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Italian Tomatoes, rice, and extra virgin olive oil will cost more due to the megadrought

by Andrea Zanon 4 months ago in Sustainability
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Italian water stress will likely have impacts on global consumer raising price on high end food items

It will likely cost 20 to 50% more to buy Italian arborio rice (rice used to make risotto), extra virgin olive oil and tomato sauce due to the megadrought affecting Italy. This drought is different as it is affecting the entire country including the northern regions of Piedmont, Lombardy and Veneto, an area which normally has enormous amounts of water. The water richness in the north (the agriculture and industrial hub of Italy) has created a false sense of water security, leading to under-investment in water harvesting, management and storing. This is different in the south of the country where water has always been scarce resulting in better drought mitigation systems.

Water supplies have been decreasing for decades in Italy as the country experiences its worst drought in 70 years. The Po River, the longest waterway that extends for over 600 Km from the Alps to the Adriatic Sea, has dropped so low that seawater has started to make its way inland, killing crops and destroying natural ecosystems. As of July 15, when I visited the Po area, the river was 10 feet (about 3 meters) below its normal level. Nearly half of the food produced in Italy comes out of the Po area, and this valley covered with high end crops and thriving businesses, is responsible for 40 percent of Italy's GDP.

Italy is suffering from a megadrought caused by protracted low rainfall (80 percent below average) and exceptionally high temperatures. These temperatures have been high all year, and in some regions like Veneto (the Silicon Valley of Italy) it has not rained since November of 2021. Nearly 75 % of Italian farmland has been negatively affected, with the worst hit crops being olive trees, tomatoes, rice, fruits, vegetables, and grains. Italian production of extra virgin olive is expected to fall between 20% and 30% compared to 2021, and the production of high-end tomatoes as much as 40%. Based on July’s data, rice production is down 35%. The Italian authorities estimate that farmers have lost between $3 to $4 billion this year alone. This is about 12% of the sector's annual GDP. If we couple these heavy losses with high inflation and energy cost (natural gas cost has increased 600% year on year), higher borrowing cost (due to interest rates increase) we anticipate many local farming companies going out of business.

The Italian water crisis has global implications as Italy is a large food player and supplied the global market with its high-quality products. Italy is the third largest producer of tomatoes after the United States and China with 13% of global production and 53% of Europe’s, with a yearly turnover of 3.8 billion euros. Italy is also the biggest producer of rice in the European Union, accounting for about 58% of its total production. Global importers of the Italian high-end products will certainly feel the pinch including high end sushi restaurants that buy the high-quality rice from Piedmont.

Weak water practices

We should not only blame the climate for the Italian water stress, as Italy has under-invested in its water infrastructure, water management and drought management. According to the now ex-Prime Minister Mario Draghi, just because of decrepit water infrastructure, Italy loses 42% of its drinking water. Also, Italy is losing water from its larger water basin, the Po River, because of poor maintenance of the basins, poor network maintenance, and weak water governance. In one of the latest speeches he gave, Prime Minister Draghi explained that just because of the high level of leakage, of water being lost, Italy is losing about 30 percent of its water. Unlike Italy, most European countries lose 5-6 % of water throughout their water systems. What is also striking, is that Italy receives approximately 300 billion cubic meters of rainfall and snow per year, but it harvests and stores only 11 per cent due to poor maintenance, saving, recycling, and storing practices.

What about Europe?

More than half of the EU countries are dealing with drought stress, according to a July report from the European Commission's Joint Research Centre. Around 46 per cent of the EU bloc is exposed to ‘severe warning’ drought levels while 11 per cent is under the most serious ‘alert’ level. Over the last 12 months the EU saw far less rain than average with increased frequency of wildfire and devastating disaster events. These are starting to cost the regional economies a heavy toll, as most of these countries are not prepared to manage climate induced events and are slow to recover from them.

Conclusion

Climate inflation is starting to bite, and we should all expect to pay more for high end Italian food products because of megadroughts. While the politics of climate change continues to be debated in the Italian parliament and pushed by different lobbying groups, the Italian economy is weakening and losing competitiveness. Additionally, as water stress becomes a permanent threat, it will affect other areas of business including tourism, manufacturing and niche industries that are highly dependent on water and cheap energy.

Italy should embrace resiliency and focus on proactive disaster prevention and water management to ensure that the slow-moving mega-drought does not end up destroying its agriculture and business base.

Sustainability

About the author

Andrea Zanon

Andrea Zanon is a Founder, CEO and experienced technology and impact entrepreneur who has made powerful strides in his career. He is currently the CEO of WeEmpower Capital, which he founded in early 2018 and which promotes ESG.

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