hide
Free keywords:
-
Abstract:
Disruptions in global food and energy trade can trigger cascading socio-economic losses. Financial markets can amplify such losses and generate systemic cross-sectoral effects, e.g. food insecurity. Our methodology links the real economy and financial markets to quantify cascading impacts across sectors and regions and to capture amplification effects by financial markets. Although applicable to any shock on global key commodity trade, we test its effectiveness with the Russia-Ukraine war, which reveals pronounced, regionally and sectorally diverse impacts. Comparing with real data confirms that our approach captures several key impacts of the crisis: the energy price increase in Europe, the strong reaction of European commodity future markets with large benefits for fossil companies (equity values up to +54%) and losses for companies most exposed to the belligerents (up to−6%), and the worsening of food affordability especially in Sub-Saharan Africa, Asia, and Latin America (additionally 10 million people at risk of hunger). Our analysis shows the importance of accounting for cascading risks and amplification effects to strengthen economic, financial, and food system resilience.
