Executive Director's Corner

Climate will dominate Black Swan events


Posted on November 16, 2015 08:30:00 PM

Climate will dominate Black Swan events

8  3 Google +0  0

M.A.P. Insights
Rolando T. Dy

Black Swan is a metaphor that describes an event that comes as a surprise and has a major effect.
The theory was developed by Nassim Nicholas Taleb, a Lebanese-American hedge fund manager, derivatives trader and professor of risk engineering at New York University. His book The Black Swan: The Impact of the Improbable (2007, 2010 Random House) was a best-seller.

M.A.P. Insights — Bjorn Martinoff: “Why CEOs should seek out coaches”
M.A.P. Insights — Ma. Aurora “Boots” Geotina-Garcia: “Closing gender gaps in the APEC region”

He said that “before the discovery of Australia, people in the Old World were convinced that all swans were white, an unassailable belief as it seemed completely confirmed by empirical evidence.”

A black swan is a rare event and when the black swan strikes, it has a massive impact.

Energy expert Philip Verlegger cites that black swans by nature include the 1906 San Francisco earthquake that destroyed 80% of the city, the 1991 Mount Pinatubo eruption, the second-largest volcanic eruption of this century, and the Chicxulub, Mexico asteroid strike that wiped out the dinosaurs and caused the largest megatsunamis in history. Black swan events caused by humans include the Great Depression, the Great Recession, the personal computer revolution, and 9/11.

In Asia, the Indian Ocean earthquake and tsunami of December 2004 killed 230,000 people in 14 countries, and caused flooding in coastal communities with high waves. It is considered as one of the deadliest natural disasters in history. Indonesia was the hardest-hit (at least 170,000 deaths), followed by Sri Lanka, India, and Thailand.

The Fukushima earthquake and tsunami disaster of March 2011 killed about 18,500 people. It also led to a nuclear disaster as the damage caused by the tsunami resulted in equipment failures, and, in turn, a loss-of-coolant accident followed with nuclear meltdowns and releases of radioactive material.

Closer to home, there have been high frequency of black swan events in the past five years, mostly dominated by climatic events.

First, Typhoon Sendong (international name: Washi) devastated the cities of Cagayan de Oro and Iligan in December 2011. Some 1,147 people lost their lives and damage reached P1.7 billion. More than 338,000 people in 13 provinces were affected by the disaster and nearly 40,000 homes were damaged.

Second, in December 2012, another strong typhoon, Pablo (Bopha), hit Mindanao, especially the Davao region. Some 217,000 houses were damaged, about 1,000 lives were lost and some P14 billion worth of agriculture and properties were damaged in several regions.

About 122,000 families, or 655,000 people, were affected in Compostela Valley alone. Most deaths were in the town of New Bataan in Compostela Valley. Note: I visited Barangay Andap, New Bataan, one year later and saw the massive devastation.

In the process, some 15,000 hectares of banana plantations and other farms were devastated. The floods caused the spread of the deadly TR4 fungus (Panama disease). The affected banana areas can never be rehabilitated.

Third, a super-typhoon Yolanda (Haiyan) “returned” after about a century in the same area in Samar and Leyte in November 2013. More than 6,300 people died. Nearly 2,000 are still missing.

The storm affected 3.4 million families (16 million people) in 44 provinces. The super-typhoon caused nearly P40 billion in damage, of which P18 billion was in agriculture and fisheries. Tens of thousands of boats were destroyed, along with millions of coconut trees.

What now?

The Intergovernmental Panel on Climate Change cited that climate change is likely to cause tropical cyclones to become “more severe with greater wind speeds and more intense precipitation” — a nightmarish scenario for a country already battered by around 20 typhoons a year (The Guardian, 2015). The Philippines is one of the world’s most vulnerable countries to extreme weather events and sea level rise.

No less than Pope Francis in his Encyclical Laudato Si (2015) cited the increasing challenge in climate change. He said: “A very solid scientific consensus indicates that we are presently witnessing a disturbing warming of the climatic system. In recent decades, this warming has been accompanied by a constant rise in the sea level and, it would appear, by an increase of extreme weather events, even if a scientifically determinable cause cannot be assigned to each particular phenomenon. Humanity is called to recognize the need for changes of lifestyle, production and consumption, in order to combat this warming or at least the human causes which produce or aggravate it.”

In 2014, the World Bank report on climate change in the Philippines recommended: (a) strengthening the planning, execution, and financing framework for climate change; (b) enhancing leadership and accountability through monitoring, evaluation, and review of climate change policies and activities; and (c) building the country’s capacity and managing change.

The Department of Budget and Management will have a higher climate change adaptation budget for the government in 2016, surpassing the P100 billion allocation in 2015. The climate change resiliency budget has nearly doubled within three years. Some infrastructure projects had been altered due to climate change. Construction of classrooms was also delayed to give way to new designs and upgrade resiliency.

How will the farmers and private sector be helped in future black swan events? Who will fund the rehabilitation of their assets? How will the affected jobs be returned?

First, setting up a disaster relief fund is imperative. The fund can be released quickly in order to rehabilitate factories, farms, and fishponds.

Second, crop insurance by area should be released quickly based on criteria set by Philippine Crop Insurance Corp. following the weather-index agreed with Philippine Atmospheric, Geophysical and Astronomical Services Administration.

Third, infrastructure and agriculture should be “climate-proofed” to protect irrigation, surrounding farm lands, and drainage systems (Asian Development Bank, 2012: United Nations Development Programme, 2011).

Climate change will continue to be the black swans in the Philippines. There are potential volcanic eruptions. And then there is the anticipated coming of the Big One in the Marikina West Valley Fault.

Black swan events cannot be prevented but their impact can be managed or mitigated with adequate preparation, response and action, and organization.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the M.A.P.)

Rolando T. Dy is the Vice-Chair of the M.A.P. AgriBusiness and Countryside Development Committee, and the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific.

[email protected]

[email protected]