Specific and General Droughts Worldwide – August 2022

Droughts are the latest piece of news that will affect growth prospects and inflation. According a to Global Drought Observatory report, Europe is having its worst drought in 500 years. According to BBC: “Compared with the average of the previous five years, EU forecasts for harvest are down 16% for grain maize, 15% for soybeans and 12% for sunflowers.” Salt production in France is expected to double its normal level this year. The Rhine river is at record low levels and is affecting boat shipments in Germany which could see economic growth lower by a half a percentage point. The impact of the energy crisis from the war in Ukraine is getting worse because hydroelectric power is down 20% throughout European countries. Water required for cooling nuclear power plants in France are also affecting electricity production as some plants work at lower capacity.

On the other side of the world, China is also experiencing drought. The Yangtze river (the world’s third largest river) is at record low levels, causing entire sections to dry up. According to the Guardian: “The loss of water flow to China’s extensive hydropower system has sparked a “grave situation” in Sichuan, which gets more than 80% of its energy from hydropower. “  and “Toyota, Foxconn and Tesla are among companies reported to have temporarily suspended operations at some plants over the last fortnight.”

Perhaps a play on electricity or specific food futures or a company with operations in Sichuan, Hebei, Hunan, Jiangxi, Anhui or Chongqing. A play could also play out with BASF and ThyssenKrupp, both German companies that rely heavily on the Rhine river and are already affected by rising natural gas prices. See if there is a public water company in the UK that will benefit from rationing or a salt production company within France.

Sources:

https://www.theguardian.com/world/2022/aug/22/china-drought-causes-yangtze-river-to-dry-up-sparking-shortage-of-hydropower

https://www.weforum.org/agenda/2022/08/drought-impacts-europe-unexpected/

https://www.bbc.com/news/world-europe-62648912

https://www.euronews.com/2022/08/23/europe-faces-its-worst-drought-in-five-centuries-says-report

https://www.theguardian.com/world/2022/aug/12/germany-drought-rhine-water-levels-new-low

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