Key Takeaways:
A super El Niño with 82% probability of forming by July threatens to devastate crops across Asia, compounding inflation pressures from Middle East energy disruptions.
The 82% probability of a super El Niño forming by July threatens to devastate agricultural output from India to Indonesia, worsening food inflation across Asia as Middle East tensions already strain energy and fertilizer supply chains.
"Temperatures are breaking critical thresholds, impacting not just perishable vegetables but grains, pulses, oilseeds, and even animal protein supplies," Prasenjit Bhandari, India economist at HSBC, said.
The NOAA Climate Prediction Center estimates a 57% chance the phenomenon reaches strong or very strong intensity by September. The Philippines recorded 57.78 billion pesos ($1.05 billion) in agricultural losses during the 2023-2024 El Niño, the highest in recent history. The last comparable event in 2015 saw palm oil yields in Indonesia and Malaysia — which account for roughly 85% of global supply — fall 5% to 10%, pushing crude palm oil prices to multi-year highs.
The convergence of El Niño-driven crop stress and elevated energy costs from Middle East supply risks creates a stagflationary scenario for Asian economies, potentially forcing central banks from Jakarta to New Delhi to maintain elevated interest rates even as growth slows.
Indonesia, Malaysia and Philippines Face Worst Exposure
The impact is expected to be most severe in Southeast Asia, where drought and heat typically compound during El Niño events, according to Nikkei Asia. Malaysia's Natural Resources and Environmental Sustainability Minister Arthur Joseph Kurup said the government is preparing demand management measures and water quota systems. Indonesia's Forestry Minister Raja Juli Antoni said authorities are monitoring groundwater levels and will deploy cloud seeding if levels fall below warning thresholds. Philippines Agriculture Secretary Laurel said the department has rolled out cloud seeding, solar-powered irrigation systems, adjusted planting calendars and crop diversification programs to stabilize farmer incomes.
India Braces for Heat Wave and Crop Damage
India's Meteorological Department warned in its May forecast update that June heat wave probabilities have increased, potentially affecting public health, water supplies and power consumption. Bhandari noted the impact now extends beyond vegetables to staples including grains, pulses and oilseeds, with egg and meat supplies also disrupted. Warmer sea temperatures threaten fish stocks as key species die or migrate from traditional fishing grounds, compounding hardship for fishermen already struggling with elevated fuel costs. India's agriculture research institute said more farmers have adopted pipeline water supply and heat-resistant crop varieties to mitigate risks.
Market Implications
For investors, the key risk is food-driven inflation forcing Asian central banks to maintain hawkish stances. Indonesia's BI, India's RBI and the Philippines' BSP all face pressure to hold rates elevated even as developed-market peers begin cutting. Agricultural commodity futures — palm oil, rice, wheat and sugar — are likely to see upward pressure. Asian currencies including the Indonesian rupiah, Indian rupee, Philippine peso and Malaysian ringgit may weaken as trade balances deteriorate from higher food import bills. The last comparable El Niño in 2015 contributed to a 12% jump in global rice prices during the second half of that year, according to FAO data. Fortune magazine noted the El Niño's timing coincides with global economic challenges including energy shortages, fertilizer supply constraints and persistent inflation, amplifying the risk of a prolonged cost-of-living crisis across developing Asia.
This article is for informational purposes only and does not constitute investment advice.
