How are climate risk shocks connected to agricultural markets?

Abstract

In the climate-sensitive agricultural sector, product prices are particularly susceptible to climate risks. In this study, we constructed three novel climate risk perception indices—a climate policy uncertainty index, a climate physical risk index, and a climate concern index—using natural language processing and text mining to investigate their differential effects on bulk agricultural prices. The findings indicate that the responses of agricultural product prices to climate risk perceptions are more pronounced in the short term than in the long term. Moreover, the impacts of climate-related concerns and physical risks have stronger impacts than climate policy uncertainty. The dynamic analysis results also indicate that climate-related events have a great impact on investors and financial markets. Overall, the findings suggest that climate risk perceptions have become a significant factor in agricultural product price changes, which has important implications for policy regulators and market investors.