Climate Risk, Credit, and Food Security
Jay Li  1@  , Jess Cornaggia  2@  
1 : University of North Carolina, Greensboro
2 : Pennsylvania State University

This paper tests whether climate risk affects credit origination. We find agricultural loan volume drops by 2.6% when anticipated climate anomalies in a local area are in the top decile. These effects are larger than the impact of realized climate conditions, align with products' vulnerabilities to different anomalies, and strengthen in months when climate is more salient to production decisions. We find anticipated anomalies explain a decline in loan demand and a hike in interest rate. Through their impact on credit origination, anticipated climate anomalies also reduce investment and productivity. Overall, we show that climate risk threatens food security through a credit channel. We also provide evidence that producers mitigate this effect with risk management products.


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