Tags: Commodities, Europe, Food Shortage, Iceland, Monsanto, Monsanto Company

Eyjafjallajokull's Economic Impact Goes Beyond Flight Delays

By , Contributing Writer, Money Morning •

I've been looking for an excuse to get the name Eyjafjallajokull into an article, and now I finally have something special to say about the mighty Icelandic volcano that has wreaked havoc with European air traffic.

It's mostly science and history, which appeals to my finely honed annotation instinct, but there is most definitely an investment point, which you will have to wait to the end to see.

First, I learned today from some hedge-fund sources that scientists believe the real threat from the relatively small Eyjafjallajokull volcano is that it could trigger an eruption in its much larger neighbor, which is called Katla. I was told there's a better than even chance that this would happen.

This would be troublesome. University of Iceland geologist Andy Hooper told Reuters that an eruption of Katla would make the ash cloud from Eyjafjallajokull look trivial. Hooper further declared that increased volcano action in Iceland might be inevitable if our planet continues to warm.

"At the end of the last ice age, the rate of eruption in Iceland was some 30 times higher than historic rates. This is because the reduction in the ice load reduced the pressure in the mantle, leading to decompression melting there," he said. "Since the late 19th century the ice caps in Iceland have been shrinking yet further, due to changing climate. This will lead to additional magma generation, so we should expect more frequent and more voluminous eruptions in the future."

Next, I turn your attention to a column published by the Guardian, a London newspaper. Greg Neale, who edits BBC History magazine, reported that 200 years ago, an Icelandic volcano erupted with catastrophic consequences for weather, agriculture and transportation across the northern hemisphere, and helped trigger the French revolution and two famines.

Neale said that the Laki volcanic fissure in southern Iceland erupted from June 1783 to February 1784, spewing lava and poisonous gases that devastated the island's crops and livestock and lead to the deaths of a quarter of the island's population through famine. The sky turned dark across Europe, and even cast a shadow over the United States that was recorded by Benjamin Franklin. The disruption to weather patterns led to an unusually harsh winter that further damaged crops worldwide, causing a fearsome famine in Egypt. Environmental historians have also pointed to the disruption caused to the economies of northern Europe, where food poverty was a major factor in the build-up to the French revolution of 1789.

Neale ended with a quote from historian John Murray: "Volcanic eruptions can have significant effects on weather patterns for from two to four years, which in turn have social and economic consequences. We shouldn't discount their possible political impacts."

This is quite true. The Krakatoa eruption of 1883 in Indonesia, one of the most violent natural events in recorded history, threw up so much ash that crops were devastated as far away as the United States. Appearing at a time when the U.S. economy was fragile anyway, it kicked off a financial panic and turned a recession into a brief depression.

The point is that the Eyjafjallajokull eruption is not something that is just happening over in Europe, but could have lasting effects. We'll keep an eye on companies and commodities in the food complex, including raw grain and livestock prices, fertilizer producers and packaged food makers.

A top choice is likely to be Monsanto Co. (NYSE: MON), which has been plastered in recent months but could be seen in the coming year as a go-to company to counter fears of shriveling grain yields.

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