Too hot to handle?

Climate change continues to disrupt supply chains across the Southern Cone as wildfires rage.

Residents of Buenos Aires have never experienced heat quite like this. As temperatures soared to over 40ºC last week, many turned on their air conditioning units to full power. This, unfortunately, is a somewhat dangerous thing to do in the Argentinian capital which sorely lacks adequate electricity infrastructure. Huge outages followed shortly after as people desperately sought alternative ways to cool themselves down. Ice cream sellers did well, politicians less so.

High temperatures and a prolonged drought are fuelling wildfires across the Southern Cone and have been particularly damaging in agricultural areas. An expert on forestry management based in Uruguay said, “This region of the continent contains vast pastoral lands and agricultural exports are key commodities for the Argentinian and Uruguayan economies. Climatic events such as these are occurring with increasing frequency. Governments have not invested sufficiently in preventative measures nor have the ability to properly control fires when they spread.”

“Climatic events such as these are occurring with increasing frequency. Governments have not invested sufficiently in preventative measures.”

Expert in forestry management, Uruguay

The expert on forestry management continues, “Production is seasonal, and farmers are often sat idle until the next season allows them to plant and cultivate crops. Obtaining credit during difficult times can be challenging given how these events can wipe out production for long periods.”

Key crops include corn and soybean, scant harvesting will ultimately affect prices, meaning it is in the interests of the government to do something about it. Argentina implemented a state of emergency this month and President Alberto Fernández has ordered caps on energy consumption from industrial sectors and has mandated remote working for public sector employees. This is a sticking plaster for more entrenched problems in the energy sector.

Price freezes enacted by various administrations have disincentivised long-term investment in the electricity system. The Government plans to cut energy subsidies in 2022 (to be discussed during budgetary discussions) but price hikes are likely to remain below the annual inflation rate (51% in 2021).

The forestry expert said, “Economically, forestry companies are very profitable in Uruguay. I believe that their economic importance will compel the government to progress legislative reforms when it comes to fire prevention and management.”

“I believe that their economic importance will compel the government to progress legislative reforms when it comes to fire prevention and management.”

Expert in forestry management, Uruguay

Meanwhile in Argentina, the government will need to act fast. Further major outages are expected this year, each blackout putting into sharp focus systemic weaknesses in electricity grids across the region. It’s not just that climatic events will become more frequent, they will become more severe as well. Despite Mr Fernández’s pledge to attract infrastructure investment in the energy, the sector is unlikely to stabilise anytime soon. Investment is also being discouraged by erratic policymaking.

Fiscal constrains will likely prevent meaningful action to combat wildfires. Extreme weather events in the region pose long-term risks for business in the future. Intense droughts, floods (see Brazil) and heatwaves have become more common in the region. There will be greater stress on the already weak electricity system across the region and which will cause more frequent outages.

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