Agricultural Supply Shocks Influence the Macroeconomy
Jungkeon Jo (University of Idaho); Michael K. Adjemian, C-FARE Board Member (University of Georgia)
Among economic sectors, agriculture is uniquely exposed to certain forces—most notably extreme weather, pests, and crop diseases—that generate sudden and significant supply disruptions. Although classical economists (e.g., Adam Smith, David Ricardo, and John Stuart Mill) viewed agriculture as foundational to the economy, today agricultural shocks are often treated as sector-specific, largely because farming represents a relatively small share of overall economic activity—approximately 5 percent of GDP and 10 percent of employment (once downstream industries are included). Yet, a recent study (Adjemian and Jo, 2025) shows that supply shocks to agricultural commodities affect the macroeconomy, and that the shocks are transmitted through several important channels.
The most immediate channel is food prices. Poor harvests reduce the supply and raise the price of crops, a key input that translates into higher food costs for consumers. Because households have limited ability to reduce consumption, higher food prices crowd out spending on other goods and services, moderately slowing overall consumer demand. Uncertainty about future food costs can further influence inflation expectations and household spending decisions. Related industries are likewise affected: crops like corn and soybeans are inputs to energy markets through biofuels; supply contractions reduce fuel production. Agricultural disruptions can also affect the profitability and stock prices of food processors and input suppliers, linking farm-sector shocks to financial markets.
Since the Civil War, the U.S. Department of Agriculture (USDA) has collected and released crop information at pre-announced times using confidential surveys and field-level assessments. These reports synthesize data on crop yields, acreage, and inventories, and are subject to strict lockup procedures (i.e., reports are prepared confidentially and held in secret until they are published). As a result, the information they contain is unanticipated by markets and can be interpreted as pure news about agricultural supply.
Adjemian and Jo (2025) used the USDA’s supply data to demonstrate that a poor harvest does more than raise domestic field crop prices; it leads to reductions in real GDP, industrial production, and even global fuel production, while also raising stock market volatility. Downstream, food-at-home prices rise and its consumption falls slightly. US agricultural production, despite comprising such a modest share of GDP, affects the macroeconomy—policy makers should take note.
References
Adjemian, Michael and Jo, Jungkeon. 2025. The Macroeconomic Effects of Agricultural Supply News (August 25, 2025). Available at Social Science Research Network-SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5405106
The Department of Agricultural and Applied Economics at the University of Georgia conducts research that addresses critical issues in agriculture, natural resources, and the environment in Georgia and beyond.
