Chatham House, the international affairs think tank, has warned of future resource price volatility that could unhinge the global economy.
In a report on the issue, Chatham House, says that price volatility is the ‘new normal’ and instability could hit hard in the UK, which imports a high proportion of its food, fossil fuels and metals.
“Fluctuating prices will create chaotic chain reactions unless governments and businesses get to grips with a new world order defined by resource politics,” it said.
The report suggests small shocks to resource supply – such as extreme weather events associated with climate change - could cause sudden price rises that could snowball into political “overreactions or even militarised responses”.
Prices of commodities – metals, agricultural products, timber and fossil fuels – have risen by 147% since 2000, mainly because of increasing demand from growing economies such as China and a swelling global population.
Recent speculation on commodities markets has exacerbated the problem of price volatility, it adds. According to figures from the International Monetary Funf, food, metal and fuel prices have been nearly four times as volatile since 2005 than they were in the preceding 25 years.
Demand for basic commodities such as wheat and copper could soar over the next 20 years, with unpredictable prices driving prices up further if confidence in resource production was undermined.
To avoid this happening on a global scale, the report calls for action from a coalition of the world’s 30 biggest consumers and producers of resources.
The report also advocates the reduction of food waste, the recycling of metals and states that a circular economy could “deliver business models fit for a resource constrained world.”
“The Chatham House report has the right diagnosis: it shows clearly that environmental degradation underlies many resource challenges,” said the Green Alliance’s Circular Economy Task Force senior policy advisor Dustin Benton, “But it underestimates the opportunity of a circular economy.”
He added: “Displacing raw material extraction through recovery, remanufacturing, and reuse directly reduces the environmental impacts fuelling price volatility and political instability. The report is right to highlight that achieving this displacement will require much greater coordination across the supply chain – which is one of the challenges that the Circular Economy Task Force is seeking to address.”