Climate-Driven Supply Chain Risks Mount
Global markets are bracing for a potential “super” El Niño weather cycle, with analysts warning that the phenomenon could trigger a severe and protracted shock to global food prices that may persist through 2028. This potential climate event arrives as international supply chains are already grappling with the inflationary pressures of the ongoing Iran war, which has pushed global food prices to their highest levels in three years.
According to data from the US National Oceanic and Atmospheric Administration (NOAA), warming conditions in the Pacific are intensifying. Projections indicate a 63% probability that sea surface temperatures will exceed 2C above historical norms later this year. Economists and climate researchers are increasingly concerned that this confluence of events creates a “two shocks at once” scenario for the global economy.
Economic Implications: The Return of ‘Climateflation’
Financial institutions are highlighting the risk of “climateflation,” noting that the shifting climate baseline could force central banks to maintain elevated interest rates for longer than previously anticipated. Analysts at UniCredit suggest that the upcoming El Niño cycle will amplify existing global warming effects, potentially impacting agricultural output significantly.
Projections regarding the scale of the impact are substantial:
- Goldman Sachs: Estimates a potential 15.8% surge in global food commodity prices, with eurozone food prices rising by approximately 1.3%.
- UniCredit: Warns of a potential 14.3% hit to global agricultural production, representing roughly $342 billion in lost output. Core commodities could see price spikes between 10% and 50%, while vulnerable crops such as rice, palm oil, sugar, and coffee could experience price volatility ranging from 50% to 100%.
Regional Vulnerabilities and Lagged Effects
The impact of El Niño is rarely uniform, creating a complex map of regional winners and losers. Current reports from India indicate that a drier monsoon season has already begun to affect wheat, rice, and sugar cane supplies, with some regions receiving as little as 25% to 50% of typical rainfall.
While the meteorological event is occurring now, the economic consequences are expected to be lagged. Goldman Sachs analysts suggest that the full impact of these disruptions may not be “fully realised” until the second half of 2028. This delay is attributed to the varying planting and harvesting cycles of global crops, as well as logistical bottlenecks in key shipping corridors where water levels in canals and rivers could be compromised.
UBS analysts emphasized that even modest supply disruptions could trigger price movements significantly larger than those suggested by historical models. As the food system enters the second half of 2026, experts note that while some buffers exist, there remains little margin for error given the compounded pressures of geopolitical conflict and extreme weather.
