What does a drought in Brazil have to do with the price of construction in Philadelphia?
Bloomberg has a feature story about the drought in South America and trivializes the impacts with the lede “No country on Earth puts more breakfasts on kitchen tables than Brazil.” It’s clever, and true, but probably the most trivial place to start. The basic premise is that most coffee, orange juice, and eggs can be traced directly to commodity crops in Brazil, Paraguay, and Argentina. Those countries are suffering through a catastrophic drought, combined with an Antarctic weather pattern that is freezing the normally tropical climates. Orange and coffee trees, already stressed by the drought are shocked with freezing conditions that kill entire orchards.
The drought has other impacts of course. Dry conditions are resulting in reduced crop production. Farmers are being challenged to make ends meet and are borrowing against future crops. Water resources are stretched, with regions depending on river flows below major dams finding inadequate water remains, and the water levels above the dams declining enough that hydroelectric systems no longer have access to the water that spins the turbines.
What does this have to do with construction costs in the US? Well the obvious and trivial answer is that our coffee, eggs and OJ breakfast is going to cost more. Less obvious is that one outcome of decreasing economic prosperity in impacted regions is going to be increased political and social instability, which will act exactly as COVID does in impacting global systems. We should expect increases in supply disruptions, more cost fluctuation, and generally more risk. And while most actors in construction think in terms of shifting or giving risk away as part of their business processes and strategy, they are actually paying to have others take that risk on.