Assessing the Impact of Climate Risks on Agricultural Commodity Prices in South Africa

This study analyses the impact of climate risks on the prices of agricultural commodities in South Africa, a nation with heightened levels of poverty, subsequent household food insecurity and food price sensitivities. Composite climate risks, including both physical and transition risks, are captured through a Google Trends-based Climate Attention Index for South Africa. Panel fixed effects, feasible generalised least squares and seemingly unrelated regression estimators are applied to a panel of 16 agricultural commodities for the period 2004--2024. Results show that climate risks are inflationary, possibly through supply-related channels, where climate risks reduce yields, resulting in a subsequent increase in prices. The feasible generalised least square estimation suggests that a one unit increase in the composite climate risk index can result, on average, in a 0.023 percentage point increase in real commodity price growth rates for production growth at the mean, ceteris paribus. Additionally, allowing for heterogeneity in the slope parameters through a seemingly unrelated regression model shows that real horticultural product prices are generally more sensitive to composite climate risks.