It’s enough to make Popeye give up all hope of winning Olive Oyl’s heart. With Spain’s spinach crops nearly wiped out due to heavy rains and retailers unable to maintain their stocks, could this be the superfood crisis that leads consumers to wake up to the increasing effects of climate change in their day-to-day regimes? At the same time, could these be a great green reminder to businesses and investors of the extent of weather risks in their portfolios? Whether you take them canned like Popeye or in a smoothie like Deliciously Ella, spinach may be bringing attention to the weather risks and mitigation strategies managers need to consider today.
“I’m strong to the finish, ‘cause I eats me spinach,” famously sang Popeye the Sailor Man. Romantics and comic book enthusiasts everywhere may shudder at the idea of Popeye losing out on his one true love, Olive Oyl, due to a spinach shortage. Not to mention the millions of New Year’s Resolutions foiled by grocery stores not being stocked with the makings of a good green smoothie. Yet, this January, this is exactly the predicament facing British health fiends and Popeye wannabes, as the nation relies on Spain for 80 per cent of its spinach supply during winter months.
For Spain’s spinach supplies have been virtually decimated as a result of torrential and flash rains in the Murcia region in December, leading to widespread shortages in shops. While spinach is considered an extremely useful plant to cultivate, as it can be grown to produce a crop all year round, spinach does demand a well-drained soil. Officials consider Spain’s December rainfall the worst the region has seen in nearly 30 years. The Leafy Salad Growers’ Association said: “Rainfall left some fields reduced to just 30 per cent capacity after receiving between 150 to 250 liters of water per square meter.
Even worse, following the rains in December, Spain, as well as Italy and Greece, who also supply some spinach stocks during this time of year, saw unseasonably cold temperatures and even thick snow, the worst the coast of Spain has seen in in decades. Consequently, the spinach shortage was exacerbated and many of Britain’s biggest chains and their online sites have already run out of spinach while remaining stocks are disappearing fast. Waitrose has already run out completely, and put up notices warning that the shortages are expected to continue for another three weeks.
The demand for spinach has been come by honestly. Spinach has only 24 calories per 100 grams, and 0.4g total fat. It is bursting with vitamins, including a whopping 187% of the per cent daily value of vitamin A, and 46% of vitamin C, as well as being rich in vitamin K, folic acid, iron, magnesium and vitamin B2.
Yet, with climate change, the future of many commodities like spinach are at risk. Since 1980, there has been a +0.8% degree Celsius rise in temperature globally. Moreover, the incidence of climate anomalies, including both extreme weather events and day-to-day variations from expected seasonal weather, has more than doubled. Today, more than 80% of industry sectors are impacted by weather variations, with the agriculture and agri-food market having a 20% risk exposure to the weather, comprising 3,450 billion Euros in risk exposed.
Two options exist for those who want to ensure their green smoothies actually stay green. For those restaurants and supermarkets buying spinach from major wholesalers or cooperatives, they need to hedge revenues to protect themselves in the event of a price drop or lower volumes collected, knowing that the volume collection of a plant production of a cooperative varies each year depending on weather conditions observed during the growing season. The collection of insufficient raw materials has multiple impacts, including on volumes sold, cost optimization of processing, and transportation. Alternatively, they need to cover themselves against rising prices for missing tonnes of commodities resulting from a failure of inputs. Or, wholesalers or cooperatives can engage in a system of delegated management for situations when they are subject to a decline in the average price of the yield.
With the aid of a weather risk management specialist, the wholesaler or cooperative is compensated for production surcharges so as to ensure a stable revenue in performance and price. Their clients, including restaurateurs and supermarkets can therefore ensure they are protected from commodity price fluctuations. In turn, their customers are not affected by the vagaries of the market.
However, that is not to say that in case of spinach that this problem is going away. Longer-term steps do need to be taken in the case of any enterprise with a long-term, and growing, weather risk. Climate change is already making a significant impact in the profits of companies operating in sectors exposed to weather. Private industry, including companies and investors, must act immediately to manage the consequences of climate change. Not only can companies determine their exact weather sensitivity risk, but also their maximum potential losses as a result of climate change now and in the years to come.
Thus, spinach farmers and their investors can use the results of a comprehensive weather risk assessment to take appropriate action to ensure that yield and quality is not affected by the changing climate such as by implementing adaptive measures to climate changes (eg. modifying sowing and harvesting times, crop types, and labour management practices) and investing in new agrotechnologies (eg. purchasing heat-tolerant crop varieties, and installing post-harvest storage facilities for a warmer climate).
Popeye the Sailor Man famously said, “I am what I am, and that’s all that I am”, as he chugged back unlimited cans of spinach. We can only assume that Popeye got a good price for his meal of choice, and that it was farmed in a sustainable manner for him to be so confident about his values. Undoubtedly at the turn of the 1900s, such matters were a given. Today, however, they are far more complicated. For farmers, investors and consumers, we need to consider how climate change is drastically changing the risk landscape and how risk managers must incorporate weather insurance (not catastrophe insurance, but insurance for day to day weather volatility) into their risk dynamic. Evaluating the impact of the weather and insuring against its effects is today not just good sense, but good business.