El Niño is a weather and climate phenomenon that is characterized by unusually warm sea surface temperatures. During the El Niño, warm water moves from the Western part of the Pacific Ocean to the Eastern equatorial Pacific Ocean, often accompanied by a change in trade winds. This occurrence can cause significant economic impacts, which could directly impact the agricultural economy first, but later can be felt in the global marketplace.
El Niño occurs irregularly every two to seven years and can last from months to a few years. The El Niño weather patterns can cause changes in normal ocean sea surface temperatures, which can cause changes to the global weather system. These changes can affect the timing of when heat transfers from the oceans into the atmosphere and can affect temperature and rainfall patterns. The changes can lead to droughts or severe storms, which vary by location. Typically, the west coast of the Americas experience more rain, whereas Indonesia and Australia are faced with a severe drought. Meteorological agencies in Japan, Australia, and the U.S. have stated concerns that El Niño will last longer and intensify during the second half of the year.
It is difficult to predict the full impact of the El Niño, and it would depend on its severity and duration to determine the economic impacts. In countries like Thailand, Philippines, and Indonesia, the Consumer Price Index is largely composed by food products. Historically, El Niño typically has a core impact on these markets, and the immediate impact would be felt mostly in the agriculture sector. This weather could lower economic growth in certain regions and increase inflation in the future. The drought is expected to impact Australia, Indonesia, and Malaysia, and if the trend continues, the history of El Niño suggests that it would mean higher prices for grains. Australia has already lowered its outlook for its wheat productions, and the continuation of the drought would impact the global prices in the world market.
In India, the lower than normal cumulative rainfall between June and early July may cause a potential decrease in rice production, causing worries among rice buyers. In addition, the palm oil sector is being monitored due to drought worries in Indonesia and Malaysia, as both are some the world’s biggest producers of the commodity. If the harvest for palm oil decreases and prices rise, companies that buy palm oil will buy soybean oil instead. In the United States, California stands to benefit from the increased rainfall to relieve the severe drought. However, it can cause negative impacts as crops, such as tomatoes and almonds, may be destroyed due to the rainstorms and floods, which could increase food prices.