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The World Bank has warned of a new shock to global food prices as the threat of strong El Niño weather conditions risks piling pressure on agriculture from high fertiliser costs driven by the Iran war.
In its latest forecasts for the world economy, the bank said “disruptive weather” associated with a warming in the Pacific Ocean could exacerbate strains on global food supplies caused by the near-closure of the Strait of Hormuz, a crucial channel for trade in fuel and fertiliser.
“Beyond developments in the Middle East, the possible emergence of El Niño weather conditions could push food prices above current expectations,” the bank said on Thursday, adding that small economies in sub-Saharan Africa were particularly vulnerable as they had limited insurance mechanisms against such an event.
The conflict in the Middle East is curbing global growth prospects this year and has triggered a fresh inflationary upsurge after oil and gas prices jumped following US and Israeli strikes on Iran in late February.
The bank said global growth would slow from 2.9 per cent in 2025 to 2.5 per cent in 2026 — the lowest rate of expansion since the Covid-19 pandemic.
With Japan’s Meteorological Agency saying this week that El Niño conditions now appear to be in place, economists fear the combined effect of reduced fertiliser use and extreme weather will heighten food insecurity and further stoke inflation.
“When these two shocks occur simultaneously, they can reinforce one another,” said Máximo Torero, chief economist at the UN’s Food and Agriculture Organization.
In general, El Niño events worsen both drought and heavy rainfall, while increasing the risk of heatwaves on land and at sea.
The weather phenomenon is typically associated with higher rainfall in parts of South America, the southern US, the Horn of Africa and central Asia, according to the World Meteorological Organization. Conversely, it is linked to drier conditions across Central America, northern South America, the Caribbean, Australia, Indonesia and parts of southern Asia.
Its economic effects are both unpredictable and highly variable, however.
“No two El Niños are the same,” said William Jackson, chief emerging markets economist at the consultancy Capital Economics. He said the inflationary effects of the last such cycle had been muted by the unwinding of the energy and fertiliser shock that followed Russia’s full-scale invasion of Ukraine in 2022, but the backdrop this year was “very unfavourable”.
India’s economy is especially vulnerable to any failure of the monsoon, which is vital for agriculture. The Reserve Bank of India said earlier this year that the likelihood of El Niño conditions would “warrant continuous vigil”. Peru’s central bank has also warned of risks to the country’s fisheries and farmers.
Andres Abadia, chief Latin America economist at the consultancy Pantheon Macroeconomics, also said Colombia’s reliance on hydroelectric power left it particularly exposed to lower rainfall. But changes in weather patterns could benefit some countries while hitting others, he noted. Argentina is among those that could have higher crop yields.
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Overall, however, El Niño is likely to drive higher global food inflation. Analysis by the European Central Bank in 2023 suggested that a strong El Niño would raise global food commodity prices for up to two years, with a 9 per cent peak in prices after 16 months and effects lingering for two years.
This would raise consumer price inflation most in developing and emerging economies, where food accounts for a bigger share of household spending.
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But Robert Marks, lead climate economist at the consultancy Oxford Economics, said a severe food price shock, in which global food prices climbed more than 20 per cent, would hit the Eurozone hardest among G7 economies, adding 0.3 to 0.6 percentage points to headline inflation within a quarter.
As extreme weather and other supply-related shocks become more frequent, it becomes harder for policymakers to treat them as one-off events whose effects will dissipate swiftly.
“Even though this is a transitory shock, back-to-back transitory shocks may not be very comfortable for central bankers,” said James Pomeroy, global economist at HSBC, adding: “This may add to some pressure to tighten or keep rates high — even if that won’t tackle the underlying inflation cause.”
