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Spatial Diversification of the Food Supply and Adapting to Climate Risk
30,000 dairy cows have died in New Mexico and Texas due to the bad recent storm. Will milk prices soar as supply contracts? The first idea in diversification is not to put all of your eggs in one basket. Take a look at this paper from the USDA and look at Table 2. In the year 2006, the United States produced 181.8 billion pounds of milk. Texas produced 7.1 billion pounds and New Mexico produced 7.6 billion. Calculate (7.6+7.1)/181.8 = 8% so 8% of the nation's milk is produced in New Mexico and Texas. Suppose that milk is sold on a nation wide market (so low transportation costs and durable).
Even if every cow in New Mexico and Texas died and we lost 8% of the market, prices would barely rise. But, 8% of the stock of cows didn't die. This website says that Texas has roughly 450,000 cows and New Mexico has 323,000. So, the actual shock to these states is 30000/773000 = a 3.8% decline in the cow population in these states.
Given that milk is a small share of the typical household's consumption basket, the negative income effect will be tiny. There are some people at the margin (such as my son) who would substitute from milk to juice and he would take calcium pills to supplement what he missed out on by substituting away from some milk drinking.
My point is that the local cow owners are affected but the urban milk consumers are insulated from this storm event because the cows are geographically dispersed across space. The media doesn't bother to do these calculations.
Source: http://greeneconomics.blogspot.com/2016/01/spatial-diversification-of-food-supply.html
