El Niño, a weather event that can result in both drought and flooding, can have a severe impact on food production. An El Niño event has been declared this year, with some climate scientists predicting record heat and rainfall levels.
The climate crisis is already making its impact felt on the supply of certain crops and the food industry will be watching the latest El Niño closely, as its impact is likely to be felt into 2024.
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What exactly is El Niño?
El Niño is a climate-heating weather event that creates extreme conditions in the southern hemisphere. Typically forming in the central and eastern Pacific Ocean near the equator, it usually results in intense rainfall and associated flooding in the south of the US and South America, as well as drought in South East Asia and Australia.
Natural variations in winds and ocean temperatures in the Pacific drive the irregular switches between El Niño and its cooler opposite La Niña.
The technical explanation is warm water is normally confined to the western Pacific by winds that blow from east to west, pushing it toward Indonesia and Australia. But, during an El Niño, the winds slow down and can even reverse direction, allowing the warmer water to spread eastward to South America.
It can especially affect the jet stream over the Pacific, which gets stronger and dumps intense storms over coastal parts of the US and in South America. But more rain in North and South America falls at the expense of normally rainy South East Asia, which in turn can experience drought.
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By GlobalDataIt is thought there have been at least 30 El Niño events since 1900 with the last major El Niño occurring in 2016 when temperatures of 2.6 degrees Celsius above average were recorded.
Coming on top of the impact of climate change, which, at the time of writing, is being linked to extreme heatwave conditions in southern Europe, the US and China, the fear is another El Niño climate pattern could be a double-whammy for at-risk countries. Water scarcity, wildfires and further heatwaves can be expected, analysts are predicting.
And, looking to the future, the overall number of El Niños is likely to increase as the planet warms, experts suggest.
What is being predicted this time?
The arrival of an El Niño event this year has been declared by the United Nations’ World Meteorological Organization (WMO), which said there is now a 90% probability of it continuing to the end of 2023 at a moderate strength or higher. The US National Oceanographic and Atmospheric Administration (NOAA) and the Australian Bureau of Meteorology agree an El Niño is upon us.
It is expected to strengthen as the year goes on with some climate scientists predicting record heat and rainfall levels as a result.
There is an 81% chance it will peak with a “moderate to strong intensity” according to NOAA, with a one-in-five chance the event will be of “historic” strength, rivalling the major one experienced in 1997.
“This looks like being a very intense one. Temperatures have been rising for a couple of months”
Michael Magdovitz, Rabobank
On 20 June, the Australian Bureau of Meteorology updated its estimate for the mean surface temperature of the sea in the east-central tropical Pacific Ocean to be 3.2 degrees Celsius above average in November this year
Petteri Taalas, the WMO secretary-general, said: “The onset of El Niño will greatly increase the likelihood of breaking temperature records and triggering more extreme heat in many parts of the world and in the ocean.”
And it is arriving on the back of soaring global temperatures. June was the hottest month ever documented globally while ocean surface temperatures were at a record high for a third consecutive month.
What is El Niño’s likely impact on food production?
Damage caused by El Niño to crops in affected areas is also being widely predicted and this is where the food industry would be advised to take note.
As Michael Magdovitz, a senior commodity analyst with Rabobank, says: “To put it in real perspective, it’s not just the name El Niño that evokes fear among commodity consumers but the intensity of it.
“This looks like being a very intense one. Temperatures have been rising for a couple of months.”
Even before El Niño’s arrival, certain staple crops have suffered from climate events, hitting food production. News agency Reuters reported rice futures hit an almost 15-year peak in June as India, Thailand and Vietnam, three of the largest exporters of this staple, experienced record or near-record high temperatures.
Benjamin Hook, head of agribusiness research in South East Asia for GlobalData – Just Food’s parent – says: “Drought in South East Asia is very bad for palm oil yields.
“It’s a very thirsty crop. It needs consistent rainfall throughout the year and the high yield in South East Asia is because of that continuous rainfall. El Niño is going to have a significantly negative impact on palm oil output in South East Asia.”
The situation is very different in Latin America. “High than average rainfall in key soya bean growing areas such as Brazil and Argentina will provide higher yields,” Hook says.
The caveat here is the southern US and South American crops that usually benefit where El Niño brings wetter conditions could be swamped if the deluge is too extreme.
“The impact is not necessary in the year El Niño happens. It continues into the next season”
Benjamin Hook, GlobalData
Magdovitz at Rabobank pains a similar global picture. “Drought would impact Australian grains and Indonesian and Malaysia palm oil. It could potentially impact sugar, cocoa and coffee as well,” he says.
He adds: “There are concerns about Indian rainfall and variable weather in Thailand, potentially liked to El Niño.”
Hook at GlobalData points out that the impact of El Niño may not be felt straight away.
“The impact is not necessary in the year El Niño happens. It continues into the next season,” he says.
Magdovitz at Rabobank agrees. “Historically, some analysis has been done which shows that it is the quarter after El Niño when we see price elevation,” he says. “There was a report from the IMF [International Monetary Fund] in 2015 about the lagging inflationary impact of El Niño. It found that in the quarter following it we did see inflationary pressure of 5%.”
What will it mean for food prices?
Whether the impact is delayed or not, El Niño is universally expected to be impactful in economic terms. Researchers at the University of Massachusetts Dartmouth in the US estimated the 1998 El Niño, the second strongest on record, caused global economic losses of $5.7trn while inflationary pressures have traditionally been felt in the most exposed countries including Brazil and Indonesia when the weather event hits.
The damage to the sowing, growing and harvesting of crops is the main concern but damage to infrastructure is also distinctly possible. Last year, floods swept away a 30-kilometre stretch of the only rail line that transported food to Western Australia.
And we are of course living in difficult times when it comes to trade flows, with commodities such as wheat and sunflower oil seeing pressure since the invasion of Ukraine.
Russia has just cancelled an agreement that allowed safe passage to commodity-laden ships leaving Ukraine’s Black Sea ports. The Kremlin has made the problem worse by bombing those ports and destroying or damaging stored crops.
With El Niño, there is also the risk of protectionism as countries seek to restrict the export of dwindling production, citing national food security as the reason for their actions.
Reuters points out that last year India banned exports of broken rice and imposed a 20% levy on other grades heading overseas after below-average monsoons.
At the start of the year, global supplies of palm oil were squeezed as Indonesia announced it would restrict exports to boost domestic use.
Last year, the same country temporarily banned the export of palm oil as domestic cooking oil prices surged.
Hook at GlobalData says: “Indonesia is far and away the biggest producer of palm oil. It has put high export tariffs in place and last year’s ban to protect domestic pricing only ended following industry lobbying as the mills backed up.”
Experts suggest it’s not hard to imagine the country, which accounts for more than half of all palm oil exports, using El Niño to justify reimposing the embargo.
Were such restrictions introduced, there or elsewhere, this would add further inflationary pressure to food manufacturers’ supply chains and almost certainly drive up prices for consumers.
In terms of impact on commodity costs, wheat futures have risen sharply in recent days markets after Russia ended the Black Sea grain deal and threatened to treat ships heading for Ukrainian ports as potential military targets.
Extreme weather events can move markets as easily as geopolitical uncertainties.
Hook says: “The climate is a very important supply-side driver and the agri-commodity market gets jittery about news like this. Expect to see palm oil [prices] to start to pick up towards the end of the year.
“These things can be somewhat predictable based on historical trends but it depends on the severity of the impact.”
Magdovitz adds: “Extreme weather like El Niño potentially drives up prices from lower production levels. It could impact the price of chocolate and confectionery.”
General inflation has started to come down in many major economies but food inflation has stayed stubbornly high.
El Niño’s arrival is unlikely to bring succour to crop producers, food manufacturing businesses or end consumers.
