| Summary: | Most studies assessing climate impacts on agriculture have focused on average changes in market-mediated responses (e.g. changes in land use, production, and consumption). However, the response of global agricultural markets to interannual variability (IAV) in climate and biophysical shocks is poorly understood and not well represented in global economic models. Here we show a strong transmission of IAVs in climate-induced biophysical yield shocks to agriculture markets, which is further magnified by endogenous market fluctuations generated due to producers’ imperfect expectations of market and weather conditions. We demonstrate that the volatility of crop prices and consumption could be significantly underestimated (i.e. on average by 55% and 41%, respectively) by assuming perfect foresight, a standard assumption in the economic equilibrium modeling, compared with the relatively more realistic adaptive expectations. We also find heterogeneity in IAV across crops and regions, which is considerably mediated by international trade. Studying IAV provides fundamentally new insights on measuring and understanding climate impacts on global agriculture, and our framework lays the foundation for further investigating the full range of climate impacts on biophysical and human systems.
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