Separating the Wheat from the Chaff

First, wildfires damaged wheat crops in Russia, prompting the government to ban exports. Next, heavy rains reduced Canada's wheat crop outlook to its lowest level since 2002. Now, massive floods in Pakistan are threatening to turn Asia's third-largest wheat producer from a wheat exporter to a net importer.

Growing concerns about wheat shortages worldwide are sending prices soaring, making it clear that agricultural prices have entered a new age of volatility that is increasingly influencing companies' earnings. One of the surprising factors driving this shift is the rising frequency of agricultural shocks, as the number of extreme weather events has tripled since 1980. (See chart, below.)

Food companies, ranging from processors to manufacturers to restaurants, need to better prepare for this new market reality. Oliver Wyman's report, "Separating the Wheat from the Chaff," describes five ways that companies can gain a competitive advantage by limiting the impact of volatile agricultural prices.

Source: Munich Re

Separating the Wheat from the Chaff