FAO warns of food price surge as record El Nino compounds war disruptions

A rapidly strengthening El Niño — on track to become the most powerful in 76 years — is raising alarms across global markets as the United Nations Food and Agriculture Organization warns that wars, extreme weather, and rising production costs are converging to create conditions for a fresh surge in food prices by year-end.

A 'Perfect Storm' for Food Inflation

FAO Chief Economist Máximo Torero told Reuters that the combination of conflicts involving Iran and Ukraine, a strengthening El Niño, higher oil prices, and tightening supplies of agricultural inputs will likely push food prices higher in the coming months. "I expect that commodity prices will start to increase more now … and food prices will start increasing by the end of the year, and next year for sure they will increase more," Torero said.aol

The transmission lag from commodity markets to consumer prices is typically three to six months, meaning the disruptions already underway may not fully register on grocery bills until early 2027. Higher crude oil prices are driving up costs for pumping, packaging, and transportation, while natural gas price increases directly affect fertilizer production. Australia has projected a 21% decline in winter crop production, and some U.S. farmers have shifted acreage from corn and wheat to soybeans because they require lower fertilizer inputs.agrolatam+1

Emerging Markets Face Compounding Shocks

Bloomberg Economics estimates that drought conditions from a typical El Niño may cause consumer prices to jump by nearly two percentage points in Indonesia and the Philippines, with smaller but notable impacts across Mexico, Malaysia, Thailand, and India. The event, which some scientists are calling a "Super El Niño," formed in June and is already disrupting weather patterns. India's cumulative monsoon rainfall through early August was 12% below normal, raising risks for rain-fed crops and hydropower.bloomberg

Peru's anchovy fishery — supplying roughly 20% of global fishmeal — remains closed due to warming ocean waters, with the central bank signaling that disruptions may shave up to 0.9 percentage points from GDP next year. In the Philippines and Indonesia, where food accounts for 35% to 40% of household spending, governments have already been struggling to contain inflation exacerbated by the Iran conflict.bloomberg

Shipping and Energy Under Pressure

The economic ripple effects extend beyond agriculture. Benchmark container shipping rates recently marked a two-year high as El Niño-induced drought threatens transit through the Panama Canal while conflicts restrict major Middle East waterways. Colombia, which relies on hydropower for roughly two-thirds of its electricity, faces the prospect of strained reservoirs forcing greater reliance on fossil fuels.bloomberg

Scientists predict the event will peak in intensity toward the end of 2026 and stretch into the Northern Hemisphere's spring, with ocean temperatures projected to rise as much as 2.6°C above normal. Total global losses are on track to exceed $4 trillion through 2030, according to Wenju Cai, a professor at Xiamen University. "The bigger concern is when shocks begin to overlap," said Nicolas Jaquier, an emerging market portfolio manager. "If higher energy prices coincide with fertiliser constraints and then weather-related food inflation, the impact becomes broader and more persistent than any one shock on its own".insurancebiz+1