This paper studies how governments intervene in agricultural markets to reshape the economic consequences of climate extremes. We construct a global dataset of agricultural policies and extreme heat exposure by country and crop since 1980. Extreme heat shocks to domestic production lead to policies that assist consumers by lowering domestic food prices. This effect is persistent, primarily implemented via border policies, and stronger during election years. Shocks to foreign production induce the opposite response: policies that assist producers by raising prices. These findings can be rationalized by a model in which governments use agricultural policy to redistribute among domestic interest groups. Our estimates imply that policy responses shield domestic consumers, while exacerbating losses for domestic producers and foreign consumers. Policy responses have regressive consequences globally, disproportionately harming poor and heat‐exposed countries.

Modern theories of aggregate supply are built on the foundation that firms set prices and commit to producing whatever the market demands. We remove this strategic restriction and allow firms to choose supply functions, mappings that describe the prices charged at each quantity of production. Theoretically, we characterize firms’ optimal supply function choices in general equilibrium and study the resulting implications for aggregate supply. Aggregate supply flattens under lower inflation uncertainty, higher idiosyncratic demand uncertainty, and less elastic demand. Quantitatively, our theory can rationalize the flattening of aggregate supply during the Great Moderation and steepening during the 1970s and 2020s.