Water-Related Climate Stress and Food System Risk: A Cross-Quantilogram and Quantile Spillover Approach

Abstract

This paper investigates whether water-related climate stress predicts tail movements in food system assets and whether these spillovers vary across market regimes and investment horizons. Using daily data from January 2012 to January 2026, we examine the relationships among a water-risk proxy, agricultural commodities, agribusiness, and food supply-chain equities, and a fertilizer-related proxy. The analysis combines the cross-quantilogram with quantile spillover analysis in the frequency domain, allowing us to capture directional dependence in the tails of the distribution and short- and long-run connectedness. To account for structural change, we employ data-driven break detection and identify three major regimes: a pre-disruption period, a COVID-related adjustment phase, and a broader food system stress regime from early 2022 onward. The findings indicate that water-related climate stress has its strongest predictive power in the tails, especially for agribusiness and fertilizer-related assets, while the broad agricultural commodity basket is comparatively less sensitive. Lower-tail dependence is predominantly negative and often significant, whereas upper-tail dependence is generally positive, indicating asymmetric transmission under extreme market conditions. The spillover results further show that connectedness in the water–food system is mainly short-run, with agribusiness and fertilizer channels acting as the primary conduits of transmission. From a practical perspective, these findings suggest that investors and risk managers can use water-related market signals as early warning indicators of stress in food system assets, while policymakers can strengthen food system resilience through integrated water management, input market monitoring, and supply chain adaptation measures. The findings suggest that water-related climate stress is not merely an environmental constraint but a systemic source of food system risk with implications for resilience, risk monitoring, and integrated water-agriculture governance.