The heatwave economy

Europe is still in the grip of a sweltering heat wave. This is a worst drought I have ever seen. Our yields have been really knocked back. I'm Hannah Malayne and today on World Business Report, we're taking a look at how the extreme heat is impacting farmers around Europe and what that could mean for food prices. We'll hear from a SpaceX employee who's been made a millionaire after selling his shares and is it ever acceptable to wear shorts in the office. Hello and welcome to the programme. We're starting with a story that's been constantly in the headlines the last few weeks. It's heat. Italian officials have placed all of the country's major cities on the highest level of health alert today, and as large parts of Europe remain in the grip of a heat wave. This summer we've been seeing heat wave after heat wave. In just today, temperatures hit over 40 degrees in Western Ukraine and Slovakia set an all-time temperature high for the second day running. So what does this mean for business and agriculture specifically? Thomas Devorshack is a senior economist from Oxford Economics. Thomas, thanks for joining us. Hi, good to be with you. Give us a sense then of what the economic could be of these big heat waves we've been having over the summer so far. So the most immediate and probably the most direct and severe impact we'll see, as you mentioned in food and agriculture prices where the impact's really being severe. Now this is something that consumers won't really feel in their wallets until probably the turn of the year because just basically how the pricing in food retail works. But the shock has already happened. We're just sort of waiting for that to hit the shelves with the supermarkets. And we've been speaking to Heather today in Arabol and B-Farmer in the UK. And Mateo, who is a crop and dairy farm and in Nantes in France. And they've been talking to us about how the heat goes been impacting their businesses. 10 days two weeks ago, we'd had 67 mill of rain. Now on average we would probably see, that's probably a third. We'd see about 200 to 250 in that same time frame. So our yields have been really knocked back. I don't know what's it like in France. We had four heat waves and for several days and because of the heat, my milk production dropped by about 25 percent. Fortunately, all my cows survived. In a normal year, my cows grazed from March to until July. But this year I had to stop grazing in May. Got the grass, water ready, dry and yellow. We drilled our spring barley crop in middle of March, thinking that there was rain on the forecast. And that rain never came. And we are in a situation I run the figures this morning, where we will might or might not put the comb in to harvest the crop. We are looking at probably with the yields where they're going to be have a loss of a thousand pounds of hectare, which isn't something that's sustainable and can't go forward. I feel very much that it won't be possible on the future to do the same in my region. Because we have known for many years that climate change would bring more extreme weather, so we have been trying to make our farm more resilient. We keep stock from good years. We have a lot of grassland, but honestly, adapted to climate change is becoming more and more difficult even for farms that are already quite resilient. Milk production, which is decreasing, so I sell less milk. I also had to sell five cows out of my head of 70, because I didn't have any other feed for all of them. So I was with their friend yesterday walking the beans actually, because they're probably about a week, 10 days away from harvest. And looking at the grass and she said it looks like Spain, just because it's brown and it's dry. And there are cracks in the ground that I could probably get my arm down, not just my hand. Whilst many farmers like Heather and Mateo in Europe are reporting poor crop yields, some countries are bucking the trend. Places like Turkey and Romania have seen bumper harvest, with rain early in the season making that crop able to continue to grow over the hot weather. Caesar Gorge is from the grain market consultancy, Agricolum in Bucharest, Romania. All the European countries are decreasing in terms of crops or volumes. Romania is increasing. It's a total different situation. It's just because the Romanian farmers are switching more on the falling crops against the spring crops, so they reduce the surfaces for the spring crops. Last year we had 6.1 million tons, and this year we might score at least 7.9 to 8 million tons of corn, because the structure of the soil moisture is perfect. So we've been hearing from farmers in our program today from other parts of Europe that are really struggling with drought. And they're experiencing some of the worst drought that they've ever seen. And that's very different to what you're experiencing in Romania, right? Yes. In the west side of Romania, because we are neighbors with Hungary, with panonic fields, some areas that they're suffered from the drought, but all in all the surfaces, the crop status, the volumes are the beautiful that we ever meet in our entire history, especially for the autumn crops, wheat, barley and rapeseed. The drought is happening around you, and the way you export your product along the Dani Brewer and other rivers, for example, the water is very low, which makes it difficult to get the crops out. Is that a problem you think you're going to have this year? Well, it's a problem right now. Come to the fact that Ukraine is blocked right now in Odessa, the main problem will be, let's say, the logistics. Luck of enough trucks, because all the crops were harvest all in one single stage. You're speaking about barley, rapeseed and wheat, not enough trucks, not enough trains, plus the fact that all the logistics are going right now for the Ukrainian clothes that are starting, but the pipeline of entry in the port is so tight, you know, that we have a lot of blockages out there. Thomas Caesar was talking there about potential blockages getting products out of Romania. That with the droughts we're seeing in other parts of Europe, do you think we will see some shortages of food products? Not necessarily shortages, because I think, for globally tradable commodities, like some foodstuffs, other countries on the global market will be able to cover it. But there was a very good point, with the low water levels that are not just confined to Danube River, Ryan is the same. And this is really impacting transport and logistics, it's impacting manufacturing as well. It's even impacting the energy sector, because a lot of, for example, nuclear power plants used the water as a coolant in energy generation, and somehow had to switch off during the heatways, because the water levels were just too low. So the impacts extend beyond agriculture, though, as I mentioned at the start of agriculture, is probably the most affected sector. Yeah. And Caesar was also talking about how Romania is kind of changing the way they grow their crops or picking certain crops to fit the weather. And that seems to be working for them and has meant they've got a better yield this year. Do you think we'll start to see other European countries think really carefully about what they grow and how they grow it now that we are seeing these hot summers over and over again? I think that's an stability as the climate changes and the climate change progresses. We basically have to adapt and probably nowhere is this more true than for agriculture. The trouble is, of course, we can't just grow the sort of climate resilient crops. We need to have some sort of variety. And also it may have worked for Romania this year, but the unpredictability of the adverse weather events, you know, it was a drought, extreme drought this year in heatwaves. It could be flood next year. All we know that these shocks are becoming more frequent and farmers basically have no other shows than try and become more resilient. And you said we'd likely not see the food price impact until later on in the year. Are you able to see where we're going to see those prices go up the most? Are there certain products that we know now are going to be impacted and be more expensive later? So it's mostly crops that are going to be impacted the most. So grains, fruits and vegetables, we also heard from other guests when you show dairy might be surprising, but dairy production is affected quite severely by heat. And also things like beverage and alcohol, I know wine makers in France are suffering through a very, very difficult period. So these are the more affected food categories, whereas other ones like meat, sugar, cocoa or coffee, which are mostly crops actually not grown in Europe, might be affected to a lesser extent. All right, Thomas Dovsek, thank you so much for joining us. Sarah's also mentioned in his interview there that the port of Odessa was blocked at the moment, potentially causing problems with exporting crops in Romania, while that blockage comes as a result of continued conflict between Russia and Ukraine. In the latest attack, Ukraine struck one of Russia's largest oil refineries in the Yaroslav region, sending plumes of black smoke into the atmosphere. For their part, the Russians have tried to cut off Ukraine's trade routes, targeting the country's black seaports, including Odessa. On diplomatic correspondent Paul Adams has been granted rare access to the Ukrainian navy patrolling the black sea. We're going on patrol with the Ukrainian navy, out into waters made increasingly dangerous by Russian attacks. In a part of the country where a drone or ballistic missile can arrive with little warning, everyone is focused on alert. They fire their guns every day. This morning it looks deceptively calm. With its guns, it's netting and some of the other equipment on board. This vessel can look after itself more or less, but what it can't do is to stop Russia attacking civilian ships coming in and out of Ukraine's ports. Those attacks are increasing, and it's a major problem. There's a war out at sea. Russia and Ukraine hitting each other's ships, hundreds of them. Normally, all of them are crowd by vessels. Now you can see how many vessels. All we can see moving are a couple of tugboats. Nothing else. - Nothing else. Nothing else. I'm being shown round one of Ukraine's biggest black sea ports. For security reasons, I'm not allowed to say which. And I'm going to call my guide Demetro. It's not his real name. He's worked here for 20 years. The port is virtually empty. Demetro's never seen it like this. Officially ports are not closed, but vessels are not coming. They are scared of being hit like it was this morning in a disarray. Starting July, the hit trade vessels as a primary target. Why do you think this change is better than us, Dem? Because the main thing, they want to make a blockade of the Ukrainian ports because of the economy. Yeah, this is a really quite strange experience. Driving under these enormous gantries and cranes and the pipes and the buckets and everything that you need for a busy port and none of it is working. At the offices of Ukraine's transport workers union, I meet Svetlana, a warehouse shift manager at a deser's main port. She's limping, fragments of a Russian ballistic missile still stuck in her leg and back, following an explosion at the port a year ago. She fights back tears as she talks and her hands shake as she describes what life is like now. Oh, it's very difficult. A lot of sirens, a lot of drones, a lot of hits. And for morale, it's even more difficult. People are very tense. What can I say? Look at my hands. Back at Demetro's port, the air raid siren sounds. 70 photos. We head for the nearest bombshell to soon joined by port workers all scanning their phones for updates. Is that the drone or is that a Ukrainian head? Tefloss, that's the drone. Paul Adams reporting from Ukraine for us. Now those attacks by Ukrainian and Russian drones on each other's grain exports have been having a major effect in recent weeks on tankers and other vessels in the sea. The sea of Azov is strategically situated between Russia, Ukraine and Russian occupied Crimea, but it's also connected to the Black Sea and to the North, fire canal to the river Don in Russia. I've been speaking to Andrei Zerov, author of the Zizov report and expert in grain exports from the Black Sea region. Not much has changed recently, and is in Russian on Ukraine. So, Russian, Azov Sea and the catch straight is still fully blocked. There are problems with shipments from Russian deep sea Black sea ports. And as per Ukraine, Ades, almost no vessels are going in or out of Ades' terminals. And this is a big problem for Ukraine. As a reminder, typically Ades' terminals account for more than 90% of totally Ukrainian exports. I expect a massive impact to the economy. And for Ukraine, holy Ukrainian economy is more challenging, because for Russia, grain is not such an important source of hard currency. Contrary to, for example, energy, but for Ukraine, food exports account for more than 56% of their total good exports. So, what does that mean for the global economy and grain specifically? We've been talking about grain shortages right from the beginning of the conflict and the prices. And it's impact on certain parts of the world that really rely on grain coming out of Ukraine. So, we have seen a strong rally in July. Global wheat market rallied by around 20%. But despite recent dynamics, global prices have been declining in recent few weeks. So, as I mentioned, we rallied around 20%. And now we're around plus 10% compared to end of June. And in our view, it doesn't make a lot of sense, because the longer this drags on, the bigger the losses will be for supply of wheat and corn from the Black Sea in the current season. So, right now in July already, the world has lost already some supply from the region. And things will get worse in August, September, if the situation continues. So, you're saying that we're early in the season at the moment. So, we're just seeing a little bit of the impact. And actually, we could have a much bigger problem on our hands as the season continues. Yes, exactly. Every month, as of see, is being shot every month, and there's a terminal's as shot, it means that we should deduct from at least two million tons of wheat and corn to as much as four or potentially 4.5 million tons or drain from global supply. So, it's a very big disruption, and it's quite interesting that the market has not been reacting so far properly. Basically, many people are betting on the situation getting better and maybe gambling on the fact that they might be able to get a cheaper price later on in the season, and maybe that's why we're not seeing the full impact. Yes, exactly, but it can't last forever. One week, yes, it's not a problem. One month, it's a small problem, but if we don't see resumption of normal navigation by September, let's put that way. I think there are a high chances that we will see substantially higher global prices. Andraises of there. You're listening to World Business Report from the BBC World Service. On this week's edition of Power Players on Business Daily, Rahul and Will have been talking to a familiar voice on the BBC World Service, Mariko Oy, about the US intervening to support the Japanese yen. This time around, the yen is so weak that the US and Japan work together to prop up the value of the Japanese currency. But what also surprised me is that all these other interventions that I covered, you're looking at that currency chart and go, "Oh, something happened because there's this huge spike." But no one confirms it. Was this time around? President Trump confirmed it, and then both the Japanese and the American government confirmed it. So I was like, "Oh, wow, that was quite fast." Well, you can hear more of that wherever you get your BBC podcast, just search for Business Daily. Now, Kerry Lee, he is with me, he's an economist at Columbia University in New York. Kerry, let's start with Fox TV. They've been reporting quarterly ad revenue jumping to $1.9 billion. So that got something to do with the World Cup? Oh, absolutely. That's the number one reason there are a lot of seasonal revenue. The company is immensely profitable, even without that. So it's just showing you that when times are then we're very good if you have special sporting events which can't be replaced. And also for political events that are covered by the networks are good for ratings too. That's one thing Donald Trump has long told that business that he's one of their most important players because he generated a lot of print and generated a lot of profits for the media industries. There you go, politics and sport, the big winners. We've had Diasco results out today as well, and they're CEO of announcing big plans for Guinness production. Yes, that seems to be becoming the world's beer if you exclude a log or like a Budweiser. So it's very impressive that when last time I toured the environs of England, I was stunned when I went into a pub and asked for a bitter and all they had was Guinness. So it's showing you the power of the brand is replacing a lot of local darker beers. Honestly, it's everywhere and I don't like it, but don't tell Guinness that. And they're also boosting their canned cocktail ranges and that is something I can get on board with. Yes, that's been a sweet area for quite some time in terms of convenience and like and also diversifying your product base. That's one thing business is always talking about is they always want to have yet another product to diversify their portfolio of things they sell. So that's another big item and it's sort of industry wide. Yeah, and we've had easy jet announced their take over as well, Apollo buying them for 5.7 billion pounds. And there was two big US private equity funds that were keen on buying easy jet. Why were they so interested in it? Well, they liked the business. They liked the fact that the ownership is is talking about growth. Generally, these businesses are obviously quite sick of goal and they're impacted right now, negatively by higher oil prices. But always firms like private equity think they can do a little bit better, save money, expand the business and then they can occasionally run into problems. So this is not a guaranteed kind of thing, but right now some important people in private equity land are excited about this kind of development. Well, I'll have to wait and see how that goes. Kerry, stay with us. We'll be back with you later. Three, two, one. So today is the day that thousands of early investors in SpaceX became millionaires. Some early employees received thousands of stuff. options as part of their compensation packages. And today those shares were unlocked. More than 4,400 employees became pay per millionaires when the company went public last month, but only now were they allowed to sell their shares. Well, I've been speaking to the BBC's North America business correspondent, Samira Hussain. What SpaceX has done is that, look, if you were an early employee instead of getting higher pay than you might get from other companies, often you were getting stock options. And when you're on an early start-up, it's a chance to see if it ends up becoming something worthwhile down the line. Well, down the line, here we are, and there are some 900 million shares that are eligible that could be flooding the market at the moment. Now, we haven't seen huge amounts of evidence of that at the moment. But I did talk to one early employee of SpaceX, Andre Levoix, and he was speaking to me from Northern Italy, and he had worked as an engineer for SpaceX for about six and a half years. Have a listen to what he said to me. Early employees of the company were granted stock options in lieu of higher pay, and then time goes by and you find out whether or not that sacrifice and time in lower pay pays off. How many shares do you hold of SpaceX right now? Around 200,000 shares. And what's your plan? Are you planning to sell? Well, probably try to sell part of them, and every chance I get going forward, sell a little bit more. Basically, projects and shares will finance them. Next summer, I'll have a brewery open up in the mountains of Northeast Italy, the Freely region, and the following year hotel. This is how I have fun with SpaceX windfall, you might say. Oh, that's a pretty cool life, isn't it? I can't believe you think that everyone would be that market would be flooding, as you say, and everyone would be looking to sell if they could make this kind of money and live that kind of life. Why hasn't that happened? Well, so it's interesting. And actually speaking with Andre really crystallized it for me. You know, he said, look, I'm a bit older and so I definitely have other things that I want to do. But I'm only going to sell a portion of my shares. I'm still going to hang on to some of them as well. And I asked him, well, you know, why? That is still the belief in SpaceX itself, what the company can do. You're buying a piece of the future, you're investing in what could happen. And this belief in Elon Musk and his entrepreneurship. And there are many people who still believe that he can accomplish what he's setting out to do. That's interesting, isn't it? Because the stock price has dropped a lot since the IPO. And some analysts are saying that the value of SpaceX is less than half of the current stock market price. It's a risky decision. It is a risky decision. Now, there are some analysts that will say, look, if you look at SpaceX as purely an AI company, yes, you're going to see that it's facing the same pressures that other AI companies are facing that investors are starting to get nervous about the eye watering. Some that are being spent on AI infrastructure and not seeing a lot of return. But there are others that will say, but look, he is basically building. A kind of railroad to space. And he has changed the entire launch industry in terms of space missions. So they would say that, you know, it's still pretty nascent. And if you look at it through, you know, the space lens as well as the internet satellite lens, there's a lot more going on. Well, thanks, Samira and I had both wish we were back to SpaceX and we sat there with millions of dollars now during that interview. And we're going to end the program where we started it with heat, but a slightly different debate around it, whether we should be able to wear shorts and sandals to the office now that the weather is so hot in the summer. Here are the thoughts of Marianne Cue, British Garnay and Fashion Journalist based in London. But firstly Hannah Rochelle, a British fashion journalist and author. I would say no. I know that they are allowing women now to sort of wear the mood is short, but it creates a bit of a problem because then people say then why the double standard that men can't. I don't mind shorts in the office, but there are shorts and there are shorts, you know? So I think it's a lot about length, but also to do with the fabric that your shorts are made from wearing something that feels very much like you're on the beach and on holiday would perhaps not be as appropriate as Chino style knee length shorts. I see where Hannah's coming from and I know that now women are more likely to wear maybe a mood of short and maybe a linen or a poplin, but I think the problem is with a lot of people sometimes the styling then takes it from office appropriate to something slightly more casual when not done well. I mean, I personally am not a big fan of flip flops in any situation because as you mentioned they can be quite bad for your beats and also if you work in the city, you'll know that you get very dirty feet very quickly. Kerry Lee, he is still with us. Kerry, what are your thoughts on shorts and sandals in the office? Well, I have a hard time dealing with men wearing shorts showing off their hairy legs at work, but I don't have too much trouble with sandals and always amazing how many people did wear sandals to work is it's pretty easy to bump your toes in addition to the problems if you're feet getting dirty. But in addition, I don't remember too many people ever wearing shorts to work unless they were 12 year old kids going to a posh prep school. Yeah, it seems to have been a more modern thing. Do you think you're seeing it more now, people like professional people working in offices turning up in the show? Oh, absolutely. In New York City, which has a little bit of everything, you can certainly find that. It's probably net net. If you're going to some watering old after work, much more prevalent than you could have thought of in 2019. And it is hot in New York in the summer, so you can kind of see why? Oh, absolutely. In the old joke, it's not the heat, it's humidity. Certainly applies to New York today. Yeah, I'm sure it does well. Kerry, thanks so much for joining us. And that's it from Well Business Report today. Don't forget to subscribe wherever you get your podcasts and you'll also be able to get the daily addition of Well Business Express to get more in today's stories. But heading to BBC.com/news. Thanks for listening.