage from heat grows.”
BY JIN MIN-JI [firstname.lastname@example.org]