Agriculture has always been shaped by seasonality, with predictable cycles of temperature, rainfall, and daylight. Over time, agricultural innovation, modern logistics, and global trade eased these constraints, allowing production to expand beyond traditional climatic boundaries, and food to be sourced from a much wider range of geographies, shifting consumer expectations to year-round availability in many markets.

This created a more resilient system, capable of absorbing shocks that once would have caused local shortages. At the same time, it introduced new dependencies, with more globalised value chains transmitting disruption across regions.

Climate change is now testing these arrangements. The defining challenge is heightened volatility: a more unstable operating environment where disruptions are more frequent, widespread, and increasingly correlated. These shocks ripple through supply chains, labour markets, infrastructure, and trade, amplifying the impact of local events at a system level.

As uncertainty becomes the new constant, business models built for volatility, rather than stability, will secure competitive advantage.

From seasonal variability to systemic risk

Summer is a particularly vulnerable season for agricultural systems, as crop growth, maturation, and harvest are most sensitive to heat and water stress. Vulnerability extends far beyond a specific crop or sourcing area. Many of our food products rely on ingredients sourced from a handful of locations, meaning a weather shock in a key production region can quickly reverberate across global supply chains, especially when multiple areas are hit at once.

Figure shows climate-related disaster events across major agricultural producing countries in the past 30 years. Around 120 events are recorded annually, spanning droughts, heatwaves, floods, storms, and wildfires. We see such events clustering in summer.

Figure 1. Climate-related disaster events in major agricultural regions, 1995-2024.

Taken together, these episodes show that risk is not confined to isolated geographies. In some years, multiple major producing regions come under stress simultaneously, turning local shocks into global market disruptions. This introduces the risk of concurrent stress across breadbaskets, which is not well captured in most partial equilibrium models of agricultural markets.
 

From fields to factories: How summer shocks propagate through the economy

Agricultural yields capture only a partial view. Disruption is increasingly affecting logistics networks, labour availability, and broader economic resilience. 

The case of the Rhine River illustrates this. As one of the world’s busiest inland waterways, it serves as a trade corridor for agricultural goods across Europe. During periods of drought, low water levels can severely restrict navigation, as shown in 2018 when the Rhine was impassible for 93 days and in 2022 when disruption lasted 25 days (Figure 2).

These shocks cut vessel capacity, drove up costs, and forced rerouting - exposing infrastructure designed for predictability, not volatility.

Figure 2. Annual number of days when the Rhine river was not navigable.

The economic consequences are substantial. Extreme weather caused US$304 billion in direct losses in 2024, 60% higher than the 2010-14 average. While productivity losses reached US$1.09 trillion, roughly 1% of global GDP. For businesses, the key issue is absorption and distribution. As insurance coverage of climate-related losses declines, a growing share of costs is absorbed by firms through higher operating costs and disruption of supply.

These dynamics indicate that physical risk is becoming more embedded across the food system, propagating through supply chains, trade flows, and costs long after the initial event has passed.

Policy responses and transport bottlenecks prolong climate disruptions

The impacts of these shocks do not end with summer. They linger through policy responses, trade interventions, and delayed recovery.

Export controls are a key transmission channel. Governments often respond to domestic supply stress by restricting exports of staple commodities in an effort to contain food price inflation and protect domestic consumers. While these measures can stabilise local markets in the short term, they reduce supply available to international markets and shift pressure onto importing countries. The OECD finds that these measures intensify price spikes and delay market adjustments by limiting the ability of trade flows to redistribute supply to surplus deficit regions.

Transport and logistics systems also recover slowly after extreme events, extending disruption beyond the initial shock. Floods, droughts, and storms can damage transport infrastructure, reduce freight capacity, and create bottlenecks across road, rail, port, and inland waterway networks. Even after physical conditions improve, repairs, network reconfiguration, and backlogs can take weeks or months to resolve, prolonging disruption to food distribution and trade.

Figure 3. Transmission of physical climate risk through global food systems. Climate events generate cascading impacts across production, logistics, labour, and macroeconomic systems, demonstrating how physical risk propagates beyond farm-level yields into systemic volatility.
 

Adaption as competitive advantage

As physical risk becomes embedded, adaptation is evolving from a risk management exercise to a competitive advantage. The challenge is maintaining operational continuity under conditions of repeated and correlated disruption. Organisations need to look beyond individual hazards; understand where risks lie, and how volatility cascades through supply chains, operations, sourcing decisions and investment portfolios.

Firms have responded by diversifying sourcing and increasing flexibility, expanding procurement across geographies, using alternative transport routes, shorter contracts, and real-time data to switch suppliers during disruption. These strategies remain important for isolated shocks. However, their effectiveness declines when multiple sourcing regions are affected simultaneously. In such conditions, logistics, labour, and operating constraints can limit the ability to switch suppliers at scale.

This shifts resilience upstream. Rather than relying solely on supplier substitution, organisations need to understand where physical risks are concentrated, how they interact with transition risks, and which actions will have the greatest impact on long-term resilience.

At the Carbon Trust, we see leading organisations move beyond risk identification towards integrated resilience planning. This begins with assessing climate risks across operations and supply chains, including the likelihood, velocity and financial implications. 

Understanding risk is only the first step. The greater challenge is translating these insights into practical actions that build resilience while supporting wider business and decarbonisation objectives.

Our work with food and nutrition company Glanbia illustrates this approach. We assessed both physical climate risks, including the potential for lower milk yields; and transition risks, such as emerging regulation on agricultural emissions. This helped us evaluate the most material risks to the business as well as the cost of inaction.

From there, the focus shifted to implementation. Rather than treating climate risk and decarbonisation as separate challenges, we developed a roadmap that addressed both. Recommended measures included logistics optimisation and fleet electrification to reduce transport emissions and improve operational efficiency, alongside supplier engagement and decarbonisation pathways designed to strengthen the resilience of ingredient supply chains.

As climate impacts become more frequent and geographically correlated, resilience will depend on the ability to connect risk assessment with strategic decision-making. Organisations that can identify where climate risks are emerging, quantify their business implications and implement targeted adaptation and decarbonisation measures will be better positioned to maintain supply security, manage costs and create long-term competitive advantage.
 

Conclusion

Physical risk in food systems is too often framed as a question of yield. Too little rain, too much heat, and failed harvests. This understates the challenge. Our food systems were built for variation but not sustained volatility. That distinction separates episodic disruption from a structural condition in which shocks are more frequent, correlated and cumulative.

Extreme weather is not confined to a field or a season. It reshapes market conditions and operational decisions well beyond summer. Adaptation is essential in preserving the reliability, quality and affordability on which our modern food systems depend. Companies investing in supplier resilience, climate intelligence and adaptive operations will outperform those designed for stable conditions. In a world where volatility is becoming the new constant, the ability to anticipate and adapt may prove just as valuable as the ability to produce.

To look beyond drought is to recognise that the future of food security will be determined by our capacity to operate throughout uncertainty, rather than around it.