Strong El Niño Forecasts Threaten Global Food Price Stability

David Rees, head of global economics at Schroders, suggests that while the direct correlation between El Niño and crop prices is historically inconsistent, the current economic climate amplifies the risk. When energy costs are removed from food indices, the link becomes clearer, as transportation and fertilizer production are heavily reliant on fuel prices. If previous trends hold, a particularly strong weather event could lead to a dramatic doubling of global food prices.

Agricultural Vulnerabilities and Supply Shocks

The threat is compounded by existing agricultural stress. Over half of the United States experienced drought conditions by late May, while record-breaking heatwaves have already strained crops in Europe and India. These environmental pressures meet a fragile supply chain; urea prices, for instance, doubled following conflicts near the Strait of Hormuz. Although diplomatic efforts aim to reopen these shipping lanes, the lag in fertilizer availability leaves vital crops—specifically rice, wheat, sugar, and cocoa—highly exposed.

Sugar production appears especially vulnerable, with analysts projecting 20–30% declines in India and Thailand. This shortfall is exacerbated by the diversion of sugar stockpiles toward ethanol production, driven by higher biofuel demand. For policymakers, this second wave of inflation poses a distinct danger: as energy-driven price pressures begin to subside, a surge in food costs could lock in higher inflation expectations, eroding real incomes and dampening consumption across both developed and emerging markets.